FOCUS: Ferrous scrap to increasingly replace natural resources as key steel raw material

Ferrous scrap will increasingly replace natural resources as the main raw material to produce steel, according to the World Steel Association (Worldsteel) head of raw materials, Dr Baris Bekir Çiftçi.

This is mainly due to ferrous scrap’s increasing availability globally, as well as structural reforms in major steelmaking countries to increase the usage of electric-arc furnaces in the steel production process.

“Global scrap availability is expected to reach 1 billion tonnes in 2030 and 1.3 billion tonnes in 2050, hence growing more than 500 million tonnes within the next 30 years,” Dr Çiftçi said in a blog report published on the Worlsteel website.

Global ferrous scrap availability stood at about 750 million tonnes in 2017, out of which 630 million tonnes were recycled by the global steel and foundry casting industries, according to Worldsteel estimates.

Developing countries to drive growth in use of ferrous scrap
Developing countries such as China will show the strongest growth in scrap availability, with Worldsteel expecting scrap availability in China to reach 300 million tonnes in 2030 and 400 million tonnes in 2050, according to Dr Çiftçi.

Data from the China Iron and Steel Association (CISA) supports this estimate from Worldsteel, as it shows that ferrous scrap usage in Chinese blast furnaces has increased continually between 2014 and 2017.

Usage peaked in November 2017 at 117.33 kg per tonne of steel produced, up from 63.75 kg per tonne of steel produced in 2014. The average consumption of steel scrap by converters was 102.66 kg per tonne of steel produced in 2017, up 38.95 kg year on year.

Domestic heavy scrap prices in China have followed this trend, climbing steadily from 1,680-1,740 yuan ($264-273) per tonne on May 5, 2017 to 2,490-2,780 yuan per tonne on December 29, 2017. Prices have kept at above 2,100 yuan per tonne since then, with the last price assessment at 2,240-2,430 yuan per tonne on April 27 this year.

CISA expects the Chinese iron and steel industry to use 140-160 million tonnes of steel scrap in 2017, especially if including the foundry casting segment.

This trend is supported by the Chinese government, whose structural reforms has increased the supply of ferrous scrap in the spot market. It has directed its domestic steelmaking industry to concentrate on low-carbon emission and environmentally-friendly production of steel so as to ensure higher living standards for its citizens. This includes 50 million tonnes of new EAF capacity to be commissioned in China in the next five years, according to Worldsteel.

It is also not allowing any growth in steel production capacity and has cut 140 million tonnes of induction furnace capacities and 115 million tonnes of other steel production capacities in the 2016-2017 period. It is also planning to cut another 30 million tonnes of capacity in 2018, completing its targeted steel production cuts ahead by the initial 2020 target.

Chinese steelmakers now have strict guidelines to follow, including mandatory cuts in production rates to lower emission levels and a 1:1.25 replacement ratio for new environmentally-friendly production capacities, where 1.25 tonnes of old capacity must be removed for every new 1 tonne of capacity to be built.

However, sustainability of the Chinese scrap demand growth may be undermined by increasingly competitive hot metal, according to Metal Bulletin Research senior analyst Alona Yunda. Domestic scrap (excl. VAT) is currently traded at a premium over estimated by MBR hot metal production cost in China. The premium, which was re-established in mid-December 2017 first time after more than two and a half years, averaged $19 per tonne in the 2018 year-to-date period.

“Although scrap may maintain a premium over hot metal production costs as it did in 2014 and first half of 2015, financial reasoning is currently in conflict with environmental aspirations,” Yunda said.

Similar signs in Southeast Asia, India
The increase of scrap usage in major Southeast Asian steelmaker Vietnam is also increasing, according to Dr Çiftçi.

In first three months of 2018, Vietnam imported 1.31 million tonnes, up 68.7% year on year. It imported a total of 4.74 million tonnes of ferrous scrap in 2017, up 21.5% from 3.9 million tonnes a year earlier.

Vietnam has been importing increasing volumes of scrap due to the increasing demand for steel materials used in the building, construction and other downstream segments, riding on the back of Vietnam’s fast-developing economy and robust GDP growth. Vietnam’s GDP is projected to grow at 6.3% this year, according to data from the International Monetary Fund.

Vietnam’s steel demand will continue to pick up because the government continues to invest in infrastructure projects, the South East Asia Iron and Steel Institute (SEAISI) said in a recent presentation. Steel production figures in the country have been increasing for several years, climbing 57.45% from 5.05 million tonnes in 2012 to 8.66 million tonnes in 2016, according to SEAISI.

The same situation is also expected in India, where the Indian steel ministry is also targeting an increase in the usage of ferrous scrap as a raw material.

The country has given the go-ahead for a new scrap policy which will be implemented in 2020. The policy encourages vehicle owners to scrap vehicles which are older than 20 years old through incentives such as waiver on duties and new-vehicle discounts.

India also saw its first auto-shredding and vehicle-recycling company Cero being established, while a second auto-recycling plant is currently being planned, according to local media reports.

The country is also increasing scrap-based steel production capacity. According to media reports, steel secretary Aruna Sharma expects 30-40 million tonnes of steel to be produced from scrap by 2030, up from the current 10 million tonnes per year.

Indian demand for ferrous scrap may reach 33 million tonnes per year by 2031 if the country succeeds in boosting its steel production in accordance with the National Steel Plan for India, according to Yunda. Scrap usage just exceeded 11 million tonnes in 2017, MBR data showed.

However, the national plan also implies that requirements for direct-reduced iron (DRI), known as sponge iron in India, will exceed 52.50 million tonnes in 13 years, compared with just under 25.50 million tonnes last year.

“Thus, India is not really departing from iron-based steelmaking, but rather boosting it alongside with scrap usage,” Yunda said.

The increase in domestic demand for scrap could eventually outstrip supply, causing import volumes to climb.

Metal Bulletin’s cfr India shredded ferrous scrap index was at $385.15 per tonne on April 27, up from $289.87 per tonne on January 6, 2017.

Lee Allen in London contributed to this article.

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