INDIA LOCKDOWN: Import trading pauses while logistics nightmare strands material at ports

The lockdown in India has caused a variety of logistical issues resulting in imported scrap material becoming stranded at ports and leading to potentially large charges at a time when trading has come to a sudden halt, market sources have told Fastmarkets.

On March 24, Indian Prime Minister Narendra Modi announced the country would begin a 21-day lockdown period effective from midnight until April 15 to help prevent the spread of the Covid-19 virus.
Although it was reported that the production of essential commodities, including steel, could continue, many of the main steel producers such as JSW and Sail have shut down. With raw materials not being awarded the same status and a lack of workers - many of whom had returned to their home towns - production could not continue.
Many market sources are keen to find clarity on what is and is not allowed during the lockdown, with some steel plants told they were not exempt despite the government declaring steel an essential commodity.
“There is absolutely nothing happening in the steel industry. There is a complete lockdown in India, only essential items like convenience stores are open. Steel is definitely not under the exempted things during the lockdown, all are compelled to shut. We have no idea of the market level. Bookings might start around April 7-10,” a buyer said.
Demand disappears
Much of India’s steel demand has vanished overnight with many of the car manufacturers halting production, while construction and infrastructure sites are also closing.
Trading in the country came to a sudden halt following the lockdown order. Within days, the price of imported shredded fell $44 per tonne to its lowest level since October 2016.
Fastmarkets calculated the steel scrap, shredded, index, import, cfr Nhava Sheva, India at $247 per tonne on Friday, down from $291 per tonne one week earlier.
“We have heard no offers because most traders are in lockdown,” a market source told Fastmarkets, while another source said that it would be “very difficult to give any [accurate] price now.”
“The steel plants have been declared essential services, but they need a lot of raw material; [during] the lockdown, those are not essential services. Logistics have got locked down - for steel plants it doesn’t make sense to keep producing, as they can’t get finished products out for distribution. The markets are in slumber, we could hit below $200 per tonne [for shredded] soon,” a seller said.
Transportation of material had become a key issue, with many drivers now stranded at closed boarders and checkpoints, despite carrying essential goods, and others returning to their hometowns.
Shipping has also been declared an essential service, although some ports have declared force majeure. Those with material stuck at ports which are open told Fastmarkets that shipping lines were not providing additional free days for collection of material, which had become challenging due to a lack of drivers and trucks. Many now were facing large fees for the material being held at the ports.
“There are no shredded offers for India. Importers are panicking as they are not clear on when the lockdown will end and the free days applicable to them, the shipping lines haven’t given any positive response on the extension of free days,” a market source said.
Free days are the period during which you can collect material without incurring a hold charge. Outside of this, charges are usually applied.
This was echoed by another market source. “The problem is the material reaching the port, the shipping lines are killing with detention and demurrage costs, I heard shipping lines are not going to give any additional free days,” he said.
“Buyers are saying to hold shipments because they don’t know how to clear them [at the ports] or where to stock [material that is stranded]. The [necessary] documents are not reaching banks in India,” he added.
The Material Recycling Association of India (MRAI) has since campaigned to have these charges removed before they become costly.
"Shipping companies see a business opportunity in the ongoing world pandemic and charge $52 per container per day for 20-foot containers and $104 per container per day for 40-foot containers. This 'uncalled for' charge will not only erode our working capital but also will root us out of business," Sanjay Mehta, president of MRAI, said.
The MRAI has estimated a stockpile of around 1 million tonnes of imported metallic scrap could accumulate at various ports over the lockdown period, and fears the charges would render the value of the material zero.
It estimates one container of iron scrap is valued at $5,000. With detention shipping lines charging around $52 per day for a 20-foot container, the fees would total $1,750 for 30 days, in addition to other expenses, such as ground rent, transportation etc.
The MRAI requested the government waive detention and demurrage charges until May 15 at the all ports in India. On March 29, the Indian Ministry of Shipping announced it had advised that container detention charges should be waived between March 22 and April 14, after acknowledging material had inevitably become stranded.
The lockdown, which will run until mid-April, comes at the same time as the end of the financial year in India, with trading not expected to resume until partway through April.
“Factories are closed, people are not allowed out. There are container shipment problems, for the metals industry it’s a big hit. All steel plants are closed temporarily. The government is only helping the big companies. Physical movement of scrap is down now. People will wait for April, when there’s a strong possibility of a price surge,” a trader said.
Fears of permanent damage
For those in the scrap industry, the lockdown is a death sentence for their livelihoods. Some fear there is a possibility of companies not reopening after the lockdown due to the financial impact of the suspension of trading and lack of available cash.
“The market is at a standstill. Prices don’t matter. The factories are shut [and] there are no buyers talking. Who could they sell to? Finished products are not going out, raw materials are not going in. We don’t know when shipments will be cleared at the ports, they are open but many workers have gone back to their home towns. The government said steel was an essential commodity, but there is a lack of workers, there is no transportation for material with no drivers. The financials of these companies mean there might not be funding to start the factory up again. Prices will continue to drop, I’m getting zero quotes and shipments are being held up as of now,” a second seller said.
“The ports are open but we are totally closed. Raw material is an issue, there is none to run the plant. While steel is essential, the government needs to provide more details. We already have stocks of material, but further material will be delayed [in arriving],” a second trader said.
The MRAI reports imports of scrap are required due to “the non-availability of the same within India.”
In recent weeks, the stronger dollar has hammered the rupee, which had already made imports unattractive and unviable, subduing buying activity.
The Indian currency was trading at 75.30 to $1 on Friday March 27, only slightly down from 75.48 rupees to $1 on March 20, one of the lowest figures ever reported, compared with 73.74 rupees to $1 on March 6, according to currency exchange website Oanda.
Imports of scrap into India reached 5,607,766 tonnes in 2019, up 7.9% from 5,195,297 the year previous according to stats from the International Steel Statistics Bureau. The country imported 572,562 tonnes in March 2019, and 588,294 tonnes in April 2019.
The coronavirus has also led to a partial lockdown in the United Kingdom, one of the main exporters to India. In 2019, the UK shipped 800,716 tonnes of scrap into India, a 24% increase from 645,839 tonnes in 2018.
Some of the largest UK scrap companies, such as EMR have significantly scaled back UK operations. EMR has suspended the collection of ferrous scrap, as has Sims Metal Management.
Additionally, the US market has closed many facilities due to the virus’ spread and low prices. The United States shipped 536,220 tonnes of scrap into India during 2019.
One trader told Fastmarkets they had containers of material ready to sell but no available market to ship it to due to the lockdowns in India, Pakistan and Bangladesh.

Carrie Bone

carrie.bone@fastmarkets.com

Published

Carrie Bone

March 30, 2020

15:57 GMT

London