Incredible India

Recent figures from India’s Economic Advisory Council indicate that industrial growth in the country slowed to 5.2 percent during the first quarter of 2008 from 10.3 percent in the first quarter of 2007. This slower economic growth is still far better than the figures the U.S. (at 0.6 percent) or Western Europe posted for the first quarter of 2008. India’s Economic Advisory Council says it expects the country’s economy to grow by roughly 8 percent this year.

In a recent report, the economic administration notes that base metal prices, a major contributor to WPI (wholesale price index) inflation throughout the past year, are expected to remain robust for the rest of this year and into next year.

This growth potential creates tremendous market opportunities for recyclers who are looking to expand their international trading partners.

India is home to major players in the base commodity business. ArcelorMittal, the largest steel company in the world, has its roots in India, though it is now based in Luxembourg. Also ranked among the world’s 10 largest steel producers is India-based Tata Steel, which has been on an acquisition spree throughout the past several years. Two other Indian companies, Steel Authority of India and Essar Steel Holdings, both rank among the 20 largest steel companies in the world, according to the International Iron and Steel Institute, based in Brussels.

Along with a large stake in the steel industry, Indian companies also have taken large positions in a number of other basic materials companies outside of India. These include Hindalco, which acquired Novelis, a large aluminum company based in the United States.

The most recent figures from the U.S. Commerce Department show that many of the recyclables that are commonly exported to India saw appreciable increases throughout the past several years. Figures show that ferrous scrap exports to India last year valued more than $336 million, a sharp jump from the previous year. In fact, figures for the first three months of 2008 reflect additional growth in ferrous scrap exports to India.

The increase in ferrous scrap shipments to the country is not an anomaly: Shipments of nonferrous scrap, recovered paper and plastics from the U.S. to India posted sharply higher figures last year relative to 2006. According to the U.S. Commerce Department, exports of these commodities during the first quarter of 2008 also are up relative to the first quarter of 2007.

The global boom in infrastructure and capital goods spending is unlikely to slow to such an extent within the next 18 months that it brings down base metal prices significantly. Instead, analysts predict stable base metal prices in fiscal year 2008-2009.

Several companies that are involved in shipments of recyclables to India agree that while China is the flashy end market for many recyclables, India plays a growing role as a steady consumer of material.

While many of China’s newer recovered-materials-consuming facilities are large, sophisticated operations, India’s mills are often more antiquated and produce less material by comparison. While Indian consumers may be buying decent volumes of material, the orders are coming from smaller buyers than those in China, which can be more challenging.

Indian consumers also often have less tolerance for lower grades of recovered fiber, for instance. However, an exporter notes that Indian buyers often pay more for higher quality material.

While China is a significant buyer of many bulk paper grades, such as old corrugated containers and mixed paper, India targets higher-end deinking grades as well as some newspaper.

Additionally, many Chinese facilities, notably paper mills, are able to inventory more material, which gives buyers the ability to move in to and out of the market. Conversely, Indian mills typically carry less inventory, resulting in more consistent buying.

Many recyclers would say developing reliable export consumers takes time and commitment, and India is no exception.

Ron Sherga, president of Sher-Results LLC, a Texas-based plastics recycling firm that has exported to India, notes that developing relationships to grow export business to India can be difficult. As a result, more Indian firms are looking to establish offices in North America or Europe to facilitate trading.

Another stumbling point can be the bureaucratic challenges in dealing with the Indian market. "Everything is done by committee," Sherga notes.

Sherga adds that while bureaucracy can be a challenge in India, the situation is easing, though slowly in many instances.

And, while it is improving, many exporters note that the Byzantine bureaucracy of the Indian government can make it quite daunting conducting business long distance.

Several exporters note the importance of having a physical presence or a good contact in the country.

Brick, N.J.-based Ekman Recycling’s Phil Epstein, an exporter of paper and plastics, says a company can benefit from having a physical presence in the country when trading with India. "You have to have a local representative there; someone to speak their language."

Harmon Associates, Jericho, N.Y., is among the companies that have recognized the need for a local presence in India. Recognizing the challenges unique to India, Harmon, in conjunction with Remizzo Inc., the company’s long-time sales consulting partner, established Harmon Associates India Private Ltd. The company provides logistics services throughout India, including inspecting containers at the port, verifying material quality and helping customers get containers to their final destinations.

During a recent presentation at Recycling Today’s Plastics Recycling Conference, Surendra Borad, president of Gemini Corp., a European-based plastics recycling firm that does a significant amount of business in India, touched on some of the challenges of shipping plastics to India. Mandatory import licenses are needed, and there are restrictions on the number of importers who can move material into the country, he said. However, unlike China, exporters do not need a license to ship material to the country. While the government does not require pre-inspection of shipments, inspections are required at the destination port.

The challenges of shipping to India become a bit murkier when moving material from Europe. Exporters of recyclables have to contend with a bevy of regulatory policies, including the Basel Convention as well as electrical and electronic waste regulations. Also, with the Basel Convention there is the question of the red list procedures, which means if a scrap material is listed on the red list, it is considered hazardous and is subject to a decision from the Organization for Economic Cooperation and Development.

Mike Kelso, with Newport CH International, a California-based exporter of recovered paper and scrap plastics, says getting the order and shipping material to India from the U.S. is far easier than it is to China. "There is no barrier to entry from the United States to India," Kelso notes. He says India does not have a system similar to China’s inspection system administered by China Certification and Inspection Co. Ltd.

While shipping to India is relatively easier than shipping to China, Kelso says the Indian government at times will attempt to crack down to prevent lower grades of material from being shipped into the country. The threat of being blacklisted from shipping to the country is on occasion exercised, which is meant to encourage better quality material flowing into the country.

While India’s middle class is growing, the country’s infrastructure still faces challenges. Several exporters note that the biggest challenge is not getting containers of material to the Indian port, but moving the cargo from these ports to inland consumers. "Freight is a big issue," says Kelso.

Roads may be the preferred method to transport the material from the pier to the final destination, but the poor quality of the roads delays the shipments.

However, looking forward, many of the exporters feel that the upside of trading with India is significant. While it is unlikely that the country’s growth will exceed that of China, developing and nurturing trade with India is a viable opportunity for many recyclers.

The author is senior and Internet editor for Recycling Today and can be contacted at dsandoval@gie.net.