UAE, an economy dependent on oil first, and then on tourism for the last few years, is surprisingly well into the ferrous scrap business. Perhaps, it is the massive, technology-forward infrastructure projects that keep demand for steel reasonably strong. Consider Burj Khalifa.

The domestic steel production in the country only amounts to about 3 mnt and the industry runs short of indications of any expansions in the short or long term. Factors such as unavailability of raw materials & land, strict pollution norms have kept the domestic steel industry from growing.

However, the scrapyards in Sharjahan are spectacular. In fact, UAE gets credit for being the 10th largest global exporter of ferrous scrap, given the sheer small size of the country and the corresponding population, which also leads to the conclusion that scrap generation in the country is high.

However, the scrapyards in Sharjahan are spectacular. In fact, UAE gets credit for being the 10th largest global exporter of ferrous scrap, given the sheer small size of the country and the corresponding population, which also leads to the conclusion that scrap generation in the country is high.

What is Driving Scrap Generation in UAE?

The scrap recycling industry in UAE has steadily become organized over the years and the industry is expected to grow by 5-6% in the next five years. As the per capita income of the country is high, the spending power is strong, largely exhibited by expenditure in the infrastructure and construction sector for a thriving tourism industry and luxury living. Modernization leads to demolitions of old buildings and houses, and thus generation of ferrous scrap.

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Second hand cars and machines from Africa and Egypt are routed to UAE for scrapping. It is safe to say that as sanctions & embargoes on Iran and other neighboring countries are eased, UAE’s metal recycling industry will witness a steep growth.

Also, for a country practically driven by the oil business, the amount of steel used in fabrications and subsequent scrap generation is sizeable.

Why are Exports High?

Feb-2017_Cover-Story_img290% of scrap exported from UAE reaches the Indian shores because of the zero container freight realization on export to India. Also, DRI plants are the trend in the country, which leads to low domestic scrap consumption for steel production.

In a recent visit to UAE, Steel 360 met up with Sharif Al Salam, Director, Salam Metal, President of BMR and with Shabbir Malik, Director SM International, Board member of BMR. The conversation centered around the topic at hand. Excerpts follow.

Feb-2017_Cover-Story_img3Q. How is the recycling market in the Middle East, specifically in UAE? What is the total scrap generation, ferrous and non-ferrous?

A. I may not give you exact quantities because it is related to different statistics available at the customs and different materials are collected within the UAE. Some are imported and some may be, to be more precise, declared as per the specifications of the metals and some may not be declared in the similar specifications so it may not be something very accurate. But I can tell you that the non-ferrous scrap generation in UAE is about 1 million tonne a year.

Q. How much this is exported and how much is used domestically?

A. 90% is exported and 10% remains for local recycling. Local recycling, I mean, it’s all recycled somehow, by means of collection and preparations. But some of it is re-melted for foundry alloys and some of it is re-melted for some other raw materials for the foundries for further production of finished products.

Q. What does non-ferrous include – copper, aluminium?

A. Copper, aluminium, zinc, nickel, lead.

Q. What are the sources of scrap?

A. Consumer scrap ie everybody who is able to consume some of the household, refrigerators, home appliances, industrial wastes. I mean that is generated after the construction or destruction. The construction source will generate scrap during the production line and as you are a fabricator, you bought your raw material, finished goods; you want to apply and manufacture the item. During that, there is about 5 to 21% waste. It depends on what industry you are in and how efficient it is. The second source is the post consumer and demolishing. The buildings that are there for 30-40 years may be, it is not feasible to maintain the same buildings. You have a building of 3-4 stories on a plot which now costs 4-5 times more. So you rather demolish that building and make a high-rise structure; so that is generation of scrap of copper, aluminium and different items related.

Q. Like in developed countries, is there any policy in UAE that regards vehicles obsolete or not fit for use after a certain period, say 8- 10 years?

A. In UAE, it is not applied yet. Not like in Europe or Japan. So you can drive your car for 15 years. I don’t think there is anybody who will tell you why you are able to keep the same car as long as it passes the traffic control department. Nobody can prevent you from driving your car. There is a traffic approval department for renewing your registration. If it goes through the mechanical and the environmental tests, you can drive it.

Q. However, are cars one of the sources for generating scrap in Middle East?

A. Yes, of course. The end-of-life vehicles may go to shredders where they shred them and separate the ferrous and non- ferrous scrap. The ferrous scrap goes to steel mills and the non- ferrous goes for either alloying and re-melting or for further exports.

Q. Why is Middle East such a big market for recycling? Why not any other country? Also, why a lot of scrap comes from Africa and Australia gets processed here and is sold to other parts of the world?

A. First of all, there is a 2nd hand automotive spare parts hub in the Middle East and in Dubai, in particular. It comes from Japan, from far-east, since in Japan a vehicle more than 5 years old cannot be driven on the road. These vehicles are declared obsolete and come into UAE as spare parts. You need a motor, you need a transmission or spare parts, you go to junkyards. Why to go to the showroom and pay 1000 Dirhams for a piece? In the junkyard, you may find a good piece for 200 Dirhams that is from a car only 2-3 years old that has been either brought from Japan or has been through an accident. If it has been through an accident, the insurance will say ok, you cannot drive it any longer. If the chassis breaks, the insurance will pay you. So that is the source.

The other thing is the traffic. After it lands here, it goes to Africa. Africa is such a country that they prefer to buy affordable spare parts. So there is a big hub of collections and segregation. For UAE, there is a big market in Africa. The second thing is that Dubai has one of the world’s largest seaports. It has the facility that people bring cargo via Dubai from African ports that can be shipped, shored and shipped again. It can also be landed here for some of the logistics reasons. So, Dubai is a gateway for Middle East, a lot of connections.

Q. Does scrap come to Dubai from Australia for processing?

A. Australia, I don’t know but sometimes from USA and Africa and other neighboring countries. I have not heard about Australia.

Q. Does all the scrap that comes from US or any other part of the world gets re- processed and re-exported?

A. Some is locally consumed. If you find a cheaper source of raw material from USA, why not buy it and leverage on that cost rather than having to buy from an expensive source? So that is possible. But this is very small volume. I don’t think it’s a huge volume but for it to re-process and re-export, the claim is gone. If it’s an Indian outlet market, you rather bring it from America directly to India. Why to bring it here? I bring some because I consume it – iron, aluminium, alloy and there is a purpose for it. So it’s over here in UAE.

Q. We were listening to Emirates Steel yesterday. They were saying that steel and scrap consumption will be increasing in domestic market. There is an export levy of 250 Dirhams per tonne. Is there any chance that the government may impose import or export tax?

A. I have no comments on that jurisdiction. I don’t know how it works at the customs. It’s not my area.

Q. I was looking at the numbers. India is one of the largest importers of scrap from UAE. Has demonetization affected the market?

A. There have been some regulations on that front. Export is now mainly focused on the consumers and the actual users of scrap rather than the traders. So it has eliminated the brokers and traders from the middle.

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Q. India is a big market because there is also zero freight from Dubai to India? But this is not the case in any other part of the world?

A. It’s a traffic control of the logistics of the containers. Though it’s zero freight but you still pay for the transportation locally to move the container, you pay for the terminal handling charges, you pay for the stevedoring. You still pay something. But as sea freight may be zero and why they prefer to have it zero or even a token amount is because there main sector is to re-position the container, bring the import cargo. That’s their money making sector but sending the container back if there is no cargo like scrap which is available to stuff in the container and take it to India, they may have to pay from their pocket. There will be negative revenue. So they prefer to get scrap and load it out there.

Q. In that sense, if India reduces import or India takes some time to stabilize after demonetization, do you think that Middle East will be catering to other markets like Bangladesh, Pakistan, Indonesia, Vietnam?

A. Yeah, it’s an open market. It could be Far East. It could be Europe, or anywhere else. We are still sending to India. It’s not that it has stopped. But it is going to the right hands to the consumers and not to the traders and brokers. So there has been a limitation and regulation to the flow of raw material.

Q. Recently ferrous and non- ferrous scrap prices have increased sharply, especially copper. Do you think that these prices are sustainable or there is a speculation of dollar getting stronger?

A. I don’t think it is fundamentally supported. I think it is a question of political and exchange related factors to the copper hike. Why copper would pick up by 30% in these 10 days from USD 4,500 to 6,000. Again it went back to USD 5500-5400. Fundamentally speaking, especially when Chinese have slowed down their imports, I think it’s driven by different factors.

 

Shabbir Malik, Director SM International, Board member of BMR.
Shabbir Malik, Director SM International, Board member of BMR.

Q. Is Dubai a big export market?

A. Dubai started in about 1990s, exporting to India against import license with restrictions on size, quality etc. That time UAE was a very small market with only 2-3 players exporting the material. We were among the first ones to export to India. The only ICD in India was Pragati Maidan. That time shipping cost was also high. North India was the only market for imported scrap.

Q. Why not to Pakistan?

A. Export to Pakistan was in very small quantity. Back then, India was also small. Indian market expanded gradually and exports began to Ludhiana ICD and gradually to Nhava Sheva and South India.

Q. What is the source of scrap generation here?

A. Scrap is generated from the construction industry,oil industry. There are many fabricators here. There are many companies here which are making truck bodies etc. Many companies supply material to the Middle East for re-export. That is also a big source. Auto industry is the biggest source from where scrap is generated.

Q. Are these domestic obsolete vehicles or do they come from outside?

A. These are domestic vehicles that are dismantled and spare parts separated. Vehicle bodies go to shredding plants.

Q. What happens with the auto parts?

A. Auto parts are sold more in African countries. Those which are not saleable here, go to scrap.

Q. Do vehicles come from Japan, specifically for scrapping?

A. Vehicles come from Japan for resale, not for being scrapped. Cars damaged in accidents are sent here for refurbishing and then sold locally or in African countries etc. Here we have a very big market for right hand vehicles and these vehicles are exported from here. We have a free zone here.

Q. Is there any rule by the government to declare vehicles obsolete in, say, 10 years?

A. There is no rule as such. Here, if the vehicle is not fit, it will not be renewed, be as new or as old. Here, we have to get the vehicles renewed every year. It is checked thoroughly like its tyres, chassis etc.

Q. If the vehicle is not fit then what do you do with it?

A. If the vehicle is not fit, then you can’t even export the vehicle.

Q. What about the steel mills in UAE?

A. There are 2-3 big mills in Abu Dhabi. Emirates, Arab Gulf, Quality Steel in Dubai; and Shattaf Steel in Sharjahan.

Q. Are these rolling mills or inductions?

A. These are furnaces. Emirates’ is DRI. Other local mills focus more on scrap.

Q. How much ferrous scrap is generated approximately?

A. It’s very difficult to quantify. For eg, it goes from small vendor to big exporter. From big exporter to traders. But I think 0.12 mnt per month is generated for export and local use.

Q. Our records show that export from Middle East to India is about 0.9-0.95 mnt per year. Which are the other major nations for export?

A. 0.12 mnt per month means 1.44 mnt per year. It is largely export oriented. This is not a recorded data. I think 20-25% is domestic consumption. Rest goes to export. It was earlier 70% to India, 30% to Pakistan. In the current scenario, more is exported to Pakistan.0.3 mnt goes to Pakistan. At present, demonetization in India is an issue, but it is largely because Pakistan market is high. New projects and requirements in the Indian market have been very slow since May 2016. Material is also exported to Oman, Far East. It also goes to Vietnam, Indonesia. We did a lot of shipments in the past to Far East, Malaysia, Singapore. But, as far as realization is concerned, the best available immediate markets from UAE are India and Pakistan.

Q. In India, it is zero freight. Is it zero freight for Pakistan too?

A. In Pakistan, there are two ports. One is Karachi Port and the other one is Port Quasim. Both ports attract zero freight charges, but India local charges are also less. Exporting to Pakistan costs USD 5-6 higher than India.

Q. In India, Ludhiana is big market or Mumbai? Which is the largest consumer?

A. Earlier, Mandi, Ludhiana were the biggest markets. It has gradually shifted to Nhava Sheva.

South India is a big market but freight workability doesn’t suit there at times.

Q. What is the freight for the container from Dubai to Mumbai and Dubai to Chennai?

A. To India, freight is always zero. Here, local TSC is about 1000 Dirham. Nhava Sheva is zero. Chennai is 1000 Dirham plus USD 20-50. Therefore, material is only exported to Chennai when the market has shot up.

Q. What kinds of material are available?

A. HMS 1 – 25 tonne loading and the other one is HMS 2 (80-20) – 23 tonne loading. Blue steel ie fresh cutting material is also available. Shredded material is less here. HMS 1 is more popular is India. In Nhava Sheva – HMS 2 is more popular. In Mandi – HMS 1 is preferred.

Q. Do you feel domestic consumption will increase here? Will there be more furnaces?

A. Yes, the numbers are increasing.

Q. Which are the other big export driven markets in Middle East?

A. In Middle East, next big market is Kuwait. Much is generated in Kuwait but there are many restrictions there. Export from Qatar is banned. About 10,000- 15,000 tonne is exported from Bahrain.

Q. If you have a scrapyard and mill is in India, then how is the work done? Are there any middlemen for the deal? Or is it direct deal?

A. Here deals are done both ways, through agents or direct. Though, agents are preferred, both by buyers and suppliers for timely transactions. Payment terms are flexible here and shipments are in small quantities. Numbers of shipments are more, so dealing with agents is easy for exporters also.

Q. How is the taxation system here in Dubai? Is there duty on export?

A. We have no income tax. There is 5% duty on import. There is no duty on export. Here we have different kinds of charges, not taxes.

Challenges & Opportunities One of the issues that may concern the export of scrap to India is demonetization. As with all commodities, a drop in demand of scrap is expected following demonetization. Since 90% of UAE’s scrap export is to India, an impact may be felt. Yet, a larger concern remains the demand of the domestic steelmakers to levy export duty on scrap of up to USD 68. This can be a major impediment to the scrap export business in UAE.

Although, growth opportunities are far more concrete. The Dubai World Expo 2020 is expected to considerably increase demand for steel as well as lead to high volumes of scrap generation. Also, the Football World Cup 2019, to be hosted by Qatar will increase steel demand. Lastly, the stabilization in oil prices will be supportive for the economy.

 

Source: Steel 360 Magazine Feb’17 Issue