NOVEMBER/DECEMBER 2006
Though some view it as the next China, India is a vastly different country—politically, culturally, and economically—with dramatically different scrap prospects. It could become a recycling powerhouse, but it could just as easily become another face in the global crowd.
BY ADAM MINTER
Mumbai's narrow Kika Street is jammed with delivery trucks, taxis, and hundreds of ragged laborers carrying valves, wire spools, and brass handicrafts on their heads and shoulders. Up and down the street, cattle-drawn carts bearing copper bars compete for space with taxis, human-drawn carts containing copper tubes, and delivery trucks, many of which are stopped for unloading in the middle of the street. Merchants sit in tiny storefronts packed with all types of finished and unfinished metal products, watching traffic and eyeing potential customers.
Rohit Shah, president of the Bombay Metal Exchange, stops in front of Shah Dipchand Kisnaji and Co. Spools of copper wire fill the upper part of the stall, and three men—three generations of the family that founded and operates the business—sit below them. "They've been on Kika Street for 70 years," Shah says.
He continues along the street, stopping to say hello to a family that operates a faucet shop, another family that owns a religious handicrafts store, then another family that manages a valve shop. Finally he reaches his own shop, which markets copper in a variety of widths that can be cut to specified lengths in a back room. From there, he climbs several steep, dark staircases to the Bombay Metal Exchange's offices. Settling behind his desk, he opens a photo album. "This is my copper smelter in Sri Lanka," he says, pointing to one image. "Here I am with the president of Sri Lanka." He turns a page. "And here's my brother with the transformers he exported from the States."
Despite his modest Kika Street shop and office, Shah is a major Indian nonferrous scrap metal importer and processor, and his business is well-placed to take advantage of India's rapidly expanding economy. He is quick to point out, however, that the rest of the world must not misinterpret India's growing metal demand—and its overall economic expansion. "India's metal businesses are 20 years behind the rest of the world," he says with a shrug. "The technology is primitive, and the traders aren't really ready for bulk business like China is doing with the U.S. and Europe." For now, at least, Shah believes that success in India's steadily expanding scrap import markets will continue to belong to market players well-versed in the country's unique niche markets. "My priority is modernizing my businesses and my industry's businesses," he says. "Otherwise this industry has a limited future."
Mumbai is only one of India's many regional scrap markets, but its history and evolution hold lessons for traders in other parts of India and for international traders who hope to do business with them. During a 10-day visit with Mumbai's scrap metal processors, I found confirmation of Shah's analysis, which contrasts with the frothy enthusiasm for India people have expressed at recent scrap conventions and in the international business press. Unlike China, whose appetite for scrap has grown sharply since the millennium, India's scrap industry is decades old—as are its scrap recycling methods. Its conservative business environment, combined with prohibitive freight costs for shipping most grades of scrap beyond the Middle East, create a market that defies comparison.
India is not the next China. It is simply the next India, and it's still a long way from defining its scrap environment.
A Culture of Reuse
For years the shipbreaking industry at Alang, on India's west coast, was the international symbol of India's low-tech, labor-intensive scrap recycling industry. In the 1990s and early 2000s, the media flocked to cover the beachfront activity, and international environmental groups followed, shining an unflattering spotlight on the business there. Their efforts spurred stricter regulation of the industry and outright bans on certain vessels. Alang's recyclers also are facing stiffer international competition for scrap ships. And the tight oceangoing freight market has prompted some ship owners to extend the service life of certain vessels rather than retire them. These factors have caused a precipitous decline in Alang's trade. "Shipbreaking is over," Shah states. "The ships are going elsewhere."
In search of India's ferrous scrap industry, then, I contact Ikbal Nathani, managing director of the Nathani Cos., one of India's largest importers of ferrous scrap. "You have to understand that there is no ferrous scrap processing going on in India," he tells me bluntly. "None."
Due to weak market demand in India, for much of 2006 the domestic price for ferrous scrap has been below the international price by US$40 to US$50 per mt. According to Nathani, India's 1,400 induction furnaces, many of which use imported shredded scrap, are simply out of the market. Jindal Steel, one of India's major ferrous scrap buyers, "used to buy a shipload of scrap every month," he says. "Now they haven't bought in two years." When I point out that North American ferrous exports to India are rising, he suggests that I learn about the Indian reuse market. "If you really want to understand ferrous in India, you should visit one of the small markets, like Kurla." He directs Nazim Esmile, operations manager for Nathani Steel in Mumbai, to accompany me there.
Esmile, 70, is a soft-spoken man, and he gently directs a car and driver through a crowded Mumbai neighborhood teeming with trucks, cattle-driven carts, hand-pulled carts, and bicycles loaded with every type of scrap, from paper to old PCs, from steel sheets to rubber shavings. Suddenly, he opens his door and strides out to a street lined with a procession of sheds, each about 15 feet square. There he finds a group of laborers carrying bundles of rusty steel strips from a truck into one of the sheds. "Nathani Steel, Nathani Steel," Esmile tells the startled owner, a thin man in his 40s named Abdul Reharan. As we gaze into the dim space, Reharan tells us that this family has owned a shop in Kurla for 35 years. Behind him, the laborers pile the steel strips in a corner. "We will cut them and resell them," Reharan explains. "The market is good."
Around the corner, a muddy lane descends into a maze of similar sheds, all of which are devoted to buying, processing, refurbishing, and then selling a spectrum of scrap metal, plastics, and paper. In one shed, barefoot workers torchcut thick, rusty steel plates into relatively uniform sizes. "That material will be sold for rerolling," Esmile explains. "Rerolling is the best market for much of the HMS imported here." Indeed, the sheds and lanes of Kurla are filled with rusty pipes, I-beams, sheets, and other varieties of scrap steel that unquestionably would be processed and melted in the United States, Europe, or China.
Esmile stops beside a narrow shed lined with steel shelves packed with rusty imported motors. The shed's owner, a young man named Hasim, is crouched in front of the shed, among motors too large to fit on the shelves. "I fix three motors a day," he says, wiping dirt from one he has been rehabbing all morning.
Down another alley, we pass plastic bags filled with used plastic pill containers. "They'll recover the foil from the backs," Esmile says. Nearby, several men are pulling nails from old pallets, dividing the wood and metal for reuse. Further along, two men disassemble imported PCs, separating circuitboards from wires, steel cases from hard-drive components. In the next shed, a portly man with a hennaed beard and a wide smile sips milk tea and supervises two laborers as they strip wires and cables with hammers and box cutters.
Kurla—and India's reuse market in general—are unlikely to disappear under even the most optimistic scenarios for the nation's economy. "It's our culture," Esmile says. "We don't waste, we fix." To be sure, India's importers are savvy about paying premium prices for material that many other countries would scrap. "This is, of course, a secret that many importers would prefer not be revealed," Esmile chuckles. "Suddenly people would have a better idea of India's real situation, and the price would go up."
Determining India's "real situation" is a challenge, in part because it's difficult to obtain reliable statistics on its scrap industry. "You have to understand," Rohit Shah says matter-of-factly, "no good statistics exist." The Indian national government does not maintain centralized statistics on scrap imports or consumption. All record-collecting is done by India's individual state governments and ports, and those statistics vary considerably in reliability and availability.
Making matters even more difficult, Middle Eastern scrap exporters— India's most consistent suppliers—don't release scrap export statistics. Trade associations make informal estimates of Indian scrap consumption—for example, Shah says the country's copper and brass scrap consumers need 1 million mt a year—but those numbers are inherently unreliable because the majority of India's scrap consumers are small-scale, difficult to track, and quick to consume material. "Those kinds of businesses buy raw material in the morning and manufacture using it in the afternoon," Shah explains.
Primitive Processing, Rising Regulations
The next morning I join Shah in the back seat of his sedan as it negotiates a monsoon downpour in New Bombay, just northwest of the Mumbai city limits. The far side of the four-lane road is washed out, and our side is cratered by the rushing water. "It's like a camel ride," Shah laughs.
As we ride, he recounts how he entered the scrap business after a trip to New York in the early 1980s. "When I was there I saw all of these junkyards sending scrap to India," he says. "So I began to wonder about that." Today he oversees five scrap-related businesses in Mumbai and a copper smelter in Sri Lanka that consumes imported copper scrap, primarily from the Middle East.
Eventually we reach smoother single-lane roads that lead to the Maharashtra Industrial Development Co., an industrial park in a heavily forested landscape crossed by dirt service roads. We arrive at one of Shah's two MIDC facilities and leave the car in the pouring rain. In front of us, beneath a sagging plastic tarp, four laborers stand atop a massive 17 mt block of copper dross imported from Germany. Their job is to beat it into smaller pieces with sledgehammers and wedges. Nearby, a worker hammers lower-quality hunks of dross into sizes small enough to feed into the yard's ball mill, which reduces the dross to dust. Other laborers wave hand-held magnets over the dust to remove ferrous impurities. Next to them, at the center of a small, open building, is a rickety 1-ton furnace. "A small furnace is better for small, variable quantities and materials," Shah says. Behind it, shiny zinc ingots are piled up, awaiting shipment. Beyond them, workers break bales of zinc scrap with sticks and then hammer the material into small, flat pieces appropriate for melting.
The workers at Rohit Shah's yard process scrap by hand. Most are migrant contractors paid on a project or day basis. Though they are generally more expensive than payroll workers, they are significantly less trouble. "Migrants mean you are free," Shah says. India has created many incentives against hiring payroll employees, including strong unions, high minimum wages indexed to industry safety records, and significant payroll taxes. As of September, a scrap laborer in India, by law, is paid roughly US$3 per eight-hour shift. In addition, employers are expected to pay a 2.5-percent tax on each salary for health care and an 8-percent tax for India's pension system. And manufacturers are subject to safety checks that—according to Shah—primarily focus on hard hats, which few of his employees wear. "They are from the countryside," he sighs. "They don't care."
In a back room of the warehouse, laborers strip wire and cable fragments by hand, using knives. "Only a year ago we were burning that material," Shah notes, "but we've had to stop that because of the emissions." In the past three years, India's environmental authorities have tightened enforcement of the country's environmental laws, forcing the scrap industry to retrofit facilities in a hurry. In the last year, Shah has outfitted one of his two MIDC plants with wet scrubbers and baghouses. The environmental authorities have informed him that the 1-ton furnace in the other yard needs to be outfitted, too, or they could shut it down in a year. The cost of installing that equipment is roughly US$45,000.
We leave the MIDC and drive to Bhiwandi, a small town about 35 miles northeast of Mumbai, where many of the city's scrap traders have warehouses to avoid a 3-percent tax on scrap imported into Mumbai's city limits. As we arrive, a 20-foot container backs up to the loading dock of Shah's warehouse. The container is filled with 250-pound copper bars imported from his smelter in Sri Lanka. Shah, a man particularly attuned to taxes, is one of 20 Indian scrap processors taking advantage of a free-trade agreement between Sri Lanka and India that allows scrap processors to import scrap duty free into India so long as it has received a 35-percent value addition in Sri Lanka. "Sri Lanka is a much easier environment to do business in than India," he assures me. Perhaps too easy: In late September, the Indian and Sri Lankan governments began conducting raids on the Indian copper smelters in Sri Lanka and their shipments. According to media reports, the governments launched the raids to crack down on highly polluting Indian smelters and the large numbers of scrap shipments arriving in India without value addition. By the end of September, 16 of the 20 Indian copper smelters had either left Sri Lanka or sold their operations to locals.
Shah leads me through his modest Bhiwandi warehouse, pointing to a range of imported and domestic items, including baled radiators and used beverage containers from the Middle East and brass shipbreaking scrap from the United States. The space is largely used for storage and some cleaning and processing. As the workers unload and pile up copper ingots, Shah leads the way into a much larger, adjacent warehouse where a used, imported extruding line awaits final repairs before it begins transforming Shah's Sri Lankan bars into brass and copper rods.
Government regulation and India's conservative business culture have led to the small scale of India's scrap operations, Shah says. "There are very, very few Indian scrap buyers capable or interested in doing bulk purchases of 300 to 500 tons at a time," he explains. He points to a regulation recently proposed by India's Directorate General of Foreign Trade that would require Indian scrap importers to establish letters of credit to cover liabilities related to imported scrap. "The problem is that we have thousands of small industries that don't have the ability to open a letter of credit," he says. "They lookat the 25-, 30-percent margins and say, ‘I can turn over that money three or four times before a shipment arrives.'" This attitude is not limited to the smaller Indian players, either. "I've been in business 30 years and I've never established
an LC," Shah says. "I pay cash, and I'm very conservative."
Port Politics
East of Mumbai, the highway runs through lush wetlands and forested hills that occasionally give way to shanties.
It is a gorgeous, mostly untouched landscape, and at first glance it seems more suitable to a nature preserve than the gateway to India's highest-volume port. Then, roughly 10 miles outside the city limits, a vast container yard rises out of the landscape. As quickly as it appears, the yard gives way to the wetlands. This scene is repeated several more times until the traffic from container trucks begins to back up, and the container cranes that loom over Nhava Sheva Port—India's busiest—appear in the distance.
Located across Mumbai's harbor from the much smaller and older Port of Bombay, Nhava Sheva was established in 1982 as India's first privately managed container terminal. Today it encompasses 14 container yards, 11 of which are within 10 km of the port, with the remaining three roughly 30 km away. The port also feeds a network of dry ports throughout India, including one in Delhi, which offer localized container services. I am visiting the port with a Mumbai scrap importer who has arranged to show me the inside of one of the container yards, where incoming scrap is inspected. Because my visit is a breach of security, my host—whom I'll refer to as Mr. J—has asked me not to identify him.
Before traveling to the container yard, we stop beside the Jawaharlal Nehru Customs House and pick up a customs officer who knows Mr. J. He directs us to a nearby container yard. The driver drops us off just beyond the gate, and we walk unimpeded into canyons of containers, many of which are filled with scrap. Some of the containers are open, revealing a variety of scrap: baled office paper, cable, and what appear to be crushed automobile frames. No figures are available on the volume or origins of scrap that moves through Nhava Sheva, but the customs officer assures me that most of it comes from Middle Eastern ports. The primary reason? Reasonable freight costs, which can be as low as US$100 per container for the three-day journey from Dubai to Mumbai.
That said, Middle Eastern scrap, much of which is generated in conflict zones, has become a significant concern for the Indian government due to several recent accidents involving live munitions and ordnance. In the most notorious instance, rockets in a load of ferrous scrap from Iran exploded at a New Delhi-area mill, killing 12 workers and injuring many others.
The problem is not confined to Middle Eastern scrap, however. According to Ikbal Nathani, a container shipped from New Jersey in July contained about 1 mt of live munitions. In response to this and many earlier incidents, the Indian government has tightened its rules for scrap imports, now requiring the offloading and inspection of all scrap metal imports except shredded material.
At the container yard I tour, the inspections occur in a large, open space. There, dozens of barefoot laborers unload scrap, piling cables, window frames, rusty steel, and brass on rain-soaked ground. Small piles remain separate from each other, but the bigger piles bleed together, mixing wet aluminum with rusty steel and drenched cables. The entire chaotic enterprise is supervised by a single security officer who sits on a wooden crate in the middle of the piles, chin propped on his palm.
According to the customs officer, unloading and inspecting loose scrap takes four to five days and costs the importer roughly US$500, divided equally between labor costs and the "disturbing space" necessary to hold the unloaded metal while it awaits inspection. Baled material is generally unloaded in a single day. At Nhava Sheva, at least, all unloading and temporary storage is outdoors, even during the monsoon season. "So the nice, clean aluminum has the chance to begin to corrode," says Mr. J with frustration. "Then the importer is left with downgraded material."
The Indian government's determination to increase the safety and security of scrap imports is creating other tensions in the Indian scrap community. Earlier this year, DGFT announced it would begin an exporter registration system loosely modeled on China's AQSIQ supplier registration system. The program caught Indian importers and exporters unprepared, and the flood of applications seemed to catch DGFT unprepared, too. The deadline for applications was May 31, but DGFT delayed enforcement from Aug. 1 to April 1, 2007, so it could deal with the volume of applications.
Shortly after my trip to Nhava Sheva, I discussed scrap trade with Jayant Ranka, president of the Bombay Non-Ferrous Metal and Scrap Merchants Association, in his office on Mumbai's Thakurdwar Street. "These new regulations have raised the price of shipping to India so much that we are seeing a decline in the trade," he says in a near whisper. "Maybe 50 percent in some areas, and with costs rising as much as $1,000 per container." In addition to running his association, Ranka represents the seventh generation of his family to operate Shah Khetaji Dhanaji & Co., a Mumbai scrap processing empire that imports thousands of tons of material a month. He considers additional costs, on top of India's already exorbitant duties, a serious concern. "It is not possible to charge importers much more and expect the business to grow," Ranka says.
Nearly all grades of ferrous and nonferrous scrap imported into India are subject to a roughly 31-percent duty that is actually a combination of taxes, rebates, and more taxes. The result is corruption, though neither Ranka nor anyone else will say just how widespread it is. He does offer a prediction, however: "If India cuts the duty by half, it will also cut the corruption by half." So far, India's scrap processors and associations have been unsuccessful at persuading the government to see that point of view. "The Indian government does not support this industry," Ranka concludes, "and that is a serious problem."
Waiting for an Economic Miracle
Ten years ago, when tax and industrial policies began to push polluting industries out of Mumbai, municipalities in Gujarat—a state bordering Mumbai to the north—established tax incentives, land giveaways, and industrial zones to attract the dispossessed manufacturers and their jobs and tax revenue. Sylvassa, a scenic tourist town roughly 200 km north of Mumbai, gained dozens of manufacturers despite its lack of infrastructure and industrial experience. As Rohit Shah and I speed along the gorgeous rolling hills and verdant fields that line Sylvassa's one-and-a-half-lane highway—the town's main thoroughfare—we pass an overturned container truck surrounded by barefoot children. We slow down to get a look at ragged locals as they try to pry open the container's doors.
Ten minutes later we arrive at Sunland Metal & Recycling Industries, a multi-acre complex that houses one of India's largest nonferrous importers. We are joined by Surendra Kachara, the company's founder and managing partner, who leads us into a large warehouse where groups of men and boys strip wire and cable with knives. Nearby, other groups sort what appear to be mixed loads of clean bathroom fixtures. Beside them, two elderly men sort through piles of brass. Most of the workers wear sandals, a few are barefoot, and the only headgear is the occasional handkerchief.
The remainder of the space—several hundred meters of it—is filled with hundreds of women in beautifully colored saris and scarves that contrast with the dull gray piles of unwashed shredded scrap that run the length of the room. The women, who range in age from preteen to elderly, sit on rolled-up scarves or the concrete floor. All of them are from local villages. They receive no formal training but instead learn the process of sorting while working 12-hour shifts with their sisters, mothers, aunts, and grandmothers. The men who work next to them tend to be migrant workers from northern India, and they are housed at the Sunland facility. The laborers don't question the working conditions. "They are from the untouchable caste," Shah says, gazing over the warehouse. "They don't know the difference."
From the warehouse, we walk to an outdoor processing area covered by a blue tarp. There, groups of men hand-cut giant brass ship propellers imported from Germany. Other men chip away at large blocks of copper dross. Kachara says most of his material comes from the Middle East, though an increasing quantity originates in Europe. Sunland imports about 3,000 mt of scrap a month, making it one of India's biggest nonferrous importers. Aluminum accounts for roughly 2,500 mt of that total, followed by zinc, copper, and brass. Aluminum is a growth metal, demanded by India's developing economy, and for now Kachara and Sunland are growing with it, employing 2,000 workers in two plants to manufacture around 2,000 mt of ingot per month for local customers.
Issues of ingot quality and chemistry loom for India's scrap melters, but so long as the domestic market doesn't require higher quality, Sunland will not provide it. "We are busy just supplying our local customers," Kachara says, as he leads us into another warehouse where two laborers are hand-loading ingots onto a giant balance scale. Smoke billows from a giant pan of turnings being heated to burn off excess oil. As we move toward another warehouse, I feel the heat of a furnace. Inside, freshly poured aluminum ingots slowly move down a conveyor belt where workers use metal tongs to stack them in neat piles. Nobody wears safety equipment. Next to the furnace, bony workers in tank tops and cotton pants completely soaked in sweat, grease, and dust use rakes to skim dross from the furnace. I pause just long enough to take a few photos, then I retreat due to the heat and a coughing fit.
Afterward, Shah, Kachara, and I retire for tea in Sunland's offices. As we relax, both men quiz me about my knowledge of the aluminum smelting industry in China, where I've lived for the past four years. I show them photos on my laptop of Shanghai's most technologically advanced secondary aluminum smelter. "Perhaps we can partner with them on technology," Shah says to Kachara. "We should see if we can spend a couple of days there learning how they do it." When I tell them that such smelters are significantly more efficient than Sunland's and capable of producing specification-grade ingot for global consumers, Shah pinches his lips.
Like many Indian scrap recyclers, Shah and Kachara are keenly interested in two topics: modernization and China. And so, inevitably, they begin discussing the reasons for, and sustainability of, China's economic miracle. As they talk, I realize there is a subtext to their conversation, namely why didn't India do it first? I finish my tea and the three of us walk out of the building, past a group of four girls in red and gold saris, carrying shovels over their shoulders for $2 per day.
Adam Minter is a journalist based in Shanghai, where he writes about business and culture for U.S. and Chinese publications.