Metals scrap industry - necessary incentives needed to stay afloat

Increasing urban population in China and India, growth in infrastructure construction and automotive industry, and increase in environmental consciousness among individuals remained some of the factors that strengthened the growth of Asia-Pacific metal recycling market until the COVID-19 came knocking at our doors.

Impact of COVID-19 was severe on the metals recycling sector as there remains a direct correlation between the health of global economy and the recycling business.

A majority of global economies clocked negative GDP growth, which had a severe negative impact on the recycling industry. The important impact of COVID-19 is uncertainty which has caused almost a negative demand in most of the markets across the globe.

Further,  the prolonged trade war between China and US caused damages to the recycling industry with enough volatility and uncertainty.

However, according to experts, it is worthy to note that China’s production did not go down year-on-year. USA was down by 32% and Germany by 11%. But India’s production went down during COVID-19 to 65% due to strict lockdown. Accordingly, the demand for metal scrap went down.

In India supply logistics chain was completely shattered due to the regional lockdown rules and the country did not see uniform policies across geographies. The green, yellow, red zones caused imbalance, disruption in supply chain which resulted in non-clearance of all imported scrap metal containers. The steelmakers were operating at lower capacity and, therefore, they were managing with local domestic scrap. Because of limited imports the domestic prices stayed firm. The generation of scrap was equally low as none of the industries were in action including auto, ship recycling, construction, fabrication etc.

The industry is, therefore, suggesting that the vehicle scrappage policy or recycling policy to be implemented. And the government must provide necessary incentives to the players in metals scrap value chain and to the secondary metals market that would help them stay competitive in world markets.

Also, the government should ensure that there is adequate liquidity provided for business with reduced interest rates funding. The labour shortage is the most acute of the all the issues. This needs to be resolved by companies with the support of the government. Tax concessions for a temporary period or so will help companies revive themselves.  

Recently, Niti Aayog, with the recommendations from the leading trade association catering to metals scrap, agreed for a need to set up a nodal ministry for the material recycling industry for better regulation and growth.

The nodal ministry to govern the material recycling industry should not be a regulatory ministry, as the policy is critical to push the growth and prospects of the industry.

The secondary metal players' industry body has also urged the government to remove import duty on metal scraps in the upcoming budget.

Pointing out that the Indian secondary metals sector is mainly dependent on imported scrap due to low local supplies, the association is of the view that customs duty should be removed to boost imports.

Further, on duties front, from secondary metals industry perspective, there exists an inversion where raw material is being charged with import duty, and value-added, downstream products are being allowed to import duty free. Secondary metal industry largely relies on imported scrap, which is taxed. On the other hand government has allowed imports of finished & semi-finished products at zero duty from neighbouring countries under FTAs. So, the duties on raw materials have to be eliminated, which then would create a level playing field for Indian producers.