Entry of organised players in India’s metals recycling space will streamline the currently unorganised scrap supply chain by making available quality processed scrap, enhance transparency and lower the dependency on imports and thus stall the drainage on precious foreign exchange. It will enhance the traceability and statutory compliances, says Yogesh Bedi, Chief, Steel Recycling Business, Tata Steel, India. Bedi is a steel industry veteran with over 30 years of experience. Of late he has been busy setting up the Steel Recycling Business for Tata Steel.

Q. In India, the supply logistics chain was impacted because of regional lockdown rules. To what extent did scrap inventory pile up at Indian ports?

At the peak of the lockdown, around 50,000 containers of imported scrap got accumulated at ports. Many vessels were also stalled on the high seas due to port congestion. Inland transport restrictions and no immediate demand were the key reasons for this pile-up at ports. There was also an expectation that the demurrage/detention charges at the ports would be waived.

The bookings were done at a higher price, 2-3 months previously. Since the demand and the prices had crashed, the furnaces did not see any immediate need to clear the material from the ports.

Q. During the lockdown and after it was eased, mills were operating at 55-65% capacity. What were they falling back on, in that case? Was it domestic scrap?

The secondary sector furnaces and mills relied both on sponge iron and local scrap. Globally, shortage of scrap on account of the lockdown in major exporting countries led to the price hike. Margin pressures on furnaces kept imported scrap unfavourable. Sponge iron was available in abundance as mining of iron ore and production of sponge iron continued through the lockdown period as this was allowed by the government.

As most scrap supplying units, such as the auto industry, construction and the demolition sector, fell under the non-essential category, there was a complete shutdown of these activities during the lockdown. Collection and aggregation of household scrap was also limited due to labour/peddler shortage and restriction on collection in major supply clusters. This led to an overall supply crunch during lockdown.

After partial easing of the lockdown, scrap availability improved to 30-35% of peak volumes. However, due to inter-state transport restrictions, furnaces had to rely heavily on local sources of scrap during this period.

Q. What do you feel about the new vehicle scrappage policy?

The vehicle scrappage policy is a welcome step and will have many benefits. It will:

Remove the old and polluting vehicles from the roads, thereby reducing emission and pollution.

Replace the old and polluting vehicles with those with better technology that will offer lower permissible emissions.

Boost automobile demand.

Scrappage of old vehicles will lead to creation of jobs.

Make available quality scrap for the secondary steel industry, so that they can make better and higher grades of steel.

Reduce imports of scrap which would mean less drain on forex.

The government is very well-versed with the benefits of the policy and we understand it is actively considering the rollout of the same.

Q. What enablers should the government provide to the players in the metals scrap value chain?

Some incentives that the government may think of providing to the authorised scrap processing/dismantling units to help nurture and grow are as follows:

Land for recycling zones: For scrap availability and to keep the logistics costs low, the scrap processing centres have to be in the city or near it. In view of exorbitant land cost in most cities, the government may provide/earmark recycling zones and provide land at cheaper rates.

Subsidies and taxes: The government should consider rationalising the tax structure for the industry. There should be nominal or no tax on obsolete scrap as it is tantamount to double taxation, as the initial product was already taxed. Being a nascent industry, subsidies and tax holidays may be required to ensure viability. Most of the machines are imported, so duties may be re-looked at to facilitate deployment of state-of-the-art machinery.

Power: Scrap processing equipment is power-intensive. The government may provide power and other utilities at preferential rates.

Carbon credits: The government should expedite the framework for recognising the industry’s sustainability efforts and rewarding it suitably.

Q. Globally, prices of ferrous and non-ferrous scrap had been declining unlike in India…

As a globally traded commodity, prices of ferrous scrap depend on multiple factors such as demand and prices of finished goods (FG), availability of substitutes like sponge, prices of iron ore etc. Uncertainty in FG demand due to the pandemic-induced lockdown was also a reason for volatility in global scrap prices.

In India, as the secondary steel mills started ramping up production, they were hit by a raw material scarcity. Scrap availability was low because of low generation and constrained logistics. Sponge iron was being exported in significant quantities, hence, its domestic availability was restricted. Because of this, both scrap and sponge iron prices were seen to be rising. As the supply chain related issues resolve and normalcy is restored, price trends across the globe are likely to get aligned.

Q. In the pre-pandemic era what was the demand supply scenario like for India and globally?

Prior to the disruption caused by the pandemic, India’s scrap demand hovered around 30-32 MnT. Out of this, approximately 25 MnT was available locally while the balance ~7 Mnt was being imported by the furnaces and mills.

Capacity utilisation of furnaces was ~80-85 % for both TMT and auto grade manufacturers.

Q. Going forward, what is the scrap pricing outlook like? It is expected that iron ore prices are likely to fall on higher scrap usage in China, the major consumer. How could that impact prices?

China is continuously increasing scrap-based steel production with proportionate reduction from primary steel-making routes. As the charge mix in China inclines further towards ferrous scrap in secondary steel production, the demand for scrap will rise, pushing the prices higher.

Other developing countries, particularly South Asian countries like India, Pakistan and Bangladesh are likely to follow suit, primarily due to sustainability considerations. India’s ferrous scrap demand is expected to grow at the rate of 7% and reach ~40MnT annually by 2025 from the current ~30MnT.

Q. India has a target of 300 MnT of crude steel production capacity by 2030. What role will scrap play in this?

Out of total target of 300 MnT of crude steel production, 35-40% is envisaged through the secondary steel sector where scrap is the primary raw material.

The primary sector is also considering plans to increase the scrap charge in BOFs due to sustainability reasons.

Hence, demand of scrap is expected to grow manifold. By a rough estimate, domestic demand of ferrous scrap is likely to reach ~70 MnT by 2030.

Q. How is the domestic scrap segment headed for a makeover with the entry of large, organised players?

The Indian scrap market is highly unorganised and fragmented. The operations are manual with major safety and environmental concerns. The long and complex supply chains employ more than 1 million workers who are not in the social security ambit. The scrap changes multiple hands with little or no value addition. The resulting scrap is of low quality and low value-add. Imports are an option. However, they entail long lead times, higher costs and loss of crucial foreign exchange.

Despite being a ~USD 10 billion industry (and it is expected to grow @ 7% y-o-y), the sector does not have an industry “status” and lacks a robust governance framework.

Entry of the organised players in this sector would streamline the currently unorganised scrap supply chain by making available quality processed scrap, enhance transparency and lower the dependency on imports. It would enhance the traceability and statutory compliances.

Organised players will bring about mechanisation in scrap processing through state-of-the-art plants and equipment like balers, shredders, shears, material handlers etc. This will reduce manual operations and ensure safe work environment for the workforce. The resulting high quality scrap will help satiate long-standing demand for quality scrap by EAFs/IFs/foundries.

Organised steel processing would help pave the way for de-integrated and modular steel production, closer to markets. This will bring consistency in scrap supply to furnaces, reduce logistics costs and dependence on imports.

Q. What is the scrap demand and supply scenario like in the secondary sector vis-a-vis the integrated players?

Integrated players use iron ore as the principal raw material for steel-making through the BF-BOF route. They use ferrous scrap to the tune of 5-7% in the charge mix as a coolant. This percentage is likely to increase in the future for sustainability reasons.

Secondary steel players use sponge and scrap as raw materials. The percentage of scrap charge vis-a-vis sponge depends on the availability and prices. For instance, eastern India uses more sponge and northern India uses more scrap because of availability of the respective raw material. On an average, scrap constitutes ~50-55% of the charge mix.

Major supply sources of scrap for secondary steel players are auto and auto ancillaries, construction and demolition sectors, obsolete household scrap, end-of-life vehicles, obsolete scrap from ship-breaking, railways, Defence etc.