A passage to India: India is a growing market for secondary commodities - International report

Recycling Today, March, 2003 by Deanne Toto

Beginning ill 1991, the Republic of India initiated a string of economic reforms that included tariff reductions, liberalization of foreign investment and exchange regimes, financial sector modernization and changes to monetary and fiscal policies. The cumulative effects of these policy changes have helped to make India a popular trade partner with the U.S.

According to the U.S. State Department, ferrous scrap and scrap metal arc among America's chief exports to India, as are aircraft and parts, advanced machinery, fertilizers and computer hardware. In fact, the U.S. Commerce Department, lists India, currently ranked as the United State's 26th largest trade partner, as one of its "10 Big Emerging Markets." While this information is certainly encouraging, insufficient infrastructure and burdensome bureaucratic procedures hamper India's growth.

However, India still represents an emerging market for scrap materials, as long as exporters keep certain guidelines in mind.

GROWTH PATTERN. "Right now, the markets are very strong. Prices have increased significantly in India and other South Asian countries," Sam Desai of R.M. Creation, a trading company based in New York, says. Currently, Desai says, secondary commodities can be exported to India and South Asia with sufficient margin.

Ashok Kumar of A-1 Specialized Services & Supplies Inc., Croydon, Pa., says that freight from the U.S. to India is "very low," making export opportunities attractive. Kumar adds, "In two or three years, India may be a very, very strong market."

Kumar in part credits the relaxation of custom duties for the increase in trade with India, "In a move aimed at facilitating imports into the country, customs will allow import consignments to go through on the basis of self-assessment under the Electronic Data Interchange (EDI) systems in the very near future," Kumar says. EDI allows the electronic transmission of orders, invoices and remittance information between businesses.

But he sees other factors influencing the flow of secondary commodities to India, such as European scrap markets with suppressed pricing, allowing broken representing Indian firms to acquire scrap metal and paper at a reasonable cost.

"The country, which is a late starter, has grown faster compared to other Asian countries. India has more potential than China in the coming five years," Kumar says of the country's hunger for imported scrap. "The Indian local consumer market is so big."

"India has been in a steady growth cycle for the last six or seven years," an industry source based in California reports. "It's not growing rapidly. They are taking a more natural approach to their business growth [as compared to China]. In other words, the paper mills are expanding and going from 10-ton-a-day to 50-ton-a-day mills, from 50 tons a day to 200 tons a day. In China, they went from 100-ton-a-day mills to 1,000-ton-a-day mills."

The California source explains that India is not structured to support one giant paper mill that will consume mass quantities of paper, in part because of the country's internal infrastructure problems. India has few roads, and those it does have are teeming with traffic. "Movement inside of India is very complicated and expensive," the Californian says.

"Most of what is happening is that the current plants are either expanding or adding capacity," he says. "They still need to have small mills to service each region. The internal [freight] rate in India is too expensive to ship from one side of the country to another. They can't put in one giant mill, basically."

Kumar says that India's stainless steel mills similarly appear to be upgrading existing plants rather then building new ones.

Regardless of end product, India relies heavily on imported scrap material to feed its steel mills, foundries and paper mills.

OFF THE DOCKS. Desai estimates that India imports a high percentage of the scrap material it requires, particularly in aluminum, copper and stainless steel.

"The U.S. has exported less in the last year as compared to other years because of its higher scrap prices compared to India," Desai says of stainless steel in particular. "But scrap trade between the U.S. and India is picking up again."

Kumar says that approximately 60,000 tons of the stainless steel scrap resulting from the terrorist attack on the World Trade Center has ended up in India for recycling into building materials, furniture and household utensils.

In addition to this scrap, many of the old ships bound for salvage and disposal are exported to the Indian subcontinent, he says.

"India regained its title as number one in the ship recycling industry after losing it to Bangladesh a few years ago," Kumar says. "Ship recycling has been showing signs of slowdown for the past few years. The slowdown has caused scrap metal prices to soar in the Indian market, which in turn has driven up Indian steel prices [two-fold]."

Kumar says he expects the Indian ship recycling industry to experience a jump in the coming years because of a law proposed by the European Union banning single-hulled tankers. "If passed, many of the single-hulled ships currently in service may be on their way to India for scrapping." He is concerned, however, that if the process isn't done in an environmentally sound way, Greenpeace and other organizations could interfere, stopping the market from growing as it could. He suggests safeguards must be taken to protect both the ship dismantlers and the environment.