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  1. Caught in the crossfires of trade wars

Caught in the crossfires of trade wars

The key to the very existence of the Indian recycling industry is in the availability of cost-effective scraps from imports or domestic sources, at a time when the metal prices are reeling under the tariff impact of trade wars

The primary metals industry, through mining and processing, has been proven to have much a higher impact on the environment through deforestation, habitat destruction, and pollution than the recycling industry. (Reuters)

V Shunmugam & Niteen Jain

The escalating global trade war worries have shaken one and all not only for their impact on international trade but also for their economic impact. Industrial metals have been at the forefront, bearing the brunt of the ongoing trade war given that China produces a lot of it in a cost-efficient manner. Consequent global economic sentiments led to a significant drawdown in metal prices from the year-high levels. By August 15, prices of copper, zinc, and aluminium slipped off by 16%, 26% and 19% from their respective 2018 highs. If prolonged, it could potentially transform the metals value chain that will benefit a select few at the cost of others. Notably, India will be impacted by the rising rhetoric as the United States’ import tariffs on primary industrial metals is likely to threaten the availability of scrap for the domestic recycling industry. The trade war is not only significant due to its cascading effect on the scrap-recycling industry but also from the perspective of its impact on the fledgling global environment, thereby moving us to the brink of climate change.

The primary metals industry, through mining and processing, has been proven to have much a higher impact on the environment through deforestation, habitat destruction, and pollution than the recycling industry. This adverse environmental impact in the medium- to long-run has much wider ramifications for the entire metal ecosystem. This hidden cost of its impact on the environment that will be felt over a period of time has not, unfortunately, been priced. Hence, the recyclability of metals, on account of their inherent property of not losing their basic characteristics with changes in its form and structure, is of big significance.

The 3 ‘R’s of waste hierarchy i.e., reduce, reuse, recycle assumes utmost significance in this context. In the absence of the thriving recycling industry supported by scraps from the richer north, India’s economy may be pushed to consume more of refined metal imports. Hence, it is important that the environmental concerns arising out of the metals industry in a denser nation such as ours can be largely addressed through the third ‘R’ i.e., recycling.

According to report by the International Resource Panel, hosted by the United Nations Environment Programme (UNEP), recycling requires significantly less energy per kg of metal produced compared with primary production. It also decreases the overall ecological impact of mining. According to International Energy Agency, primary production of steel and aluminium releases toxic by-products apart from 10% of all man-made greenhouse gas emissions. Further, metal industry experts indicate that with the energy used to produce aluminium from bauxite for making one can, recyclers can produce 20 aluminium cans from scrap.

Reports indicate that the US metal producers are running in the race to produce cost-effective replacement metals using scraps to cater to the demand of the consumers for tariff impacted high-cost imported primary metals. While a higher usage of metallic scrap is a welcoming development, the fact that it stands on a weak wicket of tariff war could lead to the impairment of global scrap metal availability to the economically efficient producers such as India and others. Notably, US is known to export nearly 2 million tonnes of aluminium scrap annually, representing one-third of the total global scrap supply. Operating on thin margins, the key to the very existence of the Indian recycling industry is in availability of cost-effective scraps from imports or domestic sources, that too at a time when the metal prices are reeling under the tariff impact as indicated above.

Prolonged higher US tariff on primary metals could restrict global scrap supplies, and hence its cost, thereby threatening the survival of the recycling industry in emerging Asia—in other words—a potentially serious impact on the environmental front as well. Moreover, another fall-out of trade barriers in terms of global economic uncertainties, and the in-turn decline in metal prices, would further encourage the usage of primary metals, instead of recycled secondary metal, as scraps become costlier. This would not only impair the fledgling and employment intensive businesses of the recycling industry, but also negatively impact the environmental cause they stand for.

The metal recycling industry is already facing huge challenges from the global perspective due to varied country-wise regulations governing import and export of metal scraps, apart from ever-tightening market conditions. Hence, any additional squeeze on the recycling industry due to new trade barriers owing to an escalating global trade war, would only push the industry to the brink.

Given the fragile climatic conditions that we are heading towards on account of incessant emissions as a result of various economic activities, any efforts towards protecting the environment would have to be appreciated and nurtured to provide for sustainable global growth goals. In this context, the metal recycling industry has a big role to play, given India’s aggressive economic growth prospects and hence the higher potential per capita consumption of metals. Being a populous economy, sensitive to the fragile environment, it is crucial for India to have a thriving recycling industry with an unhindered flow of scrap supplies, not only to support its growth objectives but also to sustain the momentum that is vulnerable to climate change.

Shunmugam is head research and Jain is senior analyst, MCX

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