As both major steel scrap consuming and exporting markets, the USA and Europe are often treated as the be-all and end-all of the steel scrap market. The US’ world-leading electric arc industry has become a model of scrap-to-steel-making efficiency and scrap markets serving that industry viewed as a bellwether for the scrap market worldwide.
However, if there is one thing we can say for the steel industry, it is that it does not stand still and the rise of Asia has been a phenomena that even the financial crisis of 2008 barely slowed, let alone caused retraction as it did in the west.
Global steel scrap consumption will reach 631.5m tons in 2015 according to a Global Industry Analyst report widely reprinted but acknowledged here from PR Web. 2015 is probably a bit far off for us to focus on here but the point is scrap consumption patterns are changing fast and the implications will be felt as much at home in Europe or the US as they are in consuming countries; scrap is a global business. According to the report, Asia-Pacific and Europe now account for more than 70% of global steel scrap consumption, so prices and demand in these markets are equally as important as what is happening in the US. Indeed, one of the dynamics that will affect the scrap market in the medium term will be the imposition of restrictions in exports by several countries as scrap-exporting countries seek to protect domestic consumers.
Steel scrap is the key raw material used by electric arc furnace production. More than 55% of steel produced in the European Union employs steel scrap as a raw material and yet European companies using EAF technology account for only 40% of all steel production. The balance steel scrap is used as charge in the LD or BOF steel refining process mixed with pig iron from blast furnaces. The proportion of steel scrap used varies depending on the mill, the quality of the steel scrap and the end-use of the steel, Wikipedia quotes a nominal fifth (or 20%), but a very precise figure for the Japanese steel industry this year is quoted in a Chinese website at 14.5%. The Japanese steel industry is down in tons produced this year from 2007, but even so it is on track to consume nearly 14 million tons of steel scrap for LD/BOF converters and a further 24 million tons for EAF steel production, still some way short of the 48 million tons reported by the USGS for US steel scrap consumption in 2009.
As steel production has fallen in Europe, scrap recyclers have increasingly turned to export markets, shipping 22% more scrap in 2009 than 2008. Principal markets are China, India and Turkey, even though the first two do not have highly developed EAF production capability. Turkey retained its title as the largest steel scrap importer according to letsrecycle.com, at 15.6 million tons topping China’s 13.7 million tons, but even so, down on 2008’s 17+million tons import figure. Internally, Europe consumed nearly 81 million tons of steel scrap, down from over 110 million tons the year before.
As Asia (and in particular China) continues to grow, its steel production will have a growing impact on scrap consumption patterns, demand, and hence: prices. Although China’s steel mills are not traditionally large scrap consumers, they are increasingly adopting western production techniques and even low scrap consumption per ton of finished steel ratios have become significant when multiplied by the 600 million tons per annum capacity for the Chinese steel industry. World steel production reached 1,220 million tons in 2009 according to the World Steel Association. In the same year, the US produced just 58.1 million tons of that total. As a major steel scrap exporter, the US is going to be increasingly driven by the demands of the global steel scrap market rather than the domestic. Could we see steel scrap export quotas imposed in the US? Probably not in the short term. The US produces much more steel scrap than it consumes, but a weak dollar is arguably making US steel scrap even more attractive than US steel.