This is part 2 of a 2-part series on scrap recycling in India, check out part 1 if you missed it yesterday.

The overall Indian recycling rate is about 25%. Compare this to the US – which is a net exporter of scrap with recycling rates of 80 – 90% and Europe, which has recycling rates in excess of 70%.

India’s annual scrap consumption is about 21 million metric tons while its imports are about 7 mmt a year, making it the world’s third-largest importer of scrap. A Frost & Sullivan report claimed India’s metal recycling industry had the potential to grow 11.4% per year until 2020 – but that comes with a big rider. Growth can only happen once the import duty and other free trade hurdles have been removed.

Free Sample Report: Our Monthly Metal Buying Outlook

India, incidentally, is perhaps the only country in the world to impose an import tax on steel scrap. This happened 2 years ago. The Metal Recycling Association of India has been on the forefront of a campaign to get the import tax stricken, with the current political administration even agreeing to look at the demand favorably.

So, while semi-finished products can be imported duty-free into the country, there is a 5% import duty on steel scrap, thus impacting the profitability of recyclers.

But the story on aluminum scrap is the exact opposite. India’s aluminum demand has been growing at an annual rate of about 11%, compared to a global growth of 6%. Part of the growth is fueled by imports including of aluminum scrap, especially from China.

Free Download: Latest Metal Price Trends in the MMI Report

Indian Commerce Minister Nirmala Sitharaman recently told parliament that the government was considering a request for doubling the duty on aluminum imports to 10%, following representations that imports of aluminum scrap, especially from China, and the metal’s decreasing global prices were adversely impacting the industry in India.

What India Must Do to Increase Scrap Recycling

Essentially, for the Indian recycling sector to get an impetus and turn into a net earner, analysts including Frost & Sullivan, recommended the Indian Government initiate the following:

  • Removal of  the basic scrap import duty
  • Offer Special Economic Zones, the benefits of which will enable industry status for the metal recycling sector
  • Subsidize lending rates which will add more financial muscle in this sector

India’s aluminum producers are struggling, in spite of being credited with some very competitively priced smelter capacity and having recently invested in new technology.

Free Sample Report: Our Monthly Metal Buying Outlook

Indian aluminum mills, unlike the steel industry that is sheltered behind import tariffs and a dominance of domestic producers, the aluminum industry is not so protected, leaving the producers with little pricing power in the face of intense competition from China and West Asian semi-finished product producers. Steel imports account for only 12% of the domestic market, yet for aluminum a massive 56% is met by imports as they surged from the 40% level just a few years ago. Read more

Possibly, if you listen to Indian politicians and senior business leaders. In a recent FT article Arun Jaitley, India’s finance minister, said in an interview with the BBC: “An economy which can grow at 8 to 9% like India certainly has viable shoulders to provide support to the global economy.”

Free Sample Report: Our Monthly Metal Buying Outlook

Officially, Chinese economic growth will be 7% this year, but with industrial growth weak and consumer demand held back by stock market falls, it could quickly head towards 5% or below in the second half. India, meanwhile, is expected to expand at 7.7% according to the country’s official measure. A separate Financial Times article reported that New Delhi comments that India’s economy in the June quarter grew 7%, year-on-year, exactly the same as in China.

Low Oil Prices Advantageous to India

That, the article suggested, means that India is overtaking China in terms of growth and is poised to become the world’s fastest expanding large economy. Certainly it’s true that as the world’s third-largest oil importer India has benefited from the collapse in oil prices, both in terms of improving its balance of payments and reducing inflation.

Nor is India a big exporter of manufactured goods, not normally an advantage except in times of weak global demand when the greater reliance of the economy on internal consumption insulates it from weak external demand. 57% Of Indian’s GDP comes from household consumption.

Comparison of GDP growth China vs India Source FT

Comparison of GDP growth, China vs India. Source: FT

However, before we get too drawn in by the hype both articles also point out the headwinds Narendra Modi’s India faces. His government has failed to implement much-needed economic reforms, in spite of hope when he came to power that he would sweep away the creaking political machine that has held India back for so many decades. Read more

It’s been a wait of about 3 years but Vedanta’s iron ore operation in the Indian province of Goa is finally set to resume exports, mainly to China. After the monsoon ends, other miners, too, are all set to restart mining.

Free Download: Latest Metal Price Trends in the MMI Report

Representatives of steel manufacturing mills from China’s Jiangsu province and Tangshan area recently visited Goa to discuss the modalities with officials of Sesa Iron Ore, a subsidiary of Vedanta.  Sesa Iron Ore announced the resumption of iron ore extraction at its mine in Codli, 80 kilometers south of Panaji, Goa’s Capital, and once Asia’s biggest iron ore mining site.

Resumption of Ore Extraction

The current environment clearance limit for the mine is around 3 million metric tons a year, scaled down from earlier limit of 7 million metric tons. Before the mining halt, China was the biggest market for Goa’s iron ore. The extraction activity in Goa was stopped after the state government suspended mining leases due to illegal activities. Later, the Supreme Court of India banned it until April 2014. Recently, the Goa government renewed many of the leases, paving the way for resumption of iron ore extraction.

While the Chinese may be back, in Goa at least, and with more capacity added to the overall iron ore stock, the larger question being debated by iron ore analysts and mining companies in India and around the world is – will there be a revival in Chinese demand for ore? Are they back?

What About the Majors?

Mining major Rio Tinto, for example, recently reiterated its claim that Chinese steel production would reach 1 billion tons, soon, and also forecast renewed demand for iron ore and steel from other emerging markets in the next 15 years.

Rio may still have faith in the China growth story but competitors such as BHP Billiton and Fortescue Metals Group think otherwise. A few days ago, BHP said it had lowered its expectations of Chinese steel production.

Like Vedanta’s Goa mines, a few others around the world are preparing to add to the ore supply. India’s Essar Steel, for example, is hurrying up construction in Hibbing, Minn., of a $1.9 billion mining and processing facility.

But what effect will the increase in ore supply have on the already spiraling iron ore prices, globally?

Earlier this year, iron ore prices fell to historic lows. Overall, ore prices have plummeted around 70% since hitting a peak in 2013, hurting big exporters such as Australia. A majority of analysts are of the view that the iron ore mining sector is unlikely to recover anytime soon, especially since the Chinese economy shows no major signs of recovery.

Free Sample Report: Our Monthly Metal Buying Outlook

There’s been a brief rally in iron ore prices sending hopes soaring in some quarters. In the last days of August, Standard & Poor’s revised upward its price “assumption” for the year to $50 from the earlier forecast of US $45 per mt, but added that the imbalance in supply and demand would remain for another two years. Others expect prices to slide later this year and the next, and probably it would stabilize at $50 a year.

India has lost a case against the US at the World Trade Organization over protection for local crystalline silicon and thin-film solar cells.

Free Sample Report: Our Monthly Metal Buying Outlook

The WTO ruled that India’s domestic content requirements under its new solar power program were inconsistent with international agreements. Indian officials have said they will appeal the ruling to the WTO’s dispute panel in the next two months.

Solar Panel array

Photovoltaic solar array, the kind US manufacturers would love to send to India.

The US alleged that India’s ambitious solar program discriminates against US crystalline silicon photovoltaic and thin-film solar panel manufacturers by requiring Indian producers to use locally manufactured silicon or thin-film cells and by offering subsidies to those developers who use domestic equipment. Read more

Normally, when a project of this size is called off, it sends ripples throughout the entire steel sector, and even negatively affects the stock market.

Free Download: July Metal Price Forecast

Yet, when a few days ago, South Korean steelmaker POSCO let it be known that it had decided to put its much-vexed $12 billion project to build a steel plant in India’s iron ore-rich state Odisha on hold, the reaction in India as well as globally was muted. Almost as if it was anticipated.

Regulatory and Approval Delays

The subdued response can best be attributed to the extraordinary delay – a decade – in trying to get the project off the ground. Holdups in receiving permissions for land use and environmental clearances from the local and Indian governments, long legal battles, protests against the project by residents, red tapism, even the kidnapping of company executives in 2007 for a day by protesting activists, all ensured that the project remained a paper tiger all this while. It’s been a veritable ten years of legal and public relations battles for the former Pohang Iron and Steel Company.

Read more

This is part two of an analysis of how China’s recent stock market crash affects neighboring India.

The Indian arm of global credit rating agency Fitch said with soft demand in China, base metal prices had gone down in the range of 2-21% in the first six months of 2015.

Free Download: Latest Metal Price Trends in the July MMI Report

On a year-to-date basis, Chinese domestic hot-rolled coil steel prices declined by 21%. London Metal Exchange nickel prices are down by about 12%, LME copper prices by 9% and China alumina prices by about 10%. In the last one month, iron ore prices dropped by 20%, Shanghai steel prices by 16.4%, and zinc prices by 7%.

What’s This Mean for Steel?

In reference to India’s steel sector, rating agency Ind-Ra pointed out that Indian manufacturers were already struggling with low capacity utilization, and lukewarm domestic demand was unlikely to benefit the margins of manufacturing units in the short term.

So was there any silver lining at all for India where the Chinese downturn is concerned? Depends who you listen to or talk to. Here’s what a report in the Business Standard claimed — the economic downturn would be good for smart cities. The rationale — copper is trading at a 6-year-low and China is the world’s top copper consumer, accounting for 40% of global consumption.

How About Aluminum?

Similarly, aluminum is trading at new lows and was already trading at prices below cost of production of many Chinese companies. For India, as a consumer, this is good news as the cost of constructing new infrastructure, especially smart cities, would reduce.

And that extends to a lower price for a technology innovation dear to almost everyone in the world, according to the report. Mobile phones will be cheaper, it predicted. If the Chinese really devalued their currency, world markets will be flooded with Chinese goods at low prices affecting exports of other countries, including India.

As for the rest, such as automobile manufacturers, it could possibly get only worse in the coming days.

Free Download: July Metal Price Forecast

The author, Sohrab Darabshaw, contributes an Indian perspective on industrial metals markets to MetalMiner.

Old Chinese proverb: when a giant in a race with another falters, the other, without a doubt, wins.

Free Download: July Metal Price Forecast

Actually, I made that up. Ignore it. Still, when China’s economy started showing signs of a meltdown, some in India “predicted,” in a knee jerk reaction, that it was a “welcome development” for neighbor India.

No need to reiterate here how the two nations, with the largest populations and the largest economic growth rates, were in competition with each other in almost every sector.

A few days later, after the fog cleared, warning bells were rung by analysts and ratings agencies that if China was to lose the race, it would be tough for India, too. Even a tiny spill, such as the one China’s stock market felt last week, was bad enough. There would really be no winners in the race.

China’s economic troubles could have a significant impact on India, particularly in sectors like IT and steel, according to India’s trade and industry body, The Associated Chambers of Commerce and Industry of India (Assocham).

The adverse economic developments may have a directionally negative impact on the Indian metals industry as well as on sectors with an export focus, claimed another agency, India Ratings and Research (Ind-Ra) in a statement.

News reports, quoting metal analysts, claimed that while it was true that a drop in commodity prices linked to China’s slow demand was a positive for India, it was not really “good news” for a host of metal and iron ore producers such as Steel Authority of India, Tata Steel, and upstream oil producers.

The fall in ore, steel and copper prices hit Indian manufacturers as hard as any other company in the world, so what’s there to cheer about?

A paper prepared by Assocham said that in today’s global economy, where India’s economy — like any other — is plugged into the rest of the world’s, the China downturn was bound to impact India. China, incidentally, was the number one merchandise trader in the world with over $4.16 trillion worth of trade, followed by the US with $3.9 trillion, as claimed by Assocham.

But the more pertinent point made by Assocham was that the kind of cost competitiveness which the Chinese companies provided to manufacturing semi-process industries — such as electronics, electrical and telecom equipment — would disappear from the global supply chain. This is without even mentioning the inability of India to fill any of those spaces vacated by the Chinese companies.

Another news report quoted Hitesh M. Avachat, Deputy Manager at CARE Ratings, as saying that China accounted for more than 30% of the overall consumption of metals globally. For Indian metal producers, the price collapse meant their landed price in India would go down further, thereby pressuring companies to reduce prices. Because of the likely Chinese dump of its surplus goods, India’s export demand may also fall, he added.

Jayant Acharya, Director, Commercial and Marketing, JSW Steel Ltd., quoted in the same report, said if prices kept falling, margins would get impacted.

The Indian arm of global credit rating agency Fitch said with soft demand in China, base metals prices had gone down in the range of 2-21% in the first six months of 2015. On a year-to-date basis, Chinese domestic hot-rolled coiled steel prices had declined by 21%, London Metal Exchange nickel prices by about 12%, LME copper metal prices by 9% and China alumina prices by about 10%. In the last month, alone, iron ore prices dropped by 20%, Shanghai steel prices by 16.4%, and zinc prices by 7%.

Free Download: Latest Metal Price Trends in the July MMI Report

The author, Sohrab Darabshaw, contributes an Indian perspective on industrial metals markets to MetalMiner.

The Reserve Bank of India‘s 5/25 plan allows banks to extend loan repayment periods up to 25 years, with an option of refinancing the loan every five years.

Free Download: July Metal Price Forecast

India’s most indebted steel company Tata Steel Ltd., according to a Business Standard news report, also announced plans to sell its long products division in Europe, but it had not been able to close that deal because international steel prices had weakened, reducing the unit’s valuation. The company had initiated talks with lenders to reduce its interest cost by 0.9 percentage points on a $1.5 billion loan taken out last year. Tata Steel signed $1.5 billion term loan as part of a $3.1 billion refinancing plan last year.

In its financial stability report last week, the RBI warned that steel companies would not be able to service their debt as the infrastructure sector in India struggled with stalled/delayed projects.

Another report by Credit Suisse had estimated the total debt of stressed steel companies in India was about $31 billion, which was 75% of the banking system’s gross non-performing assets.

Many bankers and analysts have also pointed out that some steelmakers which had set up plants between 2008 and 2010, when land acquisition and material costs were high, had even bigger problems at hand.

At today’s price levels of $360 per ton of steel, most of their revenue was going to the servicing of their debt. Not many expected a spectacular rise in steel prices in the coming months. That coupled with the Greece and the looming Chinese stock market crisis meant that Indian steel companies were left with very few options. They had to either sell off some of their assets or infuse more cash, which means more borrowing.

Free Download: Last Chance for the June MMI Report

Steel and banking experts are of the view that if this situation is allowed to continue, India’s banking sector may end up with a crisis of its own. As such, borrowing could turn into bad debt. To avoid that, they suggested that the government, banking and steel sector leaders sit together and hammer out a solution to give both sectors a fresh start. The RBI’s 5/25 scheme was essentially just an offering of liquid cash to keep steelmakers afloat, It’s not a permanent solution.

The author, Sohrab Darabshaw, contributes an Indian perspective on industrial metals markets to MetalMiner.

The statistics on steel imports to India speak for themselves.

Steel imports went up 72% in the last fiscal year to 9.3 million metric tons, of which South Korea and Japan together sent 3.5 mmt. They’re still going up. In the first two months of this fiscal year, the situation got worse, with shipments from Japan at 111% and from South Korea 51%.

This September: SMU Steel Summit 2015

Fitch Ratings, for example, in a recent report, said it, too, did not expect the Indian government’s recent tariffs on the two free trade agreement partners to increase customs duties on steel imports would alleviate the pressure on Indian steel producers. The higher customs duties will likely result in only a marginal increase in the landed costs of imported steel products.


What Indian steel companies are hoping is that, just like in the US, the Indian government starts thinking of imposing anti-dumping and safeguard measures. Contrary to their expectations, the government is said to be actively toying with the idea of signing a free trade agreement with the Philippines. It also extended a previous deal to supply high-grade ore to Japan and Korea. Read more