Tradewinds – India rerolled steel rules threaten scrap prices

(Written by Adam Corbett)

21 August 2013 - New state control on selling scrap steel for rerolling is threatening breakers’ earnings and could hit demolition prices

 A threat to Indian shipbreakers’ earnings from new government regulations on the sale of scrap steel plate for rerolling could have a big impact on demolition prices.

Amid concern over the sometimes poor quality of steel used in domestic and commercial infrastructure projects, the Indian government is set to introduce a steel and steel products quality-control order at the end of September.

In effect, the legislation will stop Indian shipbreakers selling on steel plate to mills for rerolling, a long-standing practice that accounts for the vast majority of demolition yards’ total business and earns a considerable premium.

According to local sources, 90% of Alang’s scrap metal is sold to mills for rerolling into rebars, angles, channels and rods.

That saves steel mills the trouble of melting down the scrap metal first into ingots and billets before processing. As one local commentator said: “In short, rerollable scrap works as a semi- product and as an alternative to ingot and billots.”

And because the rerolling practice offers the steel mills a short cut, it earns the shipbreakers a whopping premium.

Scrap sold for rerolling earns up to a INR 4,000 ($62) per ton premium over the 10% of the ship scrap metal that is sold for melting.

The Indian government order now requires that all steel for rerolling comes with Bureau of Indian Standards (BIS) certification.

But the BIS standard requires a uniformity of size and composition that the shipbreakers simply cannot provide because of the nature of the business.

It will also require that the origin of the steel must be certified and identified, something that is not realistic in the shipping industry.

That could lead to an end of sales for rerolling and the Indian breakers having to take a big hit on their earnings as they are forced to sell all scrap metal for melting.

Breakers are likely to have difficulty in recouping the lost revenue by trying to secure tonnage at a lower price.

One predicted: “The demolition price realisation will have to drop by 10% at least, which will have an impact of $40-$45 per ldt on ship purchases, making India an unviable option for owners.”

Brokers are waiting to see how Bangladeshi and Pakistani buyers react to India’s attempts to secure cheaper tonnage.

But the wider market concern is that lower demolition prices would deter owners from scrapping and taking older tonnage out of a chronically oversupplied market.

There is already pressure outside India, in Pakistan and some Middle Eastern countries, against the use of allegedly low-quality rerolled steel sourced from ship demolition, known as rebars.

With many areas of Pakistan prone to earthquakes, and amid concerns over the quality of construction work in the country, there is growing pressure on the Pakistan Standards and Quality Control Authority to take similar action to the Indian government and implement tougher standards for rerolled steel bars.