Indian scrap imports to keep rising despite launch of local shredding operations

India’s first legal car-shredding operations will begin to generate shredded steel scrap next year but this additional material will not prevent a rise in the volume of the country’s scrap imports after 2019, according to Metal Bulletin Research (MBR).

Cero Recycling is a joint venture between Mahindra Intertrade and export regulator MSTC. It intends to generate 1 million tonnes per year of shredded scrap by 2023, the company’s chief executive officer, Sumit Issar, told MBR.

The target will be achieved via 23-25 collection centers, each processing at least 40,000 tpy. In 2019, only five of these centers are planned to be in operation.

Tonnages of shredded scrap produced will be limited initially by the comparatively small numbers of end-of-life vehicles (ELVs) available for collection, due to the lack of car-scrapping legislation in the country.

In 2015, there were nearly 8.70 million ELVs more than 15 years old in India, which would have generated around 7.83 million tonnes of shredded scrap.

This figure is expected to rise to 21 million ELVs by 2025, according to Cero, which is currently the only company setting up a car-shredding operation in India.

ELV supply would be further increased if India’s Ministry of Road Transport & Highways (MoRTH) can pass its proposed vehicle scrappage legislation, which is said to be ready for introduction later this year.

Cero has already run trials at its first car-collection site in Noida, northern India, and is ready to begin collecting ELVs in the next few months, according to Issar. India’s government is also reported to be planning to set up scrapyards and steel plants to handle and process local scrap, although it is not known whether these sites will have their own shredders, and what capacity any such units might have.

Much of the local scrap available in India today is of cut-grade quality such as heavy melting scrap (HMS). To obtain the higher-grade shredded scrap, consumers have had to import it – mostly from the United States and Europe. Of the 16.82 million tonnes of scrap consumed in India in 2017, according to MBR calculations, 4.38 million tonnes – or 26% – was imported.

MBR forecasts that India’s overall ferrous scrap usage will rise to 22.36 million tonnes in 2023, reflecting our view of rising steel output through this period. Our calculations indicate that, despite emerging local shredding operations, scrap imports will also rise, to reach 7.37 million tonnes in 2023, as the graph below illustrates.

India imposes a 2.50% duty on imported ferrous scrap. The government decided not to eliminate this tariff in the budget for the current financial year, which started in April.

Graph 1: Scrap imports into India. Note that scrap demand numbers are updated from those we first published in November 2017 to account for usage of direct-reduced iron (DRI).

As optimistic as the above projections appear, for merchants selling scrap into India, the accuracy of this forecast will depend on India’s ability to bring its steel capacity expansion plans to life.

The National Steel Plan for India, released by the country’s Ministry of Steel last year, states ambitions to increase steelmaking capacity to 300 million tpy by the 2030-31 financial year, from just over 128 million tpy currently, with a production target of 255 million tpy on average.

The basic-oxygen furnace (BOF) method will see the biggest rise, so scrap consumption will be boosted primarily by the higher intake at Indian integrated mills.

Notably, the plan suggests that demand will rise for both scrap and metallics, despite announced plans to depart from iron-based steelmaking in favor of more environmentally friendly scrap-based processes.

Graph 2: Projected steelmaking output in India.

While the Indian steel industry offers ample potential for growth, there are significant downside risks arising from its limited access to raw materials, including a tight gas supply, and the lack of investor-friendly downstream projects.

Requirements for direct-reduced iron (DRI), also known as sponge iron in India, will be close to 52.50 million tpy by 2030, which exceeds the country’s current capacity of 46 million tpy and 2017’s output of 25.86 million tonnes from 372 plants.

As long as capacity expansion plans are achieved, demand for both metallics and scrap will benefit from the rising steel output. And this means that import scrap volumes are also likely to increase, at least over the next five years, despite the launch of local shredding capacities.

Over the longer term, India’s potential to become self-sufficient in shredded scrap depends on ELV stock availability, as well as on car-scrappage legislation and investment in shredding operations.

As the graph below illustrates, ELV supply limits the potential to generate shredded scrap to around 3.5 million tpy. Any more, and ELV stocks would be exhausted in a few years’ time, meaning that India would still need to import the secondary raw material for a while yet.

Graph 3: End-of-life vehicle supply in India.