Cheap DRI hindering steel scrap use in India despite low-carbon push

The share of direct-reduced iron (DRI) being used by Indian induction furnaces and foundries has grown over the last month, despite efforts by a strong scrap lobby to use more of the secondary raw material to reduce carbon emissions in the country

Indian authorities are aiming for 25% of its steel production to be dependent on ferrous scrap by 2028, which should increase to 50% by 2047, in order to reduce CO2 emissions, Jyotiraditya Scindia, then-minister of steel, told delegates at the Material Recycling Association of India (MRAI) annual conference in February.

India is the world’s leading producer of DRI – which is produced either from coal- or natural gas-powered plants – and the country produced 39.04 million tonnes of the material in 2021, according to India’s Ministry of Steel.

Carbon dioxide (CO2) emissions from steelmaking using an electric-arc furnace (EAF) and natural gas-produced DRI are around 1.4 tonnes of CO2 per tonne of crude steel, while scrap-based EAF steel production has an emissions intensity of around 0.3 tonnes of CO2 per tonne of crude steel, due to the absence of emissions involved in the energy-intensive ironmaking step, according to the International Energy Agency (IEA) in 2020. Coal-based DRI steelmaking has even higher carbon emissions.

DRI eats into scrap use

But despite the strengthening scrap lobby, price is still very much king in India.

Recent declines in prices for DRI – known locally as sponge iron – have pushed more market participants to use this raw material over the lower-carbon ferrous scrap option. Lower coal and iron ore prices made the primary material cheaper and much more appealing to mills. Indian induction furnaces and foundries can generally use both scrap and DRI to produce steel.

“There is a regular conversation by the government [for mills] to use more scrap for lower carbon emissions, but ultimately everyone has to see what is the viable [economic] option,” a major Indian trader said on Friday June 9.

“As of now, sponge iron is much more viable than scrap, so more and more steel mills are increasing their sponge use and reducing scrap charge. That’s the reason Indian mills’ appetite for scrap is reduced, even though they don’t have much scrap in the pipeline,” he said.

Indian induction furnaces and foundries are now consuming around 50-70% DRI in their mix, depending on mill and location, with around 30-40% of scrap on average, according to the trader, which he said means that DRI consumption rose 25-30% recently.

Scrap demand is always regulated by DRI prices. Currently, many mills in India are preferring DRI because of the lower cost

“Scrap demand is always regulated by DRI prices. Currently, many mills in India are preferring DRI because of the lower cost,” a western India mill source said on Tuesday June 13. “There will always be a mix though — even DRI-based plants will have a limit of 70-90% [DRI in their total feedstock mix].”

“It’s quite obvious — when iron ore prices come down, then sponge becomes cheaper. Any plant which is using 20-30% of sponge will start using 40-50% sponge — this is quite common in India and has happened for years. But if iron ore prices go up, they start limiting sponge and start using scrap,” an eastern Indian steelmaker source said.

Scrap price comparison

Deals were heard for UK-origin shredded scrap in containers at $440 per tonne CFR Nhava Sheva on Tuesday, while other market estimates were heard at $430-440 per tonne CFR. Bulk Venezuela-origin HMS 1&2 scrap was offered at $422-425 per tonne CFR Kandla, western India late last week.

“Demand is there, regardless. No one is waiting for [international scrap] prices to drop anymore, so the Indian mills have come back,” a UK-based trader said.

“It’s normal that when import prices are high the mills buy material locally. I don’t think DRI is a threat to the scrap trade,” a second trader based in India said.

Fastmarkets’ calculation of the containerized steel scrap shredded, index, import, cfr Nhava Sheva, India was $438.04 per tonne on Tuesday, up by $5.89 per tonne from $432.15 per tonne on June 9.

Meanwhile, Fastmarkets’ weekly price assessment for direct reduced iron domestic, exw India was 29,300-29,500 rupees ($355-358) per tonne on June 9, up from 29,000-29,200 rupees per tonne a week earlier.

The premium for shredded scrap over the DRI was at $82 per tonne on Tuesday- the highest seen in any week since the week ended May 13, 2022, and dwarfing the 2022 full-year average premium of $53 per tonne.

While the price gap is significant, there are higher costs associated with using DRI as a feedstock for steelmaking compared with scrap, which makes scrap more appealing if the prices are roughly equal for the two competing materials.

“If the prices are equal, scrap is more economical. You have to add alloys [which are already present in scrap], but mostly it’s the cost of electricity consumption, flux generation; this is higher for DRI than for scrap,” the western India mill source said.

Future trends for Indian scrap

Despite the recent resurgence in DRI use, market sources do generally expect Indian steel scrap use to grow considerably in the coming years, in line with larger steel output in the country. The government aims to have 300 million tonnes of steel capacity by 2030, while the nation produced 124.70 million tonnes of crude steel in 2022, according to Worldsteel.

A third Indian trading source said he had heard that some foundries in the country were recently “nudged” to use more scrap by India’s Ministry of Steel, but the mill source said he was unaware of such requests.

If true, the second trader said that greater demand from foundries could have a large impact on scrap supply in the future.

“Pushing firms like foundries to use more scrap is a way to generate greater scrap demand and therefore spur more private sector investment in recycling centers, hubs, etc.,” he said.

Foundries in India, which tend to be much smaller units producing items such as castings, currently tend to take in around 200-500 tonnes of scrap per month, depending on size, he added.

A second western Indian steelmaker said he believed scrap demand in the country would be strongly boosted in the future and said he had recently seen greater interest in buying bulk scrap imports among large, traditionally blast furnace (BF)-based operators.

To keep up to date with the important topics impacting the global scrap industry, visit our dedicated scrap and secondary insights page. Learn more.

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