Indian ferrous scrap imports could rise over next 5 years while local demand outstrips supply

India has ambitions to become self-sufficient in scrap but an expected widening in the gulf between consumption and domestic supplies over the next five years could be a positive development for scrap importers.

Imports of ferrous scrap to India slumped by more than 30% year on year to 2.58 million tonnes in January-July 2017 but steelmakers could be pushed back towards imports of the material in the coming years, according to forecasts of future scrap requirements.

By 2023, Indian government exports regulator MSTC forecasts a gap of 10 million tonnes per year shortfall between supplies of local ferrous scrap and the needs of buyers, which would need to be filled with imports if it cannot be satisfied by other means.

Metal Bulletin Research data shows that if current trends remain constant, the gulf could grow to 12.5 million tpy by 2022 and to 14.6 million tpy by 2023.

One proposed method to close the gulf is the establishment of a network of car shredding plants in the country, according to BB Singh, chairman and managing d of MSTC.

MSTC and Indian conglomerate Mahindra Intertrade are working on producing India’s first ever official vehicle shredder, which is expected to enter operations in 2018 with a capacity of 100,000-300,000 tpy of vehicles.

It will generate the shredded-grade scrap which India currently has to import from locations such as Europe and the United States and is hoped to be a significant breakthrough in India’s quest to become self-sufficient in ferrous scrap.

But because progress has been slow in setting up the units, import volumes may rise in the short term to cover the expected rise in consumption.

“It is possible in the future that the import of ferrous scrap will be higher as it will take some time for India to bring on the shredding plants - the infrastructure is not in place and the policy is not in place,” Singh said at the Bureau of International Recycling (BIR) conference in New Delhi last month.

“This might take some time and, during such time, there will be a dependence on imports of scrap,” he said.

“India may literally need “hundreds” of shredding plants like Mahindra’s to cover the gap between scrap demand and its supply in the domestic market,” Alona Yunda, senior analyst at Metal Bulletin Research, said. “In the short term, the country no doubt will need to import ferrous scrap.”

To facilitate the import of ferrous scrap, the government is working to repeal duties on the material, which are currently at 2.5%.

Metal Bulletin’s last index price for imported shredded scrap in India was $330.24 per tonne cfr Nhava Sheva on Friday November 17, up by 2.15% over the past three months.

Graph of estimated overall and local Indian ferrous scrap consumption

Rising consumption
MSTC forecasts total Indian ferrous scrap consumption will rise to 53 million tpy by 2023, which would be an increase of 57.64% from the 33.62 million tonnes that Metal Bulletin Research estimates was consumed in 2016.

MSTC’s overall scrap consumption prediction for 2023 could even be achieved by 2022 if current growth is maintained, according to Yunda.

“At the current pace of scrap consumption growth, India could reach the 53 million-tpy level by 2022. Ferrous scrap use grew by 8% year on year to 24.4 million tonnes in the first eight months of 2017,” she said.

But this estimate also relies on a large increase in demand from scrap-based domestic steelmakers.

“Provided steel output growth goes according to the plan, and there is demand to back it up, to achieve the target consumption India’s EAF output will have to rise by at least 16.85 million tpy, which can actually be achieved by full utilization of the existing EAF and induction furnace capacities,” she said.

The utilization rate in 2016 was 74%, Yunda added.

If existing mills raise their capacities, they will need more scrap and therefore will have to turn to more imports, one Indian scrap trader told Metal Bulletin.

One barrier to a higher use of scrap by Indian EAFs is their reliance on direct reduced iron (DRI) as a raw material.

Many Indian induction furnaces have preferred to pack as much as 75-80% of their steelmaking mix with DRI this year, which has reduced scrap demand.

But India’s government is unfavourable towards DRI-based steelmaking technology, considering it damaging for the environment.

“When we are going for future technologies, scrap-based technology will definitely win over DRI-based technologies,” Sunil Barthwal, a joint secretary at India’s Ministry of Steel, said at last month’s BIR conference.

Domestic scrap consumption
As local supply cannot be measured by MBR or MSTC figures, Metal Bulletin is using domestic Indian scrap consumption as a proxy for local supply.

Domestic Indian scrap consumption will hit 43 million tpy by 2023, MSTC believes. This would be an increase of 53.13% compared with the 28.08 million tonnes, which Metal Bulletin Research statistics say was consumed by the local market in 2016.

Local scrap is attractive to India buyers because it works out around $30 per tonne cheaper than imported alternatives when taking into account port, handling and transportation costs, according to one Indian seller.

Usage of domestic scrap is rise this year.

“In January-August 2017, the country imported almost 3 million tonnes of scrap, down by 25% year-on-year, while local scrap usage rose by 16% to 21.42 million tonnes,” Yunda said.

This has lifted the share of local scrap in total consumption to 88% from 82% a year earlier, she added.

Prices for Indian domestic HMS 1&2 (80:20) scrap were heard at 21,100 rupees ($325) per tonne ex works in the city of Mumbai on Thursday November 23 compared with 21,150 rupees per tonne ex works one week ago.

This story was updated on December 12 to correct some scrap consumption calculations for the gulf between local and overall consumption in India.

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