Stifling growth

The Indian government is mulling restrictions on imports of aluminum, copper, zinc and lead scrap under the Bureau of Indian Standards (BIS). Aluminum scrap grades could be the first affected by these restrictions, with the All India Non Ferrous Metal Exim Association (ANMA) suggesting stringent standards following China’s 99 percent purity specifications under its National Sword Policy.

Considering scrap is collected from multiple sources, it could consist of at least 2 to 4 percent impurities, ANMA members state.

Although a final policy draft with specifications is yet to be announced, as of early December, the Indian government is in the process of releasing an initial draft following regular meetings with market participants.

However, ANMA, an association of aluminum recyclers in India, says the availability of aluminum scrap already is limited in the Indian market because of low consumption, making imports imperative. In its 2020-21 financial year (ending March 31, 2021), India’s aluminum consumption stood at slightly more than 5 million metric tons. Per capita consumption in India is 5.5 pounds (2.5 kilograms) compared with the world average of 24 pounds (11 kilograms) and nearly 53 pounds (24 kilograms) in China. The association suggests consumption in India needs to reach at least 16 million metric tons to come within range of the world average. 

Can India go the China or Malaysia way?

China’s import restrictions came after the country achieved self-sufficiency in generating aluminum scrap. After the restrictions came into effect, aluminum scrap was shipped to Malaysia or Hong Kong, where it was repackaged to clear the standards set by Chinese customs.

To keep unclean grades out of its country, Malaysia recently proposed a new rule on imports of metal scrap, allowing only high-grade materials into the country. These rules mandate a minimum metal content of 94.5 percent for the scrap to clear Customs. The implementation of these rules has been delayed from the initial date of Nov. 1, 2021, to a date in early 2022, granting additional time for the recycling industry to take the necessary steps to comply with the new specifications.

But industry associations in Malaysia say the proposal could be counterproductive to the country’s recycling sector because it could lose out on investment opportunities.

However, would a similar ban for the Indian market be successful considering tight domestic generation of scrap in this market?

Source: India Ministry of Commerce

China levied a nontariff trade barrier to promote its national recycling industry, considering its high per capita consumption. The largest aluminum manufacturer in the world meets 90 percent of its raw material requirement from its domestic recycling industry.

India, on the other hand, generates only around 10 percent of its yearly aluminum scrap requirement of 1.5 million metric tons given its low per capita consumption. Secondary manufacturers rely on scrap imports for the balance of this volume.

Therefore, it could take India at least 25 to 30 years to generate enough aluminum scrap to meet its production requirements. Should the Indian government levy nontariff barriers as China did, the secondary aluminum manufacturing sector in the country will be stifled. India will rely on imports of value-added products, which would benefit neither the primary producers nor secondary manufacturers. It would shut down the aluminum recycling industry, which mostly falls under the Ministry of Micro, Small & Medium Enterprises (MSME) sector, and render millions of people unemployed.

Restrictions such as these could force 5,000 processing units in the country to close, and cleaner material would raise the input costs for downstream producers. The Davis Index for 6063 extrusions settled at $2,405 per metric ton cfr (cost and freight) India port Nov. 26, 2021. But offers for cleaner extrusions with a lesser percentage of attachments were higher by $200 per metric ton as most processors find this material cost-effective to clean in India with the sufficient availability of labor.

Circular economy, the way forward

Mohan Agarwal, managing director of CMR Green Technologies (formerly Century Metal Recycling), Faridabad, India, states that scrap is not a manufactured product and setting purity standards for it is a futile exercise. At best, it can be graded, which the Institute of Scrap Recycling Industries (ISRI), Washington, already has done.

Moreover, recycled aluminum contributes to one-third of all aluminum produced globally. A similar trend is seen in India, and the country produced 1.3 million metric tons of recycled aluminum in 2018. Prices for recycled aluminum are lower compared with primary grades. For instance, the Davis Index for secondary ADC 12, an alloy used mostly in the auto industry, was at 198,500 rupees per metric ton ex-works Delhi producer and 197,833 rupees per metric ton ex-works Mumbai producer Nov. 29, 2021. Meanwhile, the Davis Index for primary ADC 12 was at 232,486 rupees per metric ton ex-works India producer on the same date.

The draft Non-Ferrous Scrap Recycling Policy has called aluminum an ideal material for the circular economy as it can be recycled repeatedly without losing its quality. Using recycled aluminum can reduce energy use by up to 95 percent and cut down CO2 emissions. Secondary aluminum produces 9 metric tons of CO2 emissions compared with 17 to 21 metric tons for primary aluminum. Almost all the aluminum produced is recycled, with minimal amounts entering landfills.

A case for new norms?

The Aluminium Association of India (AAI) in Bangalore, a body helmed by large-scale primary aluminum manufacturers in the country, however, has favored setting BIS standards for aluminum scrap.

The association seeks to increase tariffs on aluminum and aluminum scrap imports to 10 percent from 7.5 percent and 2.5 percent, respectively. AAI wants the Indian government to develop and nurture the ecosystem for the metal in the country before promoting a circular economy.

AAI says India has become a dumping ground for cheap aluminum scrap from the U.S. after China’s National Sword policy curbed imports of scrap in that East Asian country. For instance, between January and September 2021, India’s aluminum scrap imports rose by 471 percent to 297,486 metric tons from the same period in 2015. In that same time frame, the country’s total scrap imports rose by 46 percent to 1.29 million metric tons in 2020, according to India’s Ministry of Commerce.

The rise in imports can be tied to increased aluminum capacity utilization, which has grown from 56 percent in 2015 to 90 percent in 2019-2020, according to the Ministry of Mines. The Indian government projects it to further increase to 98 percent by 2025.

Against this backdrop, the Indian mining ministry suggests primary and secondary aluminum manufacturing cannot be regarded as competing processes since both are essential and integral parts of the aluminum material cycle.

Mayuri Phadnis is editor, Asia, at Davis Index and can be reached at mayuri.phadnis@davisindex.com.