Metal Scrap Import Duty Spells Chaos for the Indian Casting Industry

MetalMiner welcomes guest contributor Suriya Anjumohan, a Senior Research Analyst with Beroe Inc., specializing in metal castings, forgings & stampings. Suriya has worked has worked with many automotive, steel and medical devices clients at Beroe in forming sourcing strategies and providing recommendations. More about Beroe Inc. below.

The Indian casting industry contributes about 10% of global castings production and is highly consolidated with small and medium-scale foundries. Metal casters predominantly depend on scrap for higher yield and reduced energy consumption.

India lacks the availability of sufficient domestic metal scrap to meet the demands and quality requirements; hence it depends on metal scrap imports from developed nations. To support the domestic sponge iron manufacturers, the government of India levied a 2.5% import duty on metal scrap, which is expected to deter the import of scrap and adversely impact the domestic casting industry.

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Along with Indian rupee depreciation, it depicts the import of metal scrap as a spendthrift for castings production among the metal casters.

The import of metal scrap decreased by as much as 30% in July 2013 as compared to the previous month. For the past two years, domestic metal casters have had to import scrap due to regional bans on mining as well as lump shortages.

The resumption of pellet plant operations, coupled with increased supply of iron ore fines, is expected to further contribute to the decline of scrap imports in years to come, which might hit the domestic casting industry with a loss of around US$ 1.95 billion in foundry exports – mainly to competing nations such as China, Thailand, Taiwan, etc.

At present, with the levy on metal scrap import duty, the total landed cost of imported scrap has increased by 10%, despite the international scrap price declining by 5%. Such elevated feedstock cost to the Indian casting industry affects the end product cost and causes metal casters to squeeze their margins.

The availability of metal scrap in developed nations is abundant and the quality level of the end product is also higher than domestic metal scrap. It also gives the Indian casting industry an advantage on less environmental damage by having reduced emissions and reduced usage of resources for scrap processing.

So should Indian metal casting companies import scrap? Continued in Part Two.

FREE Download: The Monthly MMI® Report – covering the Steel/Iron Ore markets.

A note about the contributor: Beroe is the premier global provider of customized procurement services specializing in sourcing, supply chain visibility, financial risk analysis and environmental impact to Fortune 500 organizations. With nearly 400 dedicated procurement specialists in 38 domains, across 9 industries, Beroe proactively invests in knowledge assets to build valuable, real-time procurement insight.