The global scrap market is currently under pressure from a variety of challenging conditions, from a Covid-19-related shortage of shipping containers, to port delays and rising port and freight charges.
This combination of factors has resulted in one key scrap market looking to move away from imported material and India's steel industry is now aiming to meet its needs using domestic raw materials under prime minister Narendra Modi's ‘Atmanirbhar Bharat’ policy - which translates as ‘self-reliant India’.
Frightening freight rates
Freight rates on some routes have more than doubled over past year, squeezing trading margins, with higher detention charges and reduced free days at ports only adding to the misery.
Further increases of up to $300 per container are expected in April on some routes, with no availability of some boxes until May. The freight rate from the UK to the Indian port of Nhava Sheva for a 20-foot container has now passed $2,000, which would account for $80 per tonne in the price of a tonne of HMS, up from $1,200 per container in June 2020.
Statistics from the Bureau of International Recycling (BIR) show India was the world’s second-largest steel scrap importer in 2019, taking in 7.053 million tonnes as part of its total annual demand of 25-30 million tonnes of scrap.
Imported scrap prices have remained volatile since the start of the coronavirus pandemic.
Fastmarkets' steel scrap shredded, index, import, cfr Nhava Sheva, India reached a low of $243.49 per tonne on April 3, 2020, with the lockdown in the country bringing a halt to trading. Then prices began to rise through 2020 before surging to a high of $480.38 per tonne on January 15, 2021.
Since then, prices have remained unsettled - moving down in February and again in late March, before recovering to $443.30 per tonne at the start of April.
“Freight rates to India have gone up like crazy. We are having containers loaded and the vessel being cancelled - shipping lines are not releasing containers at all. Suppliers are insisting on longer shipment times, but no one is willing to buy and risk that. Even if someone wants to import, this creates a problem. Transit times are long and, having burned our fingers during lockdown, we are cautious about that now,” a trader said.
Changing trade flows
During the first lockdown in India in 2020, Pakistan continued to trade while India’s scrap market all but came to a standstill, causing a slump in imports. And those trading connections have not yet been re-established.
Traders and sellers switched to the nearby markets of Pakistan and Bangladesh, where demand is more consistent and higher prices are often achieved over India, with Pakistan having almost identical shipping rates from the UK as India.
“There is very little demand from India and prices to there are $10 per tonne lower than to Pakistan,” a UK-based trader said. “[About] 80% of HMS from the UK in boxes now goes to Bangladesh,” the trader added.
“Buying patterns have changed [and] post-Covid, traders have switched quantities to Pakistan and Bangladesh as their requirements persist and [demand is] more regular,” a UK mill source said. “They are willing to pay the price because of their dependency [on imported scrap]. Following lockdown, business experiences, requirements and a reduction in demand for scrap have caused the switch.”
United States Census Bureau statistics show that India took in 24% less scrap material from the US in 2020, taking in 772,783 tonnes, compared with 1,025,671 tonnes the previous year.
Pakistan, meanwhile, took in 42% more material from the US over the same timeframe, increasing from 507,704 tonnes in 2019, to 729,286 tonnes in 2020.
The UK is one of the largest suppliers to India, but it ships more material to Pakistan, which was the fourth largest importer of scrap at 4.337 million tonnes in 2019, according to BIR statistics.
UK scrap shipments to Pakistan in 2020, amounted to 944,065 tonnes, while India took in just over half of that at 532,459 tonnes. Even before the pandemic, the UK exported more scrap to Pakistan, with 912,816 tonnes shipped in 2019, compared with 709,066 tonnes to India.
Fastmarkets weekly steel scrap shredded, index, import, cfr Port Qasim, Pakistan was $444.88 per tonne on April 1.
Recently announced government schemes in India should increase scrap generation in the coming years, while at the same time reducing its dependency on imports as part of its National Steel Policy, which has a target of producing 300 million tonnes of steel per year by 2030-31.
Worldsteel statistics suggest India is currently the world’s second-largest steel producer at 99.57 million tonnes in 2020, although that total was down 10.6% year-on-year from 2019's 111.35 million tonnes.
One policy that will increase scrap generation in India is the vehicle scrappage scheme, which is due to come into effect later this year.
Tata Steel’s recycling business arm is one of the first companies to set up a recycling centre in the country to process domestic scrap. Last year it started a recycling plant with capacity of 500,000 tonnes per year, and it has since expanded its offering to include shredded scrap as of April 2021, which could be a game changer for the domestic market, as high-quality shredded material is a key imported grade.
Tata Steel said India's vehicle recycling policy would generate about around four million tonnes per year of ferrous scrap, rising to 10 million tpy by 2025, and was likely to include invitations to invest in infrastructure, vehicle dismantling and steel scrap processing.
Tata Steel previously said the aim of its recycling centres was to make quality processed ferrous scrap more widely available, to streamline the currently non-organised scrap supply chain, lower the country’s dependence on imports and to enhance transparency and efficiency in the entire value chain.
Other domestic operations in the country include Cero Recycling, a joint venture between Mahindra Accelo and the government-owned Metal Scrap Trading Corp (MSTC). It was said to be India’s first shredder for end-of-life vehicles (ELVs) when it became operational in late 2019. Cero Recycling plans to have more than 20 collection and dismantling centers across India in the next two or three years.
“Domestic scrap is still far better than imports in terms of price and availability,” a source told Fastmarkets.
“The ferrous markets are trying to [secure] domestic quantities for obvious reason that imports are expensive and are getting delayed a lot. Companies can acquire good quantities of scrap through domestic sources while other countries like Pakistan are more [dependent on scrap imports].
“Sponge iron [or direct-reduced iron (DRI)] is also available but there has been a steep increase in prices. Those steelmakers looking for high-grade ferrous scrap are the ones [importing, but] India could be self sufficient and cut down imports drastically,” a second mill source said.
As demand for domestic scrap continues to grow, availability is sure to tighten, with prices of domestic HMS scrap moving up by around $10 per tonne in the week to April 8 to 35,000 rupees in central India - equivalent to $469 per tonne.
As well as abundant domestic scrap, the country is the world’s largest producer of DRI, which can be substituted for imported scrap. Worldsteel statistics show India produced 36.9 million tonnes of DRI in 2019, however, it has become less competitive with prices for the material rising throughout 2020 and into 2021.
In March 2021, Fastmarkets' price assessment for direct reduced iron domestic, exw India, averaged 28,325 rupees ($389) per tonne, compared with 20,660 rupees per tonne in January 2020.
In 2020, various industry associations called on the Indian government to introduce an export duty on iron ore pellets, because about 60% is shipped out of the country, reducing domestic supply for DRI producers and keeping prices high, but this failed to gain government backing,
Being such a large importer of scrap material and producer of steel means that it will take time for India to become self-reliant, however.
“The [mills] still need to import. [India] is such a big producer of steel, the markets are still buying [scrap] and there is less domestic availability of it,” a second trader said.
“India's domestic scrap production will not 100% cater to demand. The scrap policy for the vehicles will help, but the quantity is not equal to demand - maybe 30-40%. The mills cannot channelize the scrap to where it needs to be. Transport is a problem, logistics is a problem. The quality of what they import and quality of Indian scrap is different,” a third trader said.
“Mills don’t want to wait for cargoes, they want a shorter window for purchasing and don’t want to hedge on currency, which is fluctuating, so instead of waiting 35 days, they will pay higher prices on [seaborne] sales for quick delivery of material already on the water,” he added.
An Indian mill source agreed and said that due to the high fluctuations in market prices, Indian buyers are not taking any chance and prefer to buy cargoes already available in the seaborne market. They said other reasons for reducing imports include a shortage of space and containers in the vessels and long voyage times.
India is stepping back from importing ferrous scrap and aiming to become a more self-sufficient steelmaker. But what issues led to this change of tactics and how will it affect global scrap trade flows? Fastmarkets investigates.