Refined interests

The urbanization and massive infrastructure spending in China have been the predominant factors in global metals markets, including scrap markets, throughout the 21st century.

Although China’s metals sector remains the world’s powerhouse, the year 2015 may see India eclipse China in gross domestic product (GDP) growth, a reflection of India’s emergence as a market driver in its own right.

Overseas scrap trade with India does not always go smoothly, as a sudden change in customs inspection procedures in the first half of 2015 helped to demonstrate.

However, for red metal scrap recyclers and traders positioned along advantageous freight routes and with knowledge of the Indian market, increased commerce with India may well be in the cards.

MIXED FUNDAMENTALS

India’s ability to urbanize or to build large infrastructure projects as rapidly as China has is regarded widely as unlikely, with its political system and its culture differing starkly from its neighbor to the north.

GDP and industrial growth, however, is occurring in India, as is its demand for copper. Furthermore, its ability to mine its own copper ore is limited, making scrap-based secondary production an important option.

A report on CapitalMarket.com says India’s “domestic production of concentrate accounts for only 4 percent of [its] total domestic requirement. India has very limited known reserves of copper ore exploitable for copper production.”

While this situation lends itself to a secondary copper sector that should thrive, the report’s author says India’s tax situation provides considerable disincentives.

An import duty on copper scrap, currently at 2.5 percent, puts India at a disadvantage when competing for scrap on the global market against China, where there is no such tariff.

Other taxes within India also create a “black market” aspect to the secondary metals industry, the report’s author says. “In India, the secondary producers of copper can be divided into two categories: an organized sector and unorganized sector. The unorganized sector procures copper scrap from kabaris [scavengers] and mostly conducts their business without paying any taxes. The organized sector [thus] find[s] itself in a disadvantageous position.”

Nonetheless, India’s secondary metals producers remain hungry for scrap, as the Metals Recycling Association of India (MRAI) notes. The MRAI says India imported 0.95 million metric tons of nonferrous scrap in its 2013-2014 fiscal year, a figure that grew to 1.1 million metric tons in 2014-15, representing a 15 percent increase in just one year.

“Millions of metric tons of nonferrous scrap are recovered annually and used by smelters, refiners, ingot makers, foundries and other manufacturers,” the MRAI says on its website, www.mrai.org.in. MRAI estimates that 30 percent of India’s copper is made from melted red metal scrap.

Despite the considerable appetite, metals recycling rates within India are among the lowest in the world, sometimes estimated in the 25 percent to 30 percent range for steel, aluminium and even copper. The domestic industry largely remains the province of the kabari scavengers, with few capital-intensive, large-scale scrap operators at work within India.

This presents an opportunity to traders who wish to sell into the Indian market.

ON THE DOORSTEP

Positioned a short ship’s voyage across the Arabian Sea, the Middle East nations of the Gulf Cooperation Council (GCC) possess a scrap surplus and a favorable freight situation with the Indian subcontinent.

The construction and infrastructure projects of Saudi Arabia, the United Arab Emirates, Kuwait, Bahrain and the other GCC nations have provided a steady source of scrap to help overcome India’s raw materials deficit.

“Demand from India for red metals has always been a driving force for the Middle East scrap market, especially for high-grade copper,” says Riz Shaban, general manager of Dubai-based Lucky Recycling Ltd.

G. Thiyaga Rajan, general manager of operations at Bahrain-based Crown Industries, says proximity is a key advantage for GCC nations. “A vessel [leaving a GCC port] reaches the Nhava Sheva or Mundra ports in India quickly, within seven days,” he comments. “Therefore, the delivery of the goods is faster than from other parts of the world.”

Those vessels often ship food, commodities or manufactured goods from India to the GCC region, meaning shippers are seeking a backhaul for the return trip. Thus, Rajan says, “Another benefit [for GCC recyclers] is cheaper ocean freight. The ocean freight from Dubai to India is zero in most cases.”

The proximity and favorable freight rates in 2015 have resulted in a continuation of the established GCC-to-India nonferrous scrap trading pattern.

Rajan portrays Indian demand for red metal scrap as stemming from two major sectors: the industrial sector (wiring, pipe, etc.) and copper and brass household ornamentation. “Historically and culturally, copper and brassware can be seen in nearly all houses in India,” he comments. “For every seasonal festival, citizens buy copper and brassware for their houses all over India. This is a huge consumption [factor] apart from the industrial sector.”

The ornamental sector remains in a steady state, Rajan says, and the industrial red metals sector is poised to gain momentum. “The [Modi] government in India has introduced the ‘Make in India’ scheme, inviting global investors” to invest in manufacturing capacity, he says.

The new projects “shall create huge demand in copper and brass raw material imports in India,” Rajan says. “The Planning Commission recommends the Finance Ministry of India to waive the import duty to zero from the existing 2.5 percent to boost the copper industry,” he comments. “These are favorable factors in India to justify growing demand in India for red metals.”

Rajan and Shaban report demand in 2015 for various red metal scrap grades. “We export mostly heavy copper grades, such as berry, candy, bus bar and overhead wires,” Rajan says. “Also we export honey brass, ebony and ocean. These are the popular ISRI (Institute of Scrap Recycling Industries, Washington) red metal grades we ship from the Kingdom of Bahrain.”

“We supply only high-grade copper and brass scrap to all kinds of industries but mainly to smelters with a guaranteed copper percentage in our lot,” Shaban says in characterizing Lucky Recycling’s trade across the Arabian Sea to India. “Our buyers make semifinished goods, like pipes, plates, sheets and goods for the sanitary and household markets,” he adds.

While the market is exhibiting fundamentals favorable to increased red metal scrap exporting to India, the nation’s multiministry government sometimes can adhere to policies that keep momentum in check (such as scrap import duties) or abruptly can enact a disruptive new policy.

SAFETY FIRST

During the first half of 2015, secondary metals producers in India and their overseas scrap suppliers had to adjust rapidly to a new container inspection regimen announced suddenly (and also revised later) by the country’s Directorate General of Foreign Trade (DGFT).

The DGFT solely was not responsible for the creation of the new policy, with several government ministries reportedly involved in advocating for the changes on the grounds of workforce safety.

Concerns about live ammunition and radioactive materials, in particular, spurred government agencies to call for a more thorough inspection routine that would demonstrate the government was taking these threats seriously.

A DGFT revised policy revealed in a 10-page document released in late May was deemed by recyclers as more practical than the initial regimen but nonetheless entailed time and resources spent by overseas shippers and secondary metals producers in India. Shippers were urged to obtain preshipment inspection certification (PSIC) status with the Indian government.

“The new regulation created problems in our cycle time and ultimately resulted in higher cycle times. This is a problem for us as we don’t use bank financing. In any case, we have tried to adopt the new system, but it hasn’t worked out well for all recyclers, and we are not happy with it.” – Riz Shaban, Lucky Recycling Ltd.

“The new regulation created problems in our cycle time and ultimately resulted in higher cycle times,” says Shaban. “This is a problem for us as we don’t use bank financing. In any case, we have tried to adopt the new system, but it hasn’t worked out well for all recyclers, and we are not happy with it,” he states.

“The new inspection requirement, PSIC, from the DGFT [entailed a] temporary and startup problem in the beginning to all the exporters in the GCC,” Rajan says. “Later, upon understanding it properly, we adopted the new system, and it works smoothly,” he adds.

Rajan’s conclusion is that the pain was manageable but necessary. “Since the growing Indian market is significant to GCC exporters, [we] are willing to comply with the changes in the PSIC requirement,” he states. Rajan adds, however, that “the cost of PSIC [compliance] increased due to the new requirement, which is a drawback to the GCC exporters.”

Stability in the regulatory environment only can help to boost the growing importance of India within the global recycling industry, where scrap processors and traders are always keen to ship materials where they are wanted.

The author is editor of Recycling Today and can be contacted at btaylor@gie.net. This story originally appeared in the November/December 2015 issue of Recycling Today Global Edition.