benefits of metal recycling policy - mrai tiwari (kpmg...overview of global scrap metal recycling...

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KPMG.com/in

Benefits of Metal recycling policy

January 2017

MRAI conference

Alekh Tiwari, Director –Management Consulting, KPMG

© 2016 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 2

Table of contents

Scrap metal recycling – Global scenario1

Indian consumption of scrap metal 2

Benefits of the Metal recycling policy 3

Challenges in Indian metal recycling4

Key international policies and practices5

6 Brief policy recommendations

3© 2017 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved

Overview of global scrap metal recycling market“The global metal recycling market is expected to grow at a CAGR of 8 per cent to reach an estimated value of

USD400 billion by 2020 from USD277 billion in 2015”

13

7.3 7.8

0 0.003

3.5

0.3 0.1

2.3

5.2

U.S. U.K. Japan China India

2.5

0.70.0 0.0 0.0

0.60.2 0.2

5.9

1.0

U.S. U.K. Japan China India

Export

Import

Import – export of ferrous scrap (MT): FY15

Import – export of Al & Cu scrap (MT): FY15

70%87% 82%

33%

93%80%

11%

50% 45%

37%

76% 58%

Steel Aluminium Copper

Comparison of Recycling rates

U.S. Japan India World

• India is the third largest importer of metal scrap in the world

• Recycling rates in India are below world average and countries such as U.S. and Japan

Source; World Steel Recycling in Figures 2011-2015, BIR Global Facts and Figures; Aluminium and copper scrap market report, Metal Bulletin, EuRIC, November 2015; Metal Recycling Sector: Contributor to National Wealth, Frost & Sullivan, accessed on 22 August 2016; Metal Recycling Market - Forecast to 2020 , MarketsandMarkets

Note: Steel Recycling Ratio = Scrap /Crude Steel Production

Low domestic scrap generation amongst the key reasons for India’s dependence on Scrap imports

4© [2017] KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved

Consumption of scrap is steadily increasing in India

Import of ferrous and non-ferrous scrap by major countries (million tonnes): FY16

U.S.

U.A.E.

South Africa

Brazil

Australia

1.14 0.12

1.00 0.16

U.K.

0.94 0.15

0.76 0.05 0.40 0.06

Singapore

0.40 0.020.21 0.001

Malaysia

0.21

SaudiArabia

0.02 0.14

Ferrous scrap

Non-ferrous scrap

• India imported ~8.1 million tonnes (MT) of ferrous and non-ferrous scrap in FY16, an increase of ~20% as compared to FY15

• Ferrous scrap imports - ~ 6.9 MT• Non-ferrous scrap imports - ~1.1 MT

• Steel (including stainless) and aluminium are the major scrap imported in to India, accounting for ~96% of the total imports in FY16

• The U.S., U.A.E. and the U.K. are the largest exporters of metal scrap to India

China

0.002

0.02

Source; EXIM database, accessed on 22 August 2016; KPMG in India’s analysis, 2016

“Domestic production of scrap was 30.5 million tons in the year 2015 whereas demand was close to 37 million tons resulting in net import of approximately 6.5 million tons.”

It is estimated that by year 2020, domestic scrap generation will reach 43 million tons whereas demand would be about to 53 million tons creating a deficit of 10 million tons

5© [2017] KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved

Objective and benefits of metal recycling policyOBJECTIVE

This policy aims to develop a framework for efficient and effective management of ferrous and non-ferrous scrap material in India across the value chain and address key gaps in the metal recycling process

KEY BENEFITS

1. Domestic recovery of scrap will ensure reduction in scrap and metal imports, therebyreducing trade deficits

2. Metal scrap recycling will lead to natural resource conservation and energy savings3. Processing metal scrap in an organized, safe and environmentally efficient manner4. Promotion of a formal collection and shredding mechanism for end of life products that are

sources of metal scrap5. Generation of new sources of revenue and employment for Government6. Contribution and promotion of the Swachh Bharat Abhiyaan by developing recycling zones7. Establishing mechanisms such as e-auctions, defined payment systems for monitoring and

regulating the metals recycling sector in India across the value chain

6

Scrap Value Chain and ChallengesExisting value chain involves multiple sub-processes and is beset with multiple challenges at each level

Generation

Collection

Usage

Scrap Value chain

• New scrap is generated as by-product during creationof metallic goods from public/private manufacturers

• Old scrap is generated from disposal of metallic goods(auto, industrial, home, worn out heavy machinery)

Disposal

1

2

3

4

o Procurement• Scrap sourced either locally or via imports. Scrap is

imported primarily from international economieso Dismantling/Sorting• Scrap is sorted to remove attachments. Small size

scrap is sorted via machines and larger size manuallyo Processing• Based on demand, scrap is compressed to bails for

easy handling

o Smelting - Scrap is fed to furnace to create moltenmetal, which is used to create ingots

o Commercial Job Parts - Sheet scrap is used to createequipment such as toys

• Residue from the melting process typically containsoxide and metallic compounds. Residue either sold torecyclers or dumped at authorized locations

Key Activities Key Challenges in value chain

• Lack of End of Life policy of consumer products/automobiles• Quality of domestic scrap is lower than that of imported scrap• Import duty on scrap and PSIC regulations• No definitive guidelines exist for scrap classification

• No guidelines for pricing and payment mechanism• Lack of usage of safety gears (specially in unorganized market). Moreover, no

health benefits for employed labor• During manual dismantling/, scrap is not checked for radioactive elements• No policy exists to prevent usage of stolen good scrap• Absence of scrap specific licenses prevents enforcement on industry activities• Lack of policies for detection and storage of war/hazardous scrap

• Polluted scrap fed into furnace often leads to generation of poisonous fumes andchange in composition of end product

• No incentives for R&D on recycling/waste reduction

• Smelters ( specially in unorganized market ) dump residue in unsafe manner• Water used in metal recycling is disposed without treating• No residue classification exists to create disposal policy

Note: Challenges mentioned in red indicate practices that are prevalent internationally but completely absent in India

Draft policy_29042015_v1.3.pptx


Key international policies and practicesE

nd

of

life

po

licy ■ Extended producer responsibility principle

implemented in EU, Japan, Korea and China for management of end of life products specially automobiles and home appliances.

■ Producers have established authorized collection and shredding centres to process old scrap

■ Japan and EU have achieved more than 85 per cent recycling rate for end of life vehicles.

Meta

l th

eft

■ China set up 7 industrial recycling parks with a target to create dedicated end to end metal recycling areas. It plans to setup 15 more facilities.

■ Scrap Metal Centres (SMCs) with shredders, processors etc. near major industrial hubs were created in Saudi Arabia and U.A.E.

Recy

clin

g

zon

es

■ United Kingdom implemented the Scrap Metal Dealers Act in 2013 to reduce metal theft, register all scrap metal dealers and entirely ban cash payments in scrap procurement.

■ Similar laws were implemented in some states of U.S.A. and Africa.

Recycl

ing

eco

syst

em

■ Developed economies have created robust ecosystems which help ensure participation of all stakeholders across the value chain.

■ Japan has a strong network of 800 recyclers and over 1000 municipalities which collect and recycle scrap in organized manner.

■ U.S. has about 350 auto shredders, and local municipality to collect and scrap metal products.

Zero

wast

e

po

licy

■ Automobile and other appliances manufacturers have launched zero waste approach to which includes environment safe product design and reuse of scrap generated.

■ Countries such as Australia, U.K. have specific disposal policies which discourage waste from being landfilled by classifying waste and providing quality protocols.

Source; Metal Recycling Sector: Contributor to National Wealth, Frost & Sullivan, accessed on 22 August 2016; Scrap Metal Dealers Act, 2013; Understanding the Landfill Directive 2010, Environment Agency, U.K.; How GM Makes $1 Billion A Year By Recycling Waste, Forbes; Report on Key Industrial Parks in China , Mortenson China; Material Recovery and Recycling of Waste 2012, Kingdom of Saudi Arabia National Environmental Guidance


Recommendations


Recommendations- Short Term (1/2)

Revision of Import Duty

• Revision of duty on importedscrap such that finishedproducts domestically remaincompetitive with importedfinished products.

• Currently, scrap processors inASEAN countries (with whomIndia has signed FTA) do notpay any duty for importingscrap

• Lack of duty on finishedproducts makes marketuncompetitive for domesticproducers

Re assessment of Inspection Certificates

• As per DGFT’s Public noticeNo.12/2015-20 a registered PSIAshould provide photographs , videoclip of the inspection process prior toexport to India

• These rules have resulted inburgeoning of numerous PSIA’sissuing fake certificates as suchrequirements do not exist in any othercountry

• It is recommended to review therevised rules and provide for strictinspection of shipments at the IndianPorts in addition to the radioactivescanners present at 9 designatedports

Exemption from Hazardous Waste Provisions

• The Hazardous and Other Wastes Rules,2016 categorizes metal scrap as “OtherWaste” and necessitates• A new manifest system that requires

7 color coded documents fordomestic movement of metal scrap

• A Chemical analysis certificate forimported metal scrap

• Above mentioned provisions posesignificant challenge for the scrap metalindustry

• MoEF in consultation with MRAI, ILZDA,etc. should consider exemption of metalscrap from aforementioned provisions


Recommendations- Short Term (2/2)

Define Safety Standards

• Manual dismantling andsorting of scrap posesserious safety threats toemployees

• OSHA has providedPermissible Exposure Limits(PELs) above which filteringof fumes/emissions andprotective respiratory gear isnecessary

• The central governmentneeds to define safetyguidelines for employees inthe scrap sector usinginternational benchmarkssuch as OSHA guidelines asreference

Level playing field for Secondary Steel sector

• India Secondary steel playerscannot participate in anycentral or state governmenttenders due to certainclauses in the tenders whichtend to favor primaryproducers

• Government tenderingsystem terms/ conditionsshould be revised to providesecondary steel players alevel playing field

Input tax credit in Scrap value chain

• At present there is noprovision of providing anyinput tax credit tostakeholders present in scraprecycling value chain

• Due to this, the stakeholdershave to pay the tax twice i.e.first time on the purchase ofinput material and secondtime on the product soldthus leading to multipletaxation

• Government should considertax credit to the stakeholderon the input materialpurchased as previousstakeholder in value chainhas already paid the taxes onthe finished product

Industry status for metal scrap sector

• Currently, metal scrap sectordoes not enjoy any industrystatus

• Conferring industry statuscan lead to followingbenefits:

o Obtain funding from thefinancial institutions

o Easy sanction of loans forprojects

o Stabilization of interest rateso Speedier approvals for

project activitieso Entry of new players and

investors in the sector


Recommendations- Medium Term (1/2)Development of a shredding ecosystem

• Need to have a framework focusing on environmentally safe management of following end of life productso Automobiles & White goodso Ships and defense sectoro Heavy machinery equipment o Worn out machinery from

public/private sector manufacturing units etc.

• Factors for defining end of life criteria –age, fitness, wear and tear and environmental impact for various product categories.

• End of Life Vehicles will entail the following additional requirements:o An integrated MIS to track

registered/deregistered vehicle, current owner, criminal records if any etc.

o Provision of a certificate of destruction which enable consumer incentives on purchase of new vehicle

De

fin

e e

nd

of

life

cri

teri

a a

nd

se

t u

p

sh

red

din

g c

en

tre

s

The state government should identify sites and provide a single window for registration and necessary approvals.

These shredding centres may be set up by third parties independently or in a PPP model

Shredding centres will need to be established on the basis of certain guidelines on output / distance from customers etc. Key Steps for establishment of shredding ecosystem entails:

1. Defining End of Life Criteria

2. Establishing Collection & Processing Centres.

3. Establishing Shredding & downstream Metal Separation Plants

4. Identification of locations for Shredding Centres

To enable organized and increase collection

• The shredding centre will have to pay a fair price for the end of life product it collects based on its quality, age, recyclable value etc.

• Producers may be encouraged to voluntarily announce take back schemes

Role of Government

Role of Shredder/Producer


Recommendations- Medium Term (2/2)

• Introduction of registration process to identify authorized metal scrap dealers and facilitate movement towards an organized sector

• Easy access to financing and tax breaks could be provided to scrap dealers willing to set up operations in regulated zones and opt for registration

• Acceptable modes of payment ( cheque or electronic) should be defined for all high value purchase transactions to reduce illegal transactions in unorganized market

• An e-auction system may be setup for sale and purchase of scrap to enhance transparency

Introduction of Registration process Installation of Radiation

Detection Equipment

• Government has installed radiation detection scanners at major ports

• Such equipment should be installed at • All Indian Ports• Inland Container Depots• Container freight stations• Steel mills• Metal recycling yards• All units/mills consuming or metal

scrap of any kind

• Measures should be taken to implement and monitor Atomic Energy (Factories) Rules, 1996 regulations regarding safe storage, safe transport and disposal of radioactive scrap

• The BIS, in conjunction with an industry body like MRAI, should develop metal scrap specifications in order to deal in more materials and improve quality assurance

• These standards should also ensure that finished products in an industry have similar technical composition to enable processor to scale up their production

• It is essential to determine specifications for the purpose of quality assurance. Internationally recognized standards technical specifications like ISRI Scrap Specifications Circular 2016 can be used as reference.

Define BIS Specifications


Recommendations- Long Term

Implementation of Zero Waste Policy

• Central government in association with the industry should propagate the concept of “Zero Waste” in the manufacturing industry to promote recovery and reuse of materials

• Central Government should lay down quantitative targets for waste reduction

• Focus on research and development to enhance existing metal recovery and promote use of technologies in the sector

Setting up of Recycling Zones

• Recycling zones should be set up which house multiple end to end processors producing intermediary and end products from metal scrap

• It is imperative to begin development of recycling zones in existing metal clusters, scrap yards, ports, mines and ship breaking facilities which are primary sources of scrap generation

• Dedicated area for recycling zones may be earmarked within SEZs, manufacturing zones/clusters, industrial corridors and parks

• Proximity to user industries, presence of industrial corridors, availability of land at competitive rates and other such parameters must be considered while setting up a recycling zone

• Central Government needs to work with international agencies involved and originating states to promote efficient tracking of ships

• The central government should set up more ship dismantling facilities and upgrade existing facilities under its Sagarmala project

• A one stop nodal agency should be set up for providing the necessary approvals for certified breaking of original equipment.

Focus on ship breaking activities

• The state government in conjunction with SPCB should identify and establish disposal and treatment facilities near huge industrial areas and metal clusters as per Hazardous waste rules

• Scrap to be disposed should be specifically categorized according to its hazardous nature. There should also be classification of landfills to receive the corresponding kind of waste

• The CPCB must would need to • Define SOP for landfills to

accept or reject scrap material• Provide guidelines for set up

of adequate landfill sites and their classification

Improve Waste disposal and treatment Infrastructure


Implementation Steps


Implementation Model

Steps

• Based on the perspective plan, the formation of the agencies at the Centre and State would be undertaken.

• Setting up nodal agencies and/or other Special Purpose Vehicles (SPVs).

• The state level SPVs would be undertaken at the necessary stages.

• Necessary for or smoother coordination and speedier implementation of recommended policies

• The task force will be responsible to o Conduct periodic reviews, o Remove infrastructural, procedural and

institutional bottlenecks ando Achieve policy coordination

• Prepare specific rules, by-laws and regulations e.g. SOP for shredding centres, guidelines for scrap smelters & PSICs etc.

• The DPRs will provide o Opportunity assessment including

feasibility analysis, o Financing plan,o Execution models,o Implementation schedule o Responsibilities of all stakeholders etc.

• The perspective plan would comprise the following:

o Vision, broad objectives and targets

o Assessment of the scrap generation, required infrastructural capacity etc.

o Funding and financing arrangements

o Integration of the policy components with initiatives e.g. Make in India, Swachh Bharat, Smart Cities mission, Industrial corridors etc.

o Institutional Framework


Alignment with key national priorities

Swachh Bharat

Make in India

Smart Cities

Sagar Mala

Contribution to the Swachh Bharat mission due to the following:o Enforcing the hazardous waste 2016 guidelineso Introduction of Zero Waste Policy o Regulating illegal dumping of end of life products, o Focus on correct and efficient disposal of hazardous/non-hazardous scrap into authorized sites

Promote localization and reduce reliance on importso Currently, net import of metal scrap are almost 7.2 million tons and are slated to rise to 11.6 million tons by

year 2021-22. o Scrap metal recycling policy aims to develop domestic metal scrap industry which will lead to increase in

availability of domestic metallic finished goods in market.

Establishment of recycling zones and shredding centres will be a part of developing self-sufficient and sustainable smart cities

Up gradation of ship breaking yards and establishment of recycling zones in coastal economic zones will contribute to the objective of transforming Indian port infrastructure.

Thank youThe information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. The document is meant for e-communication only.

© [016] KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The KPMG name and logo are registered trademarks or trademarks of KPMG International.

Contact

Alekh Tiwari

Director – Management Consulting

KPMG Advisory Services Private Limited

T +91 9971 547 444

E [email protected]

kpmg.com/in

benefits of metal recycling policy - mrai tiwari (kpmg...overview of global scrap metal recycling...

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