EU scrap availability tightens, mills ‘decouple’ supply chain

Scrap supply is getting tighter amid decarbonisation, and this could be exacerbated by increasing consumption in China. Meanwhile, to overcome limited supply of low-emission ore-based metallics, European steelmakers will increasingly evaluate partnerships with overseas feedstock suppliers, thereby “decoupling” their supply chain. So said participants at last week’s Kallanish Europe Steel Markets 2023 conference in Amsterdam.

Casier Recycling commercial director Alain Eeckman said scrap availability in Europe is already tight and if China begins to import more, this will further disrupt the market and raise prices. Asked if there should be a restriction on EU scrap exports, given this may limit regional scrap processing investment, Eeckman replied: “As a recycler, I would prefer to have an open market, as a European citizen, I can see the need to protect the market.”

There is little chance of increasing scrap supply in Europe unless mills produce more steel, Eeckman added. With the supply pool exhausted, mills will need to start treating lower grades for use in steelmaking, as ArcelorMittal Gent has recently started doing with HMS scrap for its blast furnaces.

Steven Vercammen, senior expert at McKinsey & Company, said EU mills are likely to acquire more scrap yards to secure feedstock supply, as ArcelorMittal has recently done. There is also a trend of contracts being agreed where mills supply steel and then take back the end-of-life scrap, thereby “closing the circle”. This has already been happening in the US for 20-30 years.

“The main problem with the [European] scrap industry is it’s very fragmented – there’s a need to consolidate and optimise the cost of treating scrap,” Vercammen commented. The EU comprises 27 countries with numerous scrap dealers, and it is not very transparent how scrap deals are made. “It’s an opportunity for the mills,” he suggested.

As for China, Kallanish Consulting Services consultant Ian Roper pointed out that the steel giant has been building mega blast furnaces on the coast, not electric arc furnaces, meaning it is looking more at domestic scrap generation than imports.

The problem is China could exhaust its scrap availability if it pushes for increased EAF production. Given Chinese scrap demand is now at 220-240 million tonnes/year, if it starts importing only 5% of its requirement, this would be 12mt, making a huge impact on the seaborne market. “China will import when seaborne prices are cheaper and source domestically when prices go up. So, my view is China will be an underwriter of the scrap market rather than a main driver,” Roper observed.

As for low-emission direct reduced/hot-briquetted iron, the ideal production locations possess iron ore and cheap renewables supply. Brazil is sitting on both, so EU mills should consider partnerships with suppliers there, thereby decoupling their supply chain, Vercammen said. The Nordic countries and Spain are good places for renewables, but lack the required iron ore tonnages.

“In our base case through 2030, there are still enough projects in the pipeline to bring on enough DR-grade feed, but they will have to move fast as it takes time to operate the mine. Beyond that, there will be a problem,” Vercammen warned. Adding pre-smelter technology before the oxygen converter stage will therefore be a growing trend going forward.

Adam Smith Poland