March/April 2007
From Delhi to Mumbai to Kolkata, ReMA members took a good look at the Indian metals industry and the challenges and opportunities it presents for U.S. scrap.
By Ann C. Logue
India is one of the world's fastest growing scrap markets. Total U.S. scrap exports to that country were valued at more than $367 million in 2005, and U.S. ferrous exports there grew more than 200 percent from 2004 to 2005, to 806,000 mt. Despite this recent trade growth, scrap exporters wonder if high transportation costs and other barriers will limit the country's attractiveness as a destination for U.S. scrap. About two dozen ReMA members and staffers decided to see for themselves by participating in a January trade mission organized by the association and the U.S. Department of Commerce.
From Mumbai on the west coast to Delhi in the north and Kolkata in the east, the mission participants spent 10 days traversing the subcontinent, visiting 10 metals processing and consuming facilities and two container terminals, meeting with leaders in the country's metals industry, and getting briefed on various issues related to Indian trade. They received a warm welcome. "The people we met were very engaging and very friendly," says Randy Goodman, director of international nonferrous marketing and logistics for the Carolinas Recycling Group (Spartanburg, S.C.). Further, "The Indian government and business officials expressed serious intentions in building the trade connection with the USA and ReMA constituents," says Karen Strelitz, executive vice president of California Metal-X (Los Angeles). She says the trade mission made her "better prepared to work with our trade partners, knowing the growing requirements and domestic outline of India, its infrastructure, and its market prospects."
Inside India
Business trips aren't glamorous. Other than a day trip to the Taj Mahal, the tour had a packed, scrap-oriented itinerary. The delegates spent much of their time in transit, either flying among the three cities in which the mission was based or moving to and from ferrous and nonferrous facilities and shipping terminals that were typically hours away from the downtown hotels. Still, the travel gave the delegates ample time to get a glimpse of a country that's long held a prominent place in the Western imagination.
"We were in the bus at 6:30 every morning," says Jim Snyder of Neville Metals/Assad Iron & Metal (Pittsburgh), "but the sights and sounds of India were there with us. It kept your eyes busy every second of every day." The bus navigated among wandering Brahma cows, impossibly small taxis, and people carrying huge loads on their heads. "It was a most awesome, eye-opening experience," Strelitz says. "Every turn, every moment was a caravan of new and uncharted experiences into the Indian culture and country."
Because there was so little free time, many delegates added a few days of sightseeing before or after the official visit. Goodman and some other delegates took an extra day to see historic sites in Kolkata, including Mother Theresa's former house and mission. Goodman found the mission inspirational. "Being a Jewish person, I still felt that I was in the presence of a saint who did God's work," he says.
Not all of India is beautiful, though. Jim Skipsey, a trader with Alpert & Alpert Iron & Metal Inc. (Los Angeles), was shocked by the level of poverty he saw. "It was something I've never seen in my entire life, and I've been to Third World countries," he says. About one-third of India's people—a number greater than the entire U.S. population—live on less than $1 a day. "I never felt like we were in any harm, though," Skipsey says. "The Indian people were very nice and living in harmony, given that there are so many people crowded in one place."
Infrastructure issues
For Alpert & Alpert president Alan Alpert, the most fascinating thing about India was "the infrastructure and the way the people got around." But infrastructure is also one of the country's biggest weaknesses, the delegates said.
"We were traveling around in a bus, and we couldn't figure out how a container could get from a port [to a processing facility] on the same road," Alpert says. As the trip photographer, he sat at the front of the bus, where he could take in the road ahead, and he says what he saw wasn't good. Even on new highways, there were places where the bus had to slow down to navigate over potholes. At one point on the journey, the road was too narrow for the bus, so some delegates rode on in rickshaws to reach a foundry that appeared to produce manhole covers used by several major U.S. metropolitan areas. Another day, a man with an ox cart blocked the road and demanded payment before he would let the bus pass. The bus driver negotiated a price of 100 rupees, or about US$2.25.
Visits to the shipping container terminals revealed further concerns. Snyder says he found the port and inspection process baffling. Workers unload containers by hand for inspection and then reload them by hand before sending them to their ultimate destination. The goal of this laborious process is to prevent munitions smuggling and terrorist attacks, but it has the effect of slowing shipping to a trickle. Think about an airport security line dispute over impermissible items, then multiply that level of scrutiny by all the goods coming into a port of entry. At the terminals, "you can see that everything that came out of the container might not go back into the container, because [many] containers are unloaded simultaneously," Snyder says. That raises the risk of shipment contamination and weight discrepancies. The shipping ports are not always near the factories, but the rivers are not always deep enough to handle containers, nor can all the roads. This means that shipments are often split up and loaded into different vehicles to reach their destination, creating another potential exposure to loss and contamination. To further complicate matters, Snyder notes that few Indian companies use dump trucks. Instead, trucks travel with five or six workers who load and unload them by hand. It's cheap, given Indian wage rates, but it's not efficient.
The infrastructure problems are not insurmountable, though. Jesse Alexandra, owner of A&W Iron & Metal Inc. (Kewaskum, Wis.), notes that despite the Taj Mahal's remote location—about 175 miles south of Delhi, which is about a four- to five-hour trip on surface roads—40,000 visitors make it there each day. "Somehow, they get everyone in and out," he says. "It's unbelievable."
The low cost of doing business in India sadly seems to come at the expense of the country's environment and the safety of its workers, the delegates say. "To me, there were more environmental concerns than even China, and I don't know what [the country is] going to do to fix that," Goodman says.
Snyder says he was stunned to visit plants and see workers carrying around ladles of hot metal to pour into molds for manhole covers while wearing nothing but sandals and dhotis, the traditional Indian loincloths. Only one facility on the mission's itinerary had workers wearing closed-toe shoes, overalls, and hard hats, but "we could see it was a dog-and-pony show," Snyder says. "The shoes had never been worn before." Still, he acknowledges that jobs in metal-processing facilities were probably better than other alternatives available to these workers, which is evidence of progress in the country. Other plants, in contrast, were as good as anything in the United States or Europe. "We saw a stainless mill that was putting in a brand-new, state-of-the-art AOD vessel. That was impressive," says Phillip Heston, vice president of Miller Compressing Co. (Milwaukee, Wis.). "The Rico Auto plant was incredible" as well, Heston says. It needed few supervisors because the production-line workers are all college-educated mechanical engineers who do their own reporting and quality-control work. "The commitment to education really is an advantage the country has," he says.
Business practices
To learn about the cultural norms and rules and regulations of doing business in India, ReMA's delegates met with representatives of the U.S. State Department, U.S. Commercial Service, and India's Directorate General of Foreign Trade. These meetings also gave the delegates an opportunity to point out problems and suggest improvements that would make it easier for U.S. companies to do business there. "It's ground-cutting time. It's planting the seeds," Snyder says of his goals for such meetings. "We made an impression."
In general, they learned that Indian business etiquette is similar to American practices. "It's a Western culture because it was a British colony," Goodman explains, so basic niceties like shaking hands are the same as here. Snyder says he was expecting to see the caste system play a bigger role in business, but "it's not as prevalent as it used to be. Times have changed." One significant difference the delegates noticed was the thick layers of bureaucracy overlaying even seemingly simple tasks, like transferring money and exchanging currency. "Indians don't seem to realize how easy it is to do business in the rest of the world," Skipsey says. "The amount of professionalism you see is so different from what you see [elsewhere]." Heston thinks members of the growing entrepreneurial class will demand improvements in business practices, though.
In particular the delegates took issue with the DGFT's supplier registration requirements, which are taking effect this year. "Some of the licensing requirements are not conducive to how we do business" in the United States, Snyder says. "They wanted audited financial statements, and not everyone here has them." The delegates explained to the government ministers that that request alone would put off many smaller American companies that are not interested making their finances public.
Indians' enthusiasm to do business with Americans was overwhelming at times, the delegates say. "At [each] of the three cocktail receptions, there were 250 people in line who wanted to talk to each one of us," Snyder says. Delegates quickly discovered that companies were not always what they seemed. "The names can be misleading," Skipsey says. For example, the tour visited one plant that belongs to Jindal Stainless Steel, a large company that generates US $780 million in annual revenues and operates three plants in India and one in Indonesia producing precision strips, blade steel, and coin blanks. The company is named for its founder, O.P. Jindal, but Indian law does not prevent other, unrelated companies from using the Jindal name—and that's exactly what Skipsey saw. "Traders will throw names on their business cards to make it seem like they were doing business with someone, and they weren't," he says. Still, "the personal observation and participation, our camaraderie, and the introductions to the India culture and business" were the best part of the trip, Strelitz says.
The outlook for India
Inevitably people want to compare India to Asia's foremost scrap powerhouse, China. "You can't say that India is the next China," Goodman says. "That's unfair to both [countries]. One of the reasons that China has been able to do what it's done is the Communist government," which can focus enormous state resources on a particular industry or problem. In contrast, India is the world's largest multi-party democracy, with all the messiness that entails. The population is much less homogenous than China's, with practitioners of four major religions—Hindu, Muslim, Christian, and Sikh. Further, "the printed money has 15 different languages on it," Goodman notes, making language alone a significant barrier to unified action.
The delegates' consensus is that India is a fascinating place, but it's not yet a great market for most ReMA members. "They are definitely years away from competing with some of the other emerging markets," Skipsey says. "Everyone is fascinated with the country, and someday there may be opportunities. The country is definitely growing." The country might make faster inroads with European scrap companies, he says, because of its location and historic ties to the United Kingdom.
Snyder agrees that India is likely to be a good market at some point, but not now. "They are looking for materials, but our domestic prices are higher than prices delivered to India right now, and market conditions are such that we need material [in the United States]."
Even if it did not result in immediate business, the delegates who commented for this story all said the trip was worthwhile. Alexandra praised the trip's organization and the ReMA staffers who led it, President Robin Wiener and Senior Vice President Scott Horne, and he said for him the trip accomplished what he hoped it would. "The idea wasn't to go there and sell your Zorba material from your shredder the day you get there," he says. "There are many layers to partnering with people there. This is the beginning of something."
As Goodman put it, "my goal wasn't to come back with orders in my pocket. It was to find out how things worked."
Ann C. Logue is a freelance writer based in Chicago.
From Delhi to Mumbai to Kolkata, ReMA members took a good look at the Indian metals industry and the challenges and opportunities it presents for U.S. scrap.