Seen as biased towards steel makers, the barrier to re-rollable steel imports will hit shipbreaking hard
The steel ministry has issued The Steel and Steel Products (quality control) Second Order, effective September 12. This order is nothing but a death sentence for the secondary steel sector, particularly for the shipbreaking industry, as it seems to have been deliberately issued to favour the major steel producers. A previous order on similar lines was forced to be withdrawn after detailed scrutiny and after considering all pros and cons.
Shipbreaking is mainly viable where scrap based re-rolling mills are operative. More than 90 per cent of world shipbreaking takes place in India, Bangladesh, Pakistan, China and Turkey.
Direct rolling of re-rollable scrap saves one process of melting. Conversion from ship to scrap costs about Rs 3,000 per tonne. So import of ships for breaking should be continued to be given preferential treatment as eligible for raw material imports. The shipbreaking industry supplies substantial quantity of re-rollable and steel melting scrap for scrap based re-rolling mill and induction and arc furnace.
Internationally scrap is defined only in one category — melting scrap. In India and other developing Asian countries, scrap is segregated into two categories: one is melting scrap, and the other, re-rollable scrap. The definition for melting scrap is same nationally and internationally. There is no definition given for re-rollable scrap internationally, as very few countries have re-rollable scrap processing capacities.
India had a customs tariff heading previously for re-rollable scrap, but following the introduction of harmonised international tariff headings, there is no tariff heading now for re-rollable scrap. Thus, technically import of re-rollable scrap into India is banned at present and the shipbreaking industry faces the problem of clearance of its re-rollable scrap output, although Indian Standard (BIS) 2549 defines re-rollable scrap as also the import policy.
Bangladesh has inserted an item in their customs tariffs, viz “7204.29.10 … Other (re-rollable scrap)” to solve this problem. India is one of the world’s leading shipbreaking countries. Although it lost its premier position to Bangladesh during the past few years, this year it has recaptured the No 1 slot. Ships were diverted to India during the past two years due to environmental issues in Bangladesh. But now that the Supreme Court of Bangladesh has laid down the procedure for shipbreaking, operations have resumed in full swing in that country.
The global ship demolition capacity is about 12 million tonnes. But normal supply of ships for demolition is about six million tonnes a year. The global shipping industry is in very bad shape right now, owing to recession in the international market, resulting in record flow of old vessels to demolition yards. With all demolition yards over occupied with vessels, there has been a sharp fall in ship prices, which is now in the range of $400 per LDT, or almost equivalent to the international price of steel scrap. Demolitions are expected to touch a record 11 million tonnes this calendar, rendering the industry highly competitive and risky.
The new order by steel ministry will only help create monopoly by major steel producers and raise steel prices. This is also against the principles of WTO, as import of non-BIS items are prohibited, while such items are permitted for export. Out of over 19,000 BIS standards published so far, only a few, and that too mostly consumer items, have been made mandatory. So, there is no justification for making this order mandatory for raw materials such as steel.
When it was created under the pretext of discouraging the use of non-critical long products in construction industry, there is no justification for including flat products, which are not used for construction.
Introduction of BIS 15911 shows the acceptance of consumption of non-critical items. It is said that this standard is introduced to protect shipbreaking and similar industries. However, it does not serve that purpose because no non-critical raw material is available to produce the items falling under BIS 15911. If the intention is to promote the production of items under BIS 15911, then those items falling under BIS 2549 should have been exempted in the order. One cannot expect to produce non-critical items from raw materials conforming to BIS.
Although the order has been issued, for want of detailed rules and regulations and setting up of implementing authorities, this order has remained on paper and not yet been implemented. In fact, there are practical difficulties in implementing this order. The new order will create large-scale unemployment and thousands of crores of rupees worth capital expenditure would turn into dead investment. It will promote large-scale corruption, as there is no infrastructure to monitor about 60 million tonnes of steel covered by this order.
Considering the adverse impact of the order, we would strongly suggest that it should be withdrawn or postponed till such time as effective administrative machinery has been set up to tackle all the problems outlined above.
Source: By P S Nagarsheth, President Iron Steel Scrap & Shipbreakers Association of India. 21December 2012http://www.mydigitalfc.com/industry/ban-ban-464