How has Covid-19 impacted the metals recycling sector and how is the industry coping with the situation? From a company viewpoint, what has been your experience?
Initially, when the lockdown was announced around the third week of March in India, everyone including the metal recycling industry had very little idea in terms of the intensity, scale, duration and the extent of the problem that was at hand. As time passed by, the challenges multiplied, affecting every aspect of the business and daily life. The metals recycling sector was seriously affected, with all the raw material piling up at ports (India imports a lot of scrap) as the containers could not be cleared. This was mainly because the ports were considered essential services, while everything else including factories, companies, courier services, etc. were considered non-essential services. This created a standoff which hurt us badly with one thing leading to another. Further, this is a labour-intensive sector, and there were labour issues as people migrated to their home towns.
The entire supply chain was disrupted and the automotive sector, which I would say is the backbone of the secondary non-ferrous recycling industry, was in tatters. As I recall, in the entire history of independent India, there was never a period or month that was zero sales as far as the automotive industry is concerned. For the first time, this year in April, it was a zero sale month for the industry. In general, things were very intense and it was difficult to cope with the situation. However, things have started to improve over the last couple of months with the output back to around 50- 70 percent depending on the area or an individual company. I would say there is a complete reboot of business, and most stakeholders are positive and would like to believe that the worst is behind them.
As for Metco, we are a service based organisation, so the first few weeks were a bit chaotic. We had hundreds of active running contracts and the staff was not able to attend office. But we accepted the situation and started working around solutions that would be possible with all the restrictions in place. Even today about 90 percent of our staff is working from home. It’s been over five months since we adapted this work pattern and things are moving seamlessly. We are experiencing the same level of productivity that we desired. Doing business without travel and personal meetings, and shipping through the virtual world has now become a part of our daily routine. Another important thing is that people have started focusing on building immunity, maintaining hygiene, etc. Overall, very unique experiences and despite difficult moments, we have learnt a lot in the last six months.
Despite a steep decline in construction and manufacturing activities, etc., the prices have moved up for certain commodities in recent months. What’s your view on this?
I think that the valuations that you see today isn’t purely a function of demand and supply. My interpretation of the situation is that post-2008 there has been a structural change in how commodity pricings work, and demand supply is only a part of the overall equation. Today’s valuations dissect into several other events or probabilities like geopolitics, money supply, interest rates, arbitrage, trade wars, etc. So, it is extremely important how you do your risk management and embed that into your daily physical business. I wouldn’t concern myself too much with valuations as such.
What are the key issues facing the sector in India? What steps does the government need to take, and would the national recycling policy help?
The National Material Recycling Policy is a holistic draft document prepared after two years of intense research done by the government of India. It takes into account every aspect of the recycling business in the country. I think it has been prepared with an intention of bringing a paradigm shift as far as the recycling industry is concerned. It has the ability to take the country forward. So, we are positive that whenever it sees the light of day, it should propel India to the next level in terms of our recycling capabilities and output.
With regard to issues where policy intervention is required, the problems are still the same; we have probably been working for the longest time to find solutions. The most important thing is the removal of import duties. These are basic raw materials and not adequately available in the country. Again, the logic being that once the duties are removed, it would empower a large section of domestic secondary producers to not only sell material competitively in the domestic market, but also capitalise on exports. That is our biggest demand. Second would be that of putting the brakes on the invasion of value-added goods coming from FTA countries at zero duty, because that is directly encroaching into local producers’ market share. If you look at metal recyclers, there are between 20- 25,000 recycling units. These small and micro units or MSMEs are the backbone of India’s industrial output, contributing nearly 50 percent of the market share. They also contribute to around 45 percent of the total exports from India, this being the second largest employing sector after agriculture.
The biggest challenge in dealing with the aftermath of the pandemic is to revive the economy and create more employment. And MSME plays a very important role in that. So I would say, do not allow the value-added products. The MSMEs have to compete with overseas suppliers, where they are selling at zero duty; whereas over here the equation is a bit lopsided because you are paying a high import duty on scrap, doing your value-addition and then competing with those cheaper products from overseas. Therefore, the FTAs need to be plugged in.
The next issue is regarding the discussion on creating clusters or recycling zones and getting optimal results in terms of sorting, shredding, smelting, etc., all of that in one defined area, where the required infrastructure and the best technology comes in, and it works in a closed loop. So, this should bring about a big change in terms of the way in which the recycling industry here would function. At present, we are paying 18 percent GST, and a reduction in the GST would allow a large number of people to get into the sector and be part of this informal economy. These are a few issues that need to be addressed, and I’m sure the draft recycling policy has looked into that. Once it is implemented, a whole lot of issues will be taken care of.
There’s a lot of talk on Atmanirbhar, and MRAI has been presenting its views and suggestions to different ministries in various webinars. What is the expected outcome and in your view, what needs to be done to make this work?
Atmanirbhar or being self-sufficient is a clarion call from the prime minister. It’s a way to transform and improve the economy and quality of life. The recycling industry is one of the biggest in the country, however, we need to work towards being world leaders. Be it in terms of augmenting capacities or technology adaptation, labour practices, price competitiveness, quality systems, compliances, etc., the world should feel the need of doing business with India. In my view that is Atmanirbhar. Of course, we also need to enhance supply of resources within and penetrate markets within to see our industry grow. But the government is working on it. For the past two years we have been actively talking about the vehicle scrappage policy. Again, that’s something that will bring about a paradigm shift as far as resource availability is concerned. While the government is working alongside with different tools or policies, to me, Atmanirbhar means being world leaders and having the world come to you to do business.
NITI Aayog was recently recommending a separate ministry and dedicated recycling zones in every major city. What is your opinion on these aspects?
For long, the trade has been recommending the formation of a separate ministry for policy matters on recycling. Our growth prospects get skewed if the ministry of mines, which is the parent body that we are dealing with, is going to look at every aspect through the prism of primary producers. I would say that’s still work in progress, we are pushing that at every forum and interaction with the government and hope that we will succeed someday.
As for having recycling zones in every major city, why not? Let’s look at it this way. Today, India generates close to around 75 million tons of municipal waste, 600 million tons of C&D waste, and about 10 million tons of end-of-life vehicle scrap and equipment every year. About 20 percent of the municipal solid waste gets recycled, with the remaining amount going to landfill. It’s a staggering figure, but it also indicates the potential. If that’s the value one can derive, why not? Only about 30 percent of our household scrap and end-of-life items reaches the organised sector for recycling, while the remaining material stays within the unorganised loops. So, I think it’s time to create value propositions for everyone including the direct stakeholders and the government. It needs infrastructure, and the recycling zones we are talking about are essentially to improve the price competitiveness. So far, India imports a lot of raw material, but as far as output is concerned, we are pretty much confined to domestic markets. The idea is that these recycling zones should enable Indian recyclers to capitalise on the infrastructure and reach out to the world by producing competitively, giving the quality that is required internationally. I would say that it would bring a big shift in case this is implemented.
Now that things have eased a bit, and businesses have started functioning, has the market situation improved? What lessons have the recyclers learnt from the covid-19 experience?
The bounce back (if you follow the markets over the past few weeks) is suggesting a V-shaped recovery to the world. Frankly, I don’t buy that at all. Yes, the situation has improved if you look at the valuations; but with central banks around the world having pumped close to three trillion dollars bailout money, it’s likely to work like steroids as far as commodity markets are concerned. In my opinion, it will probably take a few years for the markets to recover from the damage caused by the pandemic over the past few months.
In general, at this moment the feeling is good because the valuations have gone up, but that alone cannot be an indicator of a solid, consistent, sustainable recovery. Unfortunately, we now live in an era of short-term high turnover and to some extent contrarian business cycles. This is all part and parcel of the game, but I still feel that we are still a long way off in terms of getting back to where we were.
As for the lessons learnt, I would say this pandemic is probably the world’s biggest unanticipated, unseen, unheard, underestimated event. So, if there is anything to learn, not only for the recyclers, but for all businesses at large, it is to build events like these as part of their risk management. We took into account a lot of other equations, but for the first time we learnt that something like this could happen. And now that needs to be inbuilt as part of our business securities.
What is your prediction for the nonferrous metals recycling segment in the coming months, and how do you see the market moving forward in 2021?
I’m old school, so the word predication scares me a lot. I think it has lost its relevance and sanctity in today’s world which is driven by hyper actions and reactions. But the fundamental sense tells me that scrap demand should remain strong. The world is slowly coping with a less aggressive China, doing forward and backward integrations locally, and even pushing newer markets and new products. Countries like India, Indonesia, Brazil and a whole lot of countries in far east and other regions represent a vibrant, aspirational class of people who will be consuming more in years to come. I think as part of that theory, metal recycling should ride high on demand. If we don’t go too far out, to me, it looks like 2021 is going to be a busy year.