Organized and efficient metal scrap recycling does not only lead to significant conservation of energy and natural resources, it is also a valuable economic source for a nation. Metal scrap is increasingly being used as a raw material for manufacturing new products worldwide and has become a globally traded commodity. Recycling scrap metal has become an integral part of the metal production process across countries. The global metal recycling market is expected to grow at a CAGR of 8 per cent to reach an estimated value of USD 400 billion by 2020 from USD 277 billion in 2015 .
In contrast, the Indian metal scrap industry is presently highly unorganized with overall recycling rate less than 20%, challenged by non-existence of a formal metal scrap recycling ecosystem leading to unreliable supply of domestic scrap. Owing to this, India has become the third largest importer of scrap in the world. India imported about 8.1 million tonnes (mnt) of ferrous and non-ferrous scrap in FY16, an increase of 19.4% as compared to FY15 2 .
Production of metals, especially steel, in India is rising continuously. India’s steel production has grown at a CAGR of 5% in the 2011-2016 period and is estimated to cross 100 million tonnes in the next 3-4 years. Therefore usage of metal scrap as a raw material is highly necessary to reduce the consumption of the country’s natural resources like iron ore and coal. Countries like US, Japan, China, Turkey etc have been using steel scrap for steel production. The steel scrap to crude steel ratio as reported by Bureau of International Recycling stands at about 35% globally. While, US and Turkey have this ratio at 70% and 83% respectively 3 ; India is way below the world average with a steel scrap to crude steel ratio of about 10-11%.
As per KPMG analysis, by the year 2020 domestic scrap generation in India will reach 43 mnt whereas demand would be about 53 mnt creating a deficit of 10 mnt. Thus, it is crucial for India to encourage metal scrap recycling by setting up an organized recycling ecosystem supported by regulations. If we study the evolution of this sector globally, the government had a crucial role to play in establishing this sector in many countries. Governments across the world have taken steps around policy support, subsidies, fiscal incentives, setting recycling targets etc to promote the initial growth of this sector. In India also, the government has recently been taking some steps in this direction, for instance, the Ministry of Road, Transport and Highways is formulating an End of Life policy for automobiles and the Ministry of Steel is formulating a metal recycling policy.
As per our estimate, approximately 5-6 million vehicles (4 wheelers) which are over 15 years old could be available for scrapping. This could create an addressable market opportunity of around 2 million tonnes of ferrous scrap to begin with, factoring in the inefficiencies in sourcing and collection. This shall only increase further as the ecosystem for recycling develops. Even at these volumes, the estimated size of the scrap industry would cross INR 30 billion within the first few years, creating an imminent need for setting up of an organized, efficient and sustainable recycling ecosystem in the country.
- Metal Recycling Market – Forecast to 2020, MarketsandMarkets
- Exim database
- World Steel Recycling in Figures, Bureau of International Recycling
This also presents a lucrative opportunity for private players to participate and capitalize on the first mover advantage. While there are few recent announcements by big Indian companies looking at establishing an auto shredding plant in India, off-late there are many more who are showing keen interest in this area. After my presentation on ‘Entry into Scrap Recycling Business in India’ during the recent Scrap Recycling Conference organized by SteelMint, I had the opportunity to interact with multiple players who seemed quite keen to explore entry in this sector. However, it is important to consider and assess the cost economics and viability of running a shredding operation.
Critical success factors for a profitable shredding facility includes a cost effective sourcing strategy, supply chain design and a well thought through operating model. A cost effective sourcing strategy entails collection of legally de- registered end of life vehicles in an organized manner and setting up optimum number of authorized collection centers. Secondly, a robust network design that minimizes logistics cost and maximizes access to scrap (eg near ports or other demand clusters) is key to sustainable operations. A hub and spoke model with collection, dismantling and shredding centers with optimum coverage area may be designed for the same. Moreover, due to the capital intensive nature of setting up shredding facilities, it is important to develop an efficient operating model that would address optimum capacity utilization, efficient metal recovery, and drive adoption of cutting edge technology and equipment.
In order to develop a sustainable scrap recycling ecosystem around the above critical success factors, it is essential for players entering the sector to carry out detailed feasibility studies based on capital expenditure estimation. Players would also need to identify opportunities for revenue maximization and greater customer outreach. This would include establishing alternate channels such as sale of refurbished parts and use of e- commerce. Giving incentives to customers, enabling hassle free collection of end of life products and ensuring transparency in processes such as de-registration, offering discounts and taxation benefits would facilitate organized scrap collection.
The pressing need of the hour is a clear delineation of responsibility of all stakeholders across the value chain encompassing customers, producers and the government. It is necessary for the government to act as an initial catalyst by developing an effective regulatory framework addressing key local challenges thereby helping the sector flourish.
Source: Steel 360 Magazine Oct’16 Issue