India lockdown extension strains scrap metal market

A two-week extension of India's Covid-19 lockdown has strained containerized scrap shippers — even with most major shipping lines waiving detention fees — as port congestion, trucking shortages and cash flow remain serious challenges.

The lockdown has had a severe impact across the entire metals supply chain. Many market participants fear that the effects will be long-lasting as some traders and logistics companies temporarily suspend bookings to the country as severe labor shortages continue to cripple activity at major ports.

Most major shipping lines extended waivers for detention fees for containers frozen at ports and inland container depots (ICDs) this week, after weeks of industry lobbying and government orders as the fees were close to surpassing the value of some shipments.

Maersk and MSC both issued revised waiver schedules on 4 May. Maersk waived detention fees from 22 March through 21 April, while MSC has waived fees through 22 March and 3 May.

Other shipping lines, including Hapag-Lloyd, CMA CGM Agencies and Ocean Network Express, followed today by waiving fees through 22 March and 3 May.

While these waivers provide substantial relief, they fall short of providing any assurances for the two-week extension which pushes the lockdown through 17 May for 130 areas designated as red zones — which include major urban areas such as Mumbai and Delhi — with a high incidence of Covid-19 cases.

"The supply chain has opened, but the waivers are not going to be enough to fix the problem … I don't think the lines are doing anything extra," one US freight-forwarder said. "Honestly, we stopped booking to India to be on the safe side, it's not worth it...if things continue to go on like this it won't take long for people to start abandoning cargoes."

Some travel permitted

Under the new orders, interstate travel has been permitted for the movement of containers, which will help the supply chain throughout the country open back up, but transportation will remain heavily restricted.

"The problem was there was no interstate travel, now that has resumed," a second US shipper said. "The extensions may not be enough but it is not impossible to clear your containers. It comes down to the strength of relationships…With my customers we have priority."

Much of India's economic activity is concentrated in or dependent on areas hit hard by the virus, which are still designated as orange or red zones. So even with some states relaxing and the supply chain beginning to open back up, the impacts may not provide a major boost to economic activity or the flow of containers from the ports.

"My cargoes are still stuck in red and orange zones and my buyers aren't willing to go out," a US supplier said. "The waivers don't solve the problem."

Some suppliers have not been able to obtain the special permitting required to enter certain regions and as a result have been unable to deliver containers to their facilities, which has forced many to resort to having to store containers in neighboring warehouses until they are able to more freely transport the material.

This scenario could make it very challenging for containers to be returned to shipping lines to quickly, leaving the holder of the container vulnerable to incur detention charges if the supply chain does not reopen quickly.

Problems beyond the ports

Other suppliers noted that clearing containers at the port is only part of the supply chain battle with limited availability of labor and truck drivers, as well as tight cashflow for buyers, the remaining hurdles to smoothing out the situation.

Some major steel market participants have requested loan payment delays due to the lingering financial burden that the lock downs have had on steel demand and capacity.

The Reserve Bank of India issued guidelines to lending institutions to offer a three-month moratorium for borrowers to defer payments from 1 March to 31 May, which has attracted interest from major market participants.

Some scrap traders surveyed by Argus said they have already begun to massively scale back annual scrap sales forecasts to the country for the remainder of the year due to the lingering impacts of port congestion issues and concerns over longer-term demand.

India imports ferrous and nonferrous scrap primarily via containers. In 2019 it averaged 470,000 t/month of ferrous scrap imports, 110,000 t/month of stainless steel scrap, 112,500 t/month of aluminum scrap and 21,000 t/month of copper scrap, according to customs data.

Prices down sharply

India scrap prices have declined as a result of Covid-19, while spot trade has dramatically thinned amid the lockdown. Shredded ferrous scrap prices as assessed by Argus last week were $245-255/t cfr Nhava Sheva, down by about $50/t from early March but up from the low of $230-$235/t cfr on 3 April.

The Argus aluminum scrap zorba cif India assessment has followed a similar trend, falling from 42-43¢/lb at end-February to as low as 31-33¢/lb for much of April before edging up to 34-36¢/lb as of 1 May. And the Argus stainless steel 316 solids scrap cif India assessment fell to 70-71¢/lb in early April, down by 10¢/lb from early March, before climbing to 75-76¢/lb as of 30 April.

The shipping and storage costs though are only part of the financial toll on suppliers, as many are now facing cancellations or running into scenarios where buyers want to re-negotiate the prices.

Some fear that the June-September monsoon season could exacerbate the steel demand shock by further restricting construction activities that account for 60pc of India's steel consumption.

Migrant workers that rushed back to hometowns in the wake of Covid-19 are not expected to return to work sites, as they typically engage in farming activities during the monsoon.

By Brad MacAulay