The Middle East region has long since established itself as a hub for scrap metal recycling and trading. The region’s metals recycling industry, as all other industries worldwide, has had its ups and downs in recent years. In the Middle East region, the recycling sector had been performing better than in some other countries because of its strategic positioning at the crossroads between the east and west and the major development projects underway in the Middle East and in its main markets of India and China.
But with a steep drop in crude oil prices and a slowdown in construction and other economic activities, the sector is facing difficult times presently. The region being mostly a supply market, much of what’s happening in other parts of the world also is affecting the industry on the demand side. Major metal consuming nations are in a declining growth phase, with the Indian and Chinese metals production sectors continuing to languish.
Recyclers and traders in the Middle East say 2015 provided a number of challenges, and many of them say they do not see 2016 as likely to be any easier.
A BAD PATTERN
“2015 was a tough year and most likely will follow through into 2016,” says Dr. Sayed Hussain, CEO of Dubai, United Arab Emirates- (UAE-) based Sayed Metal. Considering the region’s economy is oil driven, “such a steep fall in oil prices will definitely affect the recycling industry directly or indirectly,” he adds.
The metal recycling industry is directly linked to global commodity markets, especially crude oil prices and foreign exchange rates. This sector in the MENASA (Middle East North Africa South Asia) region has been affected by declining oil prices and slowing global economies combined with tight cash flow, says Salman Shaban, senior manager of Doha, Qatar-based Lucky Star Alloys. “The recent corrections in BRIC (Brazil, Russia, India and China) economies brought down metal prices to the lowest levels seen since the 2008 financial crisis,” Shaban says.
Anshul Gupta, CEO of the Sharjah, UAE-based PGI Group, says, “2015 has been the toughest for recyclers and all commodity dealers.”
He adds, “In the 21st century, this is the second major downside for the metal industry. In contrast to 2008, when the market dropped sharply and bottomed out in a short span, year 2015 [demonstrated] a consistent slow downslide.”
Recyclers likely are still waiting for conditions to hit rock bottom, Gupta says. Many “small and inefficient” scrap collectors already have disappeared, he comments. “This cycle of 2015 will play a major role in accepting only healthy and long-term players who can survive this grind,” Gupta states.
One major change perceived by Turkish recycling equipment manufacturer Aymas Makina is that at the moment the Middle East’s scrap yards appear to be shrinking in average size. “We don’t know if this is a short-term effect or a long-term one,” says Cemal Sincar, the company’s international marketing manager. He also observes that investments in “hyper yards” have been low as compared with earlier times, or the projects have been put on hold.
The situation in Turkey is slightly different, though, Sincar says. “Like all other countries, Turkey has also been affected by negative events around the world,” he says. But, at the moment, Turkey’s markets remain “healthy and stable,” and Sincar speculates that the country has slowed down for a short time, which will not affect its future growth.
ADDRESSING THE CHALLENGES
“The Middle East market is slow at present, but it is much better than Europe and the Far East markets,” says Ehsan Haji Amin, a vice president of the Metals Recycling Association of India (MRAI) trade group and CEO of the Dubai-based Ala Group. “Scrap generation has been better, though quite slow as compared to previous years,” he adds.
India has been “a major player and a big game changer” as a metals buyer, Amin says. “The major factor affecting the Middle East is the structure in India, especially with regard to aluminium,” he says. “The biggest problem is FTA (free trade agreements), where other countries export finished goods to India on zero duty, and India has a duty on scrap.”
Gupta says the Indian market will be a major supporter of the Middle East recycling industry. “I only see reasonable growth in India in 2016, and we have continuously increased our focus on India,” he says, noting exports of copper, brass, aluminium and other metals to Southeast Asia and Far East Asia have been reduced drastically.
The industry may once again need to focus on Western markets for a few years, as they have good potential. “Though, in the long term, I still see Asia as a major force that will drive the recycling industry in this century,” Gupta says.
Although the current situation is not conducive, the industry is hopeful that things will soon take a turn for the better, particularly in light of several anticipated high-profile developments. These long-term investments in infrastructure and related projects are in some cases affiliated with “mega events” coming up, including World Expo 2020 in Dubai and the FIFA (Fédération Internationale de Football Association) World Cup in Qatar in 2022. In addition, the master plans for waste management and recycling being drawn up by various governments in the region likely will lead to more widespread recycling practices.
“There is a constant increase in metal scrap generation in the Middle East, mainly due to construction and demolition activities, as well as the rapid increase in population,” Hussain says. “As most of the countries in the region prepare for future commitments, such as World Expo 2020, it is assumed that more metal scrap will be generated.”
Yet, metal recycling in the region has not reached “full maturity,” and tons of scrap generated there are mostly exported to other markets. “Nevertheless, the Middle East is a proficient collection and sorting point that supports recycling centres all over the world,” Hussain says.
The steady outflow of scrap (and higher prices) highly depends on the capacities of large end-user economies, such as the BRIC nations, and, Shaban says, “if the demand in these nations weakens, it will have a direct negative impact on our supply quantities.”
However, the upcoming events and projects in the Gulf Cooperation Council region that require long-term investment and government spending “will ensure the continued demand for raw materials used in the construction and services sector, contributing to the growth of the regional recycling industry,” he adds.