Your steel trash, China's
treasure By Steve Mackrell
LONDON - There are basically only two
sources of the iron needed to make steel: iron ore
and scrap steel. It's been well publicized that
iron-ore prices have soared because of surging
global steel production. Much less well known is
the fact that scrap steel has seen a spectacular
boom as well.
And the biggest reason for
both run-ups? China, where the steel industry
continues to power ahead, breaking all previous records.
Chinese steel production in
2005 was up a whopping 28%, at 348 million tons,
coming on top of last year's 23% increase and 22%
the year before that. And it's not only production
records being broken - Chinese steel exports also
soared to a new height in 2005 with more than 25
million tons, a staggering 55% increase on 2004.
But all this comes at a price -
ever-higher steel production means ever-higher
consumption of steelmaking materials. Take iron
ore. China imported 275 million tons last year, up
by a third on 2004. But are supplies becoming
dangerously tight for another vital ingredient for
China's burgeoning steel industry - scrap steel?
This issue was examined at the recent World Scrap
Congress, held in Shanghai, where concerns
were voiced that future demand for scrap steel
from steelmakers could, down the road, come to
outweigh availability.
Just what is the
role of recycled scrap steel in the steel
industry? Simply stated, "old" reclaimed steel
(that is, scrap) is a vital ingredient in the
making of "new" steel, although the volume
required depends on the steelmaking process used.
Electric arc furnaces (EAFs), which produce about
one-third of global steel (350 million tons), use
a scrap charge of virtually 1 for 1 - that's one
ton of scrap "in" to get one ton of steel "out".
Basic oxygen furnaces (BOFs), which produce some
60% of global steel, use primarily iron ore and
coke (a solid residue obtained by baking
bituminous coal), although they too consume some
scrap steel, to a much lesser extent, typically
about 20% of the total charge.
Scrap steel
is just that: steel that has been used, discarded,
then recovered, cleaned and recycled - the steel
from goods such as end-of-life autos
and discarded white kitchen goods, or the scrap
recovered from demolished buildings and
structures. The main vendors of scrap are the
recyclers of old end-of-life steel goods - the
once-humble scrap merchant - and their product
will become increasingly in demand from the
world's steelmakers as new capacity plans are
unveiled and the popularity of EAF steelmaking
grows. Future demand by steelmakers is destined to
ensure that yesterday's old discarded scrap steel
continues to be transformed into tomorrow's
"treasure".
In China, where the pace and
size of development are such that the consequences
are invariably felt around the world, steel
expansion has generally been restricted to BOF
steelmaking, which is heavily iron-ore dependent -
hence the record-breaking Chinese imports of ore,
principally from Australia, India and Brazil.
About 85% of Chinese production is produced via
the BOF route, but the remaining 15% (about 40
million tons) is produced by the scrap-hungry EAF
route, making Chinese demand increasingly
important in the global scrap market.
China's development of EAF steelmaking has
been hampered by problems with electrical supplies
and, compared with other parts of the world, the
technology is still in its infancy there. In the
United States, production via the EAF route has
grown to more than 50% of total
steel production. Nevertheless, even with Chinese
EAF steel production of 40 million tons, China
still needs to import about 10 million tons of
scrap steel a year to supplement the relatively
low levels of locally available scrap. This makes
China the world's second-largest global importer
of scrap steel after only Turkey. (Turkey produces
most of its steel by EAF, and is also ideally
positioned geographically to receive scrap steel
from the former Soviet Union, which has become a
major scrap exporter.)
What does the
future hold for scrap steel? Over the past decade,
the average annual growth in global EAF
steelmaking has been 5% per year, and this is set
to increase. Annual steel production in 2005 - at
1.12 billion tons - is widely expected to increase
by 2010 to about 1.35 billion tons. Incidentally,
steelmaking capacity is anticipated to increase
well beyond production, with global capacity
likely to climb an extra 400 million tons to 1.6
billion by 2010, which could well exceed expected
demand by some 250 million tons per year.
However, assuming steel mills align future
production capability with demand and avoid
overproduction, 1.35 billion tons is a reasonable
production projection for 2010. This steel will,
of course, be made by both the BOF and EAF process
routes, although EAF is expected to continue
gaining ground against BOF. In Russia, EAF
production is planned to increase from 16% (2004)
to 28% (2007) of total production, as Soviet-era
open-hearth technology is replaced. This could
mean more scrap being retained for domestic use,
with demand growing by 25-30%, therefore leaving
less available for export. In the US the share of
EAF steelmaking is expected to grow from 53% to
60% of total steel production by 2010. In India,
EAF production is likely to grow from 35% to 50%
of total production by 2020, although most new
Indian EAF capacity will probably be fed from
scrap substitutes (directly reduced iron or sponge
iron).
In China, if problems of
electricity supply are eased and, if domestic
scrap recovery grows in line with an increasingly
wealthy society that discards more and more used
consumer goods, then the economic case for
mini-mills (EAF) will be stronger. Growing "green"
pressure for a cleaner environment and lower
air-pollution levels also favors the development
of EAF steelmaking in China.
Taking all
these developments into account, the EAF share of
world steel production is likely to grow from 34%
in 2004 to some 37% by 2010 - resulting in EAF
production of about 500 million tons requiring a
metallics feed of some 545 million tons. Exactly
how the metallics feed breaks down is a matter of
conjecture but, after allowing for the consumption
of "steelworks own scrap", (that is, "home" scrap
or "revert" scrap arising naturally in the steel
mill) and scrap substitutes, then the requirement
for merchant scrap is likely to reach 380 million
tons by 2010.
That compares with current
merchant scrap consumption of 280 million tons
(2004), which means an extra 100 million tons will
need to be found by 2010 - that's an extra 16
million tons of scrap steel a year. Quite a tall
order.
While many point to the existence
of a scrap steel "reservoir" - higher scrap prices
tend to induce recovery from previously
uneconomical sources - others argue there is a
limit to what can be reasonably reclaimed in any
given period. After all, the world can only
discard so many cars and washing machines per year
and only so many buildings can be demolished. Of
course, it's also true to argue that in the future
there will be more and more metallic goods in the
system which ultimately will be scrapped. But the
real question is, will there be enough scrap to
sustain this sort of growth? Many have doubts, and
point to a future where the demand for scrap steel
will grow faster than the supply, which means
supply will remain tight, which means prices for
scrap will remain high.
Steve
Mackrell is the operations director at the
Iron and Steel Statistics Bureau (www.issb.co.uk),
the leading producer of steel industry statistics
in the United Kingdom.
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end-of-life autos
and discarded white kitchen goods, or the scrap
recovered from demolished buildings and
structures. The main vendors of scrap are the
recyclers of old end-of-life steel goods - the
once-humble scrap merchant - and their product
will become increasingly in demand from the
world's steelmakers as new capacity plans are
unveiled and the popularity of EAF steelmaking
grows. Future demand by steelmakers is destined to
ensure that yesterday's old discarded scrap steel
continues to be transformed into tomorrow's
"treasure". 
than 50% of total
steel production. Nevertheless, even with Chinese
EAF steel production of 40 million tons, China
still needs to import about 10 million tons of
scrap steel a year to supplement the relatively
low levels of locally available scrap. This makes
China the world's second-largest global importer
of scrap steel after only Turkey. (Turkey produces
most of its steel by EAF, and is also ideally
positioned geographically to receive scrap steel
from the former Soviet Union, which has become a
major scrap exporter.) 
