Currently, about 17% of the world’s annual scrap supply—about 110 million metric tons—is traded globally. (See Exhibit 2.) For instance, Turkey is reliant on the EU, the US, the UK, and Russia for its 25 million metric tons of primarily lower-grade scrap imports each year. In fact, the US is such a large supplier to Turkey that some Turkish steelmakers have established sourcing units in North America to secure the country’s supply. The US, however, is running a shortage in prime scrap and turns to Canada to make up for it. Meanwhile, Japan exports its excess prime to Korea, Southeast Asia, and China.
As scrap availability tightens through the decade, we anticipate that trade in the raw material will moderate significantly, to around 93 million metric tons by 2030, as domestic consumption rises and countries reduce exports. In particular, the US and EU scrap flow will take a major hit; for instance, by 2030 prime scrap exports from Canada to the US will plunge by 50% and European exports of this material will decrease by nearly one-quarter. Countries that import a higher percentage of their scrap needs will be meaningfully affected if they are unable to secure sufficient scrap of the required grades or ore-based metalics alternatives, such as pig iron, direct reduced iron (DRI), and hot briquetted iron (HBI). Certain high-growth markets, like India, remain particularly vulnerable. In that country, lagging scrap supplies will raise the cost of operating EAFs and threaten the decarbonization agenda unless significant efforts are made to build carbon steel scrap recycling infrastructure.
Preparing for the Scrap Market Disruption
Although there are still a few years before the carbon steel scrap shortage is keenly felt and upends business plans for the steel industry and its customers, companies and policymakers must use this time to prepare for it and begin to put themselves in advantageous positions. As a starting point, scrap stakeholders need to calculate current availability and develop short- and long-range forecasts.
Multiple levels of the supply market for all scrap grades should be assessed. Examining the national market, the following issues should be addressed:
- What is the demand-supply balance in the country? How will it evolve?
- How does international trade fill the gap?
- What are the constraints on trade—or the incentives to trade—in countries that are currently scrap sources?
The answers to these questions can help steel companies plan for maintaining supplies, but they are even more important for policymakers to determine the best approach for protecting the domestic steel industry and scrap market. As scrap imports dry up, inflated prices of raw material will likely squeeze steel industry profit margins. In the past, to minimize the damage of higher raw materials prices, steel mills have explored importing semi-finished goods—such as billets, blooms, and slabs that need further processing—often produced via carbon-intensive methods in low-cost countries.
However, with policies focused on reducing the cumulative carbon footprint in steelmaking, adding semi-finished goods to the material mix in steel mills is becoming less viable. As a result, to stay in operation, some steelmakers may need outside help. For instance, the scrap shortfall will almost certainly be felt squarely in Turkey; in turn, some of its high-cost mills may idle without government support.
Particularly in large countries, a zonal analysis may also be necessary to determine scrap availability by grade and distance because the logistics of hauling scrap to and from recycling facilities can be complex and expensive, particularly over long distances. This can enable steelmakers and scrap providers to identify and draw up future supply chains—factoring in potential costs and difficulties—to establish viable goals for market participation and growth. For example, scrap may be more expeditiously exported to other countries through a nearby port than transported domestically via truck or train.
Strategic Choices Are Complex but Necessary
Based on the future supply and demand analysis, steelmakers and scrap processors need to consider their best strategic options for navigating this changing landscape.
Steelmakers taking proactive steps are focusing on three dimensions: sourcing, quality, and melt optimization.
- In the sourcing realm, to lock in consistent supplies, some steelmakers are acquiring scrap yards. For example, in the US, 25% to 30% of scrap supply is already managed by scrap yards owned by steel mills. In Europe, the share of mill-owned scrap yards is increasing as transition to EAF-based steelmaking intensifies. For example, Luxembourg-based ArcelorMittal recently bought a series of scrap recycling facilities from Germany’s Alba International. By contrast, some companies are choosing organic growth. India’s Tata Steel has invested in developing an auto shredding unit near its new EAF plant.
- To improve quality and reduce the presence of residuals, which are impurities that accumulate on steel each time it is recycled, large EAF mills in the US and EU are also setting up scrap sorting and testing facilities within their mill gates. The idea is to take control of quality categorization from recyclers. In the best circumstances, visual checks are initially conducted to jettison patently low-quality scrap supplies. Following that, handheld spectrometer guns may be used to assess four scrap samples—one from the top of the pile, one from the bottom, and two others at random—before okaying or rejecting the shipment.
- And to increase melt optimization, steelmakers are using advanced techniques including programs aided by artificial and machine intelligence to assess their scrap purchases and determine the most cost-effective mix of these raw materials to produce the desired steel grades. This results in significant efficiency gains and cost savings from production to specification, rather than overspending on manufacturing steel that doesn’t meet immediate quality and classification needs. In short, these melt optimization approaches represent the most effective use of the increasingly scarce scrap.
Source: Boston Consulting Group (BCG)
Read full BCG analysis here: https://www.bcg.com/publications/2024/shortfalls-in-scrap-will-challenge-steel-industry#:~:text=By%202030%2C%20today%27s%209%20million,with%20artificial%20and%20machine%20intelligence
