Auto Slowdown, BS-VI Decelerate India's Domestic Scrap Generation

The automobile sector slowdown is having an impact on scrap generation from new vehicle manufacturing. It may be noted that auto companies and their ancillary units generate a substantial amount of scrap (largely steel) which is used by induction furnaces and foundries. However, sources indicate to SteelMint that scrap generation has dropped in the last few months in tandem with auto production falling month-on-month on subdued demand, especially with India's leading car manufacturer, Maruti India Suzuki Limited (MSIL), having announced a two-day shutdown of its Manesar and Gurugram plants.

"New vehicles salvages contribute around a whopping 75% to the domestic scrap generation, which includes car makers, auto ancillary players, earth moving vehicles etc," said Balakrishnan S, Senior Vice-President, Operations, Sakthi Ferro Alloys India Pvt Ltd, while commenting on the scenario in this southern state. On the other hand, overall requirement for scrap is also down, he added, elaborating that foundries and induction furnaces (for long products) use scrap as a raw material. However, there is not much demand for longs due to the lack of infrastructure projects and Sakthi, which buys most of its scrap from Hyundai, has effected a cut production by 50% of late.

Scrap from New Vehicles

Automobile manufacturing involves key raw materials and components like steel coils, ferrous castings and non-ferrous castings. In the case of many vehicle makers, to ensure effective utilization of waste, the scrap generated from the manufacturing processes is sent to material suppliers and other recycling vendors. Steel waste is transformed into smaller sheet metal parts while aluminium and trim scrap are recycled into ingots.

But how is scrap generated in terms of new vehicle manufacturing? For instance, say when a car door or bonnet is being made, the edges and trimmings of a steel sheet get generated as scrap. At Maruti Suzuki India Limited (MSIL), India's largest automobile manufacturer with a 49% market share, a portion of the scrap is used in-house while some of it is sold to third party vendors. Smaller components like clamps, hooks and other "baby" components which are welded into the body can be made out of these scraps. For MSIL, when the shavings are generated, the larger pieces are given out to the sheet metal vendors who manufacture some baby components with this scrap for MSIL itself. The shreds that are very minuscule in nature and cannot be used in making small components are given to scrap dealers since these can be smelted and converted into other forms of metal use.

MSIL informs that its total capacity across its two plants in Gurugram and Manesar is 1.5 million units per annum, when running at 100% capacity. The company told SteelMint, "Production in July 2019 was 133,265 units and it dropped to 111,370 units in August 2019. With around 20-25% drop in volumes, as a consequence, the scrap generation from new vehicle production was lower."

Industry sources say MSIL's production of scrap, which was around 15,000 tonnes per month (out of which almost 70-75% scrap was steel and 10-15%, aluminium scrap), has declined to 7,000-8,000 tonnes per month since the drop in production.

It is heard that Hyundai's plant in Chennai generates around 20,000 tonnes (MT) of scrap every month, including ancillaries, but which has not been impacted much due to no cut in production since this unit also caters to an export market. But, as per the market buzz, Hyundai may cut production by almost 20% from January 2020.

"Of course, scrap generation from new car sales is down. And the drop in scrap generation from new vehicles is happening almost in the same proportion as the drop in new car sales, because, no automobile manufacturer is today making cars and stacking them," said a source from a leading car manufacturer in India. The source added: "If new car sales drop by say 30%, then scrap generation from new vehicle manufacturing is also almost down by 30% per month as a ball park figure."

A source from another vehicle manufacturer added: "If the cars are not selling, then we have to stop producing. And, if they are not selling to the tune of say 30%, our scrap generation from new vehicles would be down by 28-32% on a monthly basis," the source stressed.

"If production of new vehicles goes down, then scrap generation will also be less. Suppose, the production volume drops by 10%, then scrap generation will also be down by almost 10%," a source in Honda Cars India Limited, said.

As per MSIL's Resource Use and Management data in its latest annual report, the total scrap quantity recycled in 2019 was lower at 122,439 tonnes, of which 94,927 tonnes were sent to other recycling vendors and 27,512 tonnes to material suppliers for recycling. In 2018, a volume of 127,518 tonnes were generated in which 102,213 tonnes went to other recycling vendors and the balance 25,305 tonnes to material suppliers.

Impact of BS VI norms

MSIL has also been very proactive in introducing BSVI-compliant cars ahead of the April 2020 deadline which means over 70% of all the petrol cars it sells at present meet the latest emission norms. The company has been launching BSVI- compliant versions of its most popular models since April 2019.

Industry sources say that once this conversion to BSVI platform happens, which all automobile companies will have to migrate to by 2020, a huge impact will be felt on scrap generation on account of the weight reduction factor. Car manufacturers need to keep in mind two aspects in terms of BS VI norms. One is the reduction in emission norms so that if a car travels across a mile the nitrogen oxide, sulphur oxide and other pollutants should be less. Secondly, there has to be an increase in fuel efficiency. Say, if a vehicle runs 14 km on one litre of petrol, this mileage has to increase to 15 per litre to reduce the running cost.

If these two conditions have to be fulfilled then weight reduction of the vehicles is a must through use of improved technology. As a result, several components, which earlier used to be crafted out of steel, are being fashioned out of fibre. Thus, the conversion to BS VI norms is reducing scrap generation, although this impact is only 5-7% at present, it is learnt. However, going forward, there is bound to be a widening of this impact.

Down Syndrome

India's automobile sales have been plunging for 10 months till August, 2019. As per data shared by the Society of Indian Automobile Manufacturers (SIAM) recently, sales of medium, heavy commercial vehicles (CVs) plunged by 54% in August 2019 compared to the same month last fiscal while passenger cars followed with a 41% fall year-on-year (y-o-y) to 1,15,957 units against 1,96,847 units in the same month last year. Passenger vehicle sales had declined by around 32% in July 2019 to 196,524 units against 287,198 units in the corresponding month last fiscal.

Source: SIAM

By Madhumita Mookerji