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The growing importance of steel scrap in China

By Avetik Chalabyan, Junjie Ma, Oliver Ramsbottom, Charlie Tsai, and Steven Vercammen

Will the industry develop rapidly? It largely depends on how fast the economics, government policies, and technology evolve.

The global share of scrap in metallics consumption has been declining in recent years, driven largely by China’s growing role in the steel industry. As a developing economy, China has had limited amounts of obsolete (or postconsumer) scrap to use as a material in steelmaking. However, as the country’s products and infrastructure enter the replacement phase, the growing availability of obsolete scrap is likely to fuel a shift from steelmaking based on basic oxygen furnace (BOF) technology to electric arc furnace (EAF) technology that relies more heavily on scrap. In time, this shift will have a significant impact on trends in scrap consumption both in China and globally.

Today, scrap recycling in China is a highly fragmented industry that lacks vertical integration and mainly operates under the authorities’ radar. In order to handle growing volumes of scrap (exhibit), the sector will need to gain scale and efficiency. To date, it has been challenged by the uncertainties surrounding the government’s plans to restructure the domestic steel industry, declines in scrap prices relative to raw materials, and lack of market regulation. Additionally, the government has provided little support for the industry in recent years, despite voicing high ambitions for its future.

Steel production and scrap supply drivers in China through 2030

How rapidly China’s scrap-recycling industry develops will depend on the evolving economics of the industry, government policies, and the pace of the shift in Chinese steel production from BOF to EAF technology or the use of new technologies to increase the amount of scrap used in BOF. Our full article lays out a scenario for China’s scrap-recycling industry over the next 15 years, based on our projections of China’s steel production and consumption, its scrap supply and how much of its processors will be able to profitably recycle, and the relative production shares of BOF and EAF. Failing to use the recycled scrap locally will push extra scrap volumes onto the export market and potentially distort overall trade dynamics.

Download the full report on which this article is based, Tsunami, spring tide, or high tide? The growing importance of steel scrap in China (PDF–1,421KB).

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