Scrapping for the greater good

India’s end-of-life vehicle (ELV) scrappage policy was introduced in April 2022, with implementation gaining momentum this year amid government stimulus and incentives in its Union Budget 2023.

The policy aims to phase out vehicles older than 15 years to expedite the green energy transition in the automotive sector. To give further impetus to its implementation, Nitin Gadkari, India’s union minister for road transport and highways, announced plans in January to scrap 900,000 vehicles owned by the central and state governments, transport corporations and public sector undertakings starting in April.

The policy gives an opportunity for aluminum and steel recyclers in the Indian scrap market to reduce dependence on imports. Just how dependent this sector is on shipments from abroad is reflected in the country’s aluminum scrap import figure, which increased 6 percent in 2022 to 1.75 million metric tons from 1.64 million metric tons annually.

Moreover, if one end of this material’s application includes making secondary aluminum alloys used in motor vehicle components, the other end consists of ELVs that provide substantial aluminum scrap. In a nutshell, a country that has a robust vehicle scrappage policy can secure its supply chain.

To put things into perspective, a scrapped ELV yields about 65 percent to 70 percent steel scrap. It also generates 7 percent to 8 percent aluminum scrap, especially old cast, or tense, that also is known as purja in India. Scrapped vehicles also yield extrusions and other forms of scrap found in other auto components. Globally, an average of 145 kilograms of aluminum are used in a car body, and about 90 percent of the aluminum used in a car can be recovered. Given the higher value of the metal, the 7 percent to 8 percent of aluminum retrieved from a car accounts for 50 percent of a vehicle’s scrap value.

The Indian government will provide a 25 percent concession on road tax for vehicles that are purchased through scrapping old vehicles. A scrapping facility within 150 kilometers of each city center is expected to be instrumental in driving the metal recycling business in India.

Carmakers in the driver’s seat

These numbers are enough for Indian carmakers to contemplate their own vehicle scrapping yards.

In February, Tata Motors commissioned its first Registered Vehicle Scrapping Facility (RVSF) in Jaipur, Rajasthan—the company’s first—and plans to launch 11 more such facilities across India. Speaking at the yard’s inauguration, Gadkari stressed the need for more vehicle scrappage units to reduce the reliance on imports. About 50 to 60 such facilities will generate enough scrap for import substitution, he added, as India seeks to become a hub for vehicle scrappage in the South Asia region.

Indian secondary alloy manufacturers and aluminum recyclers view the planned RVSFs as a win-win for carmakers and recyclers as the entire supply chain is likely to benefit from their implementation. Scrapping old cars will boost auto sales, which in turn will increase economic activity and drive demand for all metals, including aluminum.

Moreover, the ELV scrappage policy will increase scrap generation in the long term and cut down on the dependence on imports from the U.K., U.S. and Middle East. However, considering the higher volume of aluminum scrap consumption in India, some recyclers say a fair amount of import substitution will take time.

Alloy manufacturers in the micro, small and medium enterprises, or MSME, sector also might not benefit significantly from the scrappage policy as the scrap generated mostly will be supplied in bulk to licensed large manufacturers. These licensed manufacturers, which operate their own scrappage yards are likely to create a more organized recycling sector in the country.

From the consumption perspective, a rise in automobile production will support aluminum consumption substantially. The growing focus on lowering the weight of cars to aid in the shift toward electric vehicles (EVs) will be a significant demand driver in the production of new units.

Many also consider the policy a steppingstone toward a circular economy. The industry will get better with increased access to raw materials, which is likely to bring some relief in pricing when compared with imported scrap. The policy is expected to bring self-reliance to the auto scrap sector as well as provide a boost to the Make in India campaign.

India currently operates 24 vehicle scrappage facilities, according to the Ministry of Road Transport & Highways. Steel remains the key material in automotive scrap in terms of volume, the material being the most crucial component for automobile manufacturers.

Benefits for Indian aluminum makers

Hindalco is looking to set up a recycling unit and a segregator for aluminum and copper in Gujarat as it plans to increase the proportion of recycled products produced by its U.S. subsidiary, Novelis. The move comes as the company is confident that the ELV scrappage policy will be a solid motivator for car owners to scrap their vehicles at the end of their life cycles in lieu of around 4 percent to 6 percent of the ex-showroom price for new cars. This process, therefore, will generate a healthy volume of scrap.

Additionally, aluminum makers are seeing a growing market for recycled aluminum, which mostly will be consumed within the country. India is a net exporter of primary aluminum and ships more than 60 percent of the primary aluminum produced in the country overseas. Domestic consumption, therefore, always has relied on recycled metal.

More scrap, higher consumption

Indian railways also have seen a dramatic increase in the use of aluminum recently as the sector moves toward faster trains, which have partly resulted in lightweight rail cars.

However, the country’s automotive sector has some catching up to do. India’s carmakers use about 80 kilograms (176 pounds) of aluminum per vehicle compared with a global average of 145 kilograms (about 320 pounds). EV penetration is expected to increase aluminum demand from original equipment manufacturers in the medium term. This means higher consumption of primary and secondary aluminum in future cars as a thrust toward aluminum recycling will save energy costs and CO2 emissions.

Overall, the industry remains optimistic about the implementation of the scrappage policy. Besides lowering scrap metal costs, the policy could be a game changer for India’s secondary metal sector, including aluminum.

Beethika Biswas is editor, Asia, and an aluminum analyst for Europe at Davis Index and can be reached at beethika.biswas@davisindex.com. Shilpika Bajpai is aluminum and copper analyst, Asia, at Davis Index and can be reached at shilpika.bajpai@davisindex.com.