Goal of report
The goal of current report is to address the marketing, technical, financial and organizational aspects of the vehicle recycling business in India and its positive and negative outcomes for the business.
Industry definition
Vehicle recycling is the dismantling of vehicles for spare parts. Operators in this industry are engaged in the collection, processing, and recycling of ferrous metals, such as iron, steel, and nonferrous metals such as aluminuim, copper and nickel. The typical recycling process involves sorting, shearing, shredding and baling scrap metal to be sold to downstream metal smelters for further processing.
Industry srtucture in India
1) Life Cycle Stage - Growth
2) Revenue Volatility - Very High
3) Capital Intensity - Low
4) Concentration Level - Low
5) Regulation Level - Medium
6) Technology Change - Medium
7) Barriers to Entry - Medium
7) Industry Globalization - High
8) Competition Level - Low
Current industry status in India
Vehicle scrap recycling in India has been a highly unorganized market where end of life vehicles are unsafely stripped and scrap metals and all sort of recovered & refurbished parts are sold. Currently, there are no regulations to monitor these markets and take into account of the recovered scrap, thus necessitating a government policy, which recognizes scrap generation from auto recycling as a sustainable, environment friendly industry.
Changes in government policy
Road Transport and Highways Minister Nitin Gadkari in a recent media conference spoke of the need for a government policy for scrapping old vehicles , which are not only the greatest contributors to pollution, but also a menace towards safety on the roads.
Beginning with Delhi, all vehicles over 15 years old were banned by the National Green Tribunal (NGT) in November 2014. Since then, petrol and diesel vehicles, typically 10-15 years old have been banned in Kerala (May 16, 2016), Bihar (June 15, 2016) and most recently in Chhattisgarh (June 23, 2016). In Kerala were banned diesel vehicles over 10-year-old.
Highlights of government policy
The goal of government policy is to push over 28 million units of decade-old polluting vehicles off the road.
Ministry of Road Transport and Highways has issued on May 26th, 2016, a concept note for the voluntary vehicle scrapping scheme. Officially called the Voluntary Vehicle Fleet Modernization plan (V-VFM), the concept note has been issued to ascertain public and official reaction. It provides the following highlights of the draft policy:
- The government is contemplating over replacement vehicles to be BS-IV complaint which will be out by April 2017
- Diesel and Petrol vehicles over 10 years old will be banned
- When implemented on trucks and buses, the reduction in CO emission would be almost 17%, and HC + NOx reduction will be 18%, and 24% reduction can be seen in PM emission
- Vehicles owners who surrender their old vehicle will stand to benefit around 8 to 12% of the cost of the new vehicle
- The ministry has proposed tax exemptions of up to INR 30,000 for passenger vehicles and up to 150,000 for commercial vehicles
- Giving further thrust to emission control measures, the draft norms for the end of life policy are likely to provide about 50% rebate in excise duty on new vehicles for buyers who surrender their polluting old ones.
Key External Drivers in Vehicle Recycling Industry
Price of nonferrous metals
As the price of nonferrous metals increases in response to rising demand, scrap metal becomes an increasingly attractive source of supply.
Trade-weighted index
The market for scrap metal is increasingly global as many countries become less dependent on local supplies.
World price of steel
Significant part of recycled metal is steel. Industry operators can generally earn more revenue from higher average selling prices for recycled steel. So high prices for steel represent a potential opportunity for the industry.
Value of private nonresidential construction
Nonresidential construction spurs demand for metal structures and components, such as airlocks, bins, casings, chutes, covers, culverts, ducting, hoppers, liners, pipes and smokestacks. These structures and systems are used in commercial, industrial and public construction projects.
GDP of mainland China
China is the one of biggest export market for scrap metal. Development in China is one of the main drivers of the global metal market as both ferrous and nonferrous metals are required to build skyscrapers, bridges, roads and other infrastructure.
Industry size overview in the world and India
In terms of vehicle recycling, USA is the biggest market in the world with 12-15 mln cars scrapped annually. It’s $22 billion business, which is about 50% of scrap metal recycling industry in the United States ($45.7 bn according to IBISWorld Industry Research).
Source: Steel 360 India
According to SIAM report to government of India, total number of vehicles registered from 1st April 1990 to 31st March 2000 is 30.55 million, and has the potential to generate INR 320 billion worth of scrap value. At least 25% (7 million cars) of total cars that could be scrapped initially, it is expected to generate business of around USD 2.9 billion (equivalent to INR 190 billion). These numbers are likely to grow over a period of time.
Union Minister Nitin Gadkari said it will boost the automobile industry turnover over 4 times to INR 20,000 billion in the next five years from present INR 4,500 billion.
Another point to consider is that by next decade the vehicle density in India would grow from 20 for every 1000 to 65 for every 1000 thus estimating roughly a growth of 6.7% compared to China, which grows around 5.7% every year. Projected “daily sales” of cars is expected to reach 14,000 units in 2020 from current 5,200 units. (Source: Steel 360)
Industry structure of scrap recycling
Scrap metal recycling plants add value by sorting, shearing, shredding, torching and baling scrap metal into commodity- grade specifications for further processing. The industry includes operators that recycle both ferrous metal, such as iron and steel, and nonferrous metal, including aluminum, copper, lead, nickel, tin, titanium and zinc. Scrap metal comes in two main forms: new, meaning from pre-consumer sources like cuttings and trimmings discarded during the manufacturing process, and old, which are products made of or containing metal like appliances, automobiles and soda cans.
Driving demand
As an industry that is highly dependent on international trade, global macroeconomic trends have a large impact on industry revenue. Commodity prices (e.g. steel, aluminum and copper) are significant drivers of demand, impacting industry revenue and profit, as they influence the final price scrap metal recyclers receive for their products.
The industry is also driven by nonresidential construction as building activity drives demand for metal components like airlocks, beams, casings, ducting, flumes, hoppers and pipes. Furthermore, changing societal attitudes toward sustainability and the impact of humans on the environment is another significant driver of demand. According to the Bureau of International Recycling, recycling scrap steel uses 74.0% less energy, 40.0% less water and produces less carbon dioxide emissions than primary steelmaking. Moreover, as technology has improved over the past decade, the recycling process has become even more environmentally friendly.
Scrap value of vehicle
On an average, a car weight 1,400 – 1,600 kg. Upon recycling, it generates 65-70% steel scrap, 7-8% aluminum scrap, 1-1.5% copper scrap and 15-20% rubber and plastic scrap. At current scrap prices, a recycled car can fetch roughly INR 30,000 – 35,000 (USD 380-455).
Source: Steel 360 India
Industry costs
Based of revenue analysis of scrap recycling industry in the United States, we may outline industry costs for US market. Following numbers represent US scrap recycling industry.
Source: www.ibisworld.com
The industry provides a relatively low value-adding service, which means that profit margins are low. The average industry profit margin is estimated to have risen from its recession-induced low of 3.4% in 2009 when metal prices plummeted to 4.5% in 2014, forcing operators to sell recycled metals for low prices compared with what they had paid for scrap inputs. Profit margins vary depending on the size and function of the operator, but in general, companies with large automated facilities and advanced machinery have higher profit margins than small, family-run enterprises. Companies that specialize in high-grade nonferrous products can mark up their products, which boost profitability, while steel recyclers tend to be price takers and need to control costs.
International trade
International trade is a prominent feature of the industry. China currently accounts for about one-quarter of global metal consumption, with scrap metal representing great export opportunity for India.
In terms of international trade, India import scrap, but doesn’t participate in selling it. At the same time, India is actively involved in trading with variety of countries and doesn’t focus on single partner. According to Mr. Ved Prakash, Director of Steel Division of Belgium based Gemini Corporation NV which handles more than 1 million tonne of recyclable raw materials through their global presence: “… while Turkey, Korea, Taiwan have traditional export partners like USA, Europe and Japan, India has multiple import partners like USA, Europe, Africa, Middle East, Australia and Brazil. India’s scrap demand is not affected by supply situation of major exporters, like USA and Europe, rather India’s own circumstances.” (Source: Steel 360 India)
Industry Performance
Products & Services
Scrap metals can be broken down into two categories: ferrous and nonferrous. Ferrous metals (e.g. iron and steel) are highly recyclable as they do not lose chemical or physical properties when recycled and, therefore, have no limit to how many times they can go through the recycling process. Nonferrous metals, such as aluminum, copper and lead, are found in consumer and industrial goods and also lend well to recycling.
Import of scrap
India imports about 6 million tones of steel scrap, 2 million tonnes of aluminum scrap and copper scrap. Auto-recycling can reduce the cost and dependence on importing of some of these metal scraps. As a matter of fact, a single car can help conserve about 2,500 kilograms of iron ore, 1400 kilograms of coal, 125 tonnes of limestone, reduce the release of 1000 kilograms of carbon dioxide, and save more than 1 MW of energy. (Source: Steel 360 India)
2 million tonnes of steel, rubber, plastic and aluminum can be recovered by effective recycling and this will make a great mark especially on the steel industry and according to the Indian government, with this the demand for steel will increase 4X. (Source: Steel 360 India)
Major Markets
Based of revenue analysis of scrap recycling industry in the United States, we may outline major industries purchasing products of scrap industry. Following numbers represent US scrap recycling industry.
Exports
Exports are the industry’s largest market segment is 45.1% of industry revenue in 2014.
Construction industries
Construction industries comprise the second largest segment of industry revenue, estimated at 21.2% in 2014. This category can be further broken down into engineering construction and building construction.
Automobile manufacturers
Manufacturers of automobiles and automobile parts account for about 12.7% of industry revenue.
Equipment and machinery manufacturing
Equipment and machinery manufacturing are expected to account for 7.5% of industry revenue. Industrial machinery and refrigeration and heating equipment are included in this segment.
Mining industries
Mining requires items such as consumer products on digging equipment and grinding media, which are methods, such as a ball mill, in which metals are ground into ne powder. Industry revenue for the mining industries segment is about 6.7% in 2014.
Agricultural industries
Agricultural industries demand specific machinery and equipment, such as tractors and harvesters that are produced from recycled steel, and are subject to trends prevalent within those industries. Agricultural industries is about 2.9% of industry revenue in 2014.
Other
Other industries and manufacturers account for an expected 3.9% of 2014 industry revenue. The aerospace industry is included as it uses industry products for assembling jet engines and airframes using titanium, nickel and tin alloys. Household appliances, ships and boats also generate revenue.
Competitive landscape
MSTC Limited, a Mini Ratna Category-I PSU under the administrative control of the Ministry of Steel, Government of India and Mahindra Intertrade Limited (MIL) in a recently drafted MoU joined hands to set up the first auto shredding plant in India. The plant will be the first in the series of such auto shredding units to be built in the country. MSTC intends to set up to 30 more such units across the nation. India’s foraying into the auto shredding market is also a step ahead in the Make in India campaign.
Source: Steel 360 India
Key Success Factors
Based on international experience in scrap recycling industry, IBISWorld provides set of key success factors, which should be take into consideration in India
Ability to negotiate successfully with regulator
Regulators have influence over land zoning, waste disposal, recycling methods and promotion of recycling campaigns. Thus, negotiation with regulators is essential to obtain permission to engage in recycling activities.
Economies of scale
Larger metal recycling facilities are able to take advantage of economies of scale to improve profitability.
Having a diverse range of clients
Industry companies serve a wide variety of other sectors. Typically, no one customer accounts for a significant portion of a company’s revenue, which reduces risk.
Having a good technical knowledge of the product
Companies generally provide training for people who support manufacturing, quality assurance and sales. The majority of companies’ products and processes require technically sophisticated application engineering.
Proximity to key markets
Transportation costs can be greatly reduced when companies are located near scrap material supply facilities, which increases profit margins.
Supply contracts in place for key inputs
Industry operators must secure long term supply contracts in order to provide the basis for ongoing operations.
Revenue Volatility
According to Mr. Ved Prakash, Director of Steel Division of Belgium based Gemini Corporation NV which handles more than 1 million tonne of recyclable raw materials through their global presence: “The annual trends denote that prices hover at +/-10% around that year’s price range.”
The industry is exposed to a very high level of volatility. Metal is a global commodity, meaning its value can swing wildly depending on economic conditions and expectations. Therefore, factors such as the price of ferrous and nonferrous metals, shipping costs and the relative value of currencies all industry revenue.
The volatile nature of the industry has the potential to put industry operators out of business very quickly. Due to the volatile swings in commodity prices, scrap metal recyclers try not to hold inventory for long periods due to the risk that it will lose its value. However, it is important to note that scrap metal prices do not directly correlate with the price of primary metals, and that scrap metal may become relatively more attractive when the price of primary metals rises.
Source: http://leonidkurza.online/vehicle-recycling-in-india/