Five inconvenient truths about scrap

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Scrap is the undisputed key to steel industry decarbonization. Global availability is expected to reach 1.0 – 1.2 billion tons per year by 2050, almost double today’s level, as steel products and buildings produced decades ago reach the end of their useful lives.

This amount of scrap combined with increased DRI production has the potential to lift the global EAF production share from 29% today to over 55% by 2050, driving an 800-900 MT reduction in global industry emissions.  It could also increase scrap use in the remaining BOF steelmaking from 10% to almost 20%, thereby avoiding an additional 150 MT of CO2.

However, the steel industry needs to address several challenges to fully actualize the decarbonization power of scrap.  The following are five inconvenient truths about the role of scrap in steel industry decarbonization.

  • Unequal scrap endowments create an unlevel decarbonization playing field. Obsolete scrap availability is a function of a country’s historical steel production levels adjusted for direct and indirect steel trade. The accumulation over time of a country’s end-of-life products represents its scrap endowment: i.e., its “inherited” amount of potentially recoverable end of life (EOL) scrap. Cumulative global steel production since 1900 has been 60-65 billion tons.  Reflecting historical production and consumption, it is distributed unevenly.  Around 55% “resides” in the advanced economies, 25% in China, 10% in Russia and 10% in the rest of the world.

Steel production and consumption are in decline in most advanced economies, China and Russia which together hold around 90% of the global scrap endowment. Conversely, demand and production are growing in many emerging economies in the rest of the world which holds only 10%.

The advanced economies and China are leveraging their scrap endowments to drive EAF growth.  WSD expects the EAF production share in Europe to grow from 45% to over 80% by 2050, and from 9% to 45% in China. Russia’s scrap endowment, which is the result of a surge in steel production from the 1930s and until the fall of the Berlin wall, is likely to remain largely untapped due to the low costs of captive iron ore and coal, and to the absence of domestic pressure on the industry to decarbonize.

Not only is the EOL scrap availability much lower in developing and emerging economies, but it is also growing more slowly than steel demand and production.  This favors BF/BOF production over EAF production, especially in countries lacking natural gas for DRI production.  Decarbonizing while growing is a huge challenges steel producers in emerging and developing countries.  But it is also a challenge for the global industry whose footprint is shifting to those countries.

  • Scrap export restrictions will slow industry decarbonization. A recent report from GMK identified 48 countries that have implemented some form of scrap export restrictions including taxes/duties, quotas, licensing requirements and total bans.[1] Fundamentally, scrap export restrictions slow global industry decarbonization by limiting the upward movement of prices in home markets. This suppresses obsolete scrap recovery due to its price elasticity. This obviously benefits the domestic industry which is the primary objective of the restrictions.  But by keeping EOL products in the ground (or more accurately as not yet recovered final products and buildings), it limits global availability.

With the exceptions of China and Russia, the 48 countries identified in the GMK report are developing and emerging economies.  These include countries with rapidly growing steel industries in particular, India, Vietnam, Indonesia and Malaysia. Other countries are those with either fledgling steel industries or practically none.

Considering the unequal scrap endowments mentioned above, scrap export restrictions by emerging and developing countries may be justified from an equity standpoint. They can also be justified from a global industry decarbonization standpoint. Supporting the growth in local scrap-based EAF production can forestall investment in BF/BOF steel production, or in the case of no local industry, the importing of BF/BOF steel products from China.

To date none of the 4 largest exporting countries (the EU, UK, US and Japan) have put restrictions in place.  This will change shortly as EU is poised to impose some form of restriction under the Steel and Metals Action Plan, and the UK government is considering a request from the revitalizing EAF sector.  Scrap export restrictions will drive decarbonization in these countries but can also give these countries a comparative cost advantage in the EAF production of low emissions steel.

Japan has been a major scrap exporter for many years due to an economy-wide prioritization of recycling and to the continued prevalence of BF/BOF steelmaking.  The industry is expected to rely heavily on imported DRI as it pivots to EAF steelmaking, though rising scrap demand may curtail some exports.  Significantly, most of its exports go to South Korea so any reduction will impact that country’s decarbonization efforts.

The U.S. has the most advanced scrap processing network and the most advanced capabilities in EAF steelmaking.  In the coming years, a large increase in EAF capacities will pressure its exports but is unlikely to eliminate them as rising prices will increase recovery rates.  The idea of restricting scrap exports has been mooted but does not appear to have momentum.  However, all bets are off given the current administration’s maniacal predilection for global trade disruption.

  • Misallocation of metallics may slow industry decarbonization. The rush to build DRI plants is based on the near-term emissions’ reduction impact of replacing blast furnaces, and on the promise of zero emissions ironmaking as green hydrogen becomes available.  It also derives from the recognition that scrap availability is not growing quickly enough and will not reach the levels required to fully support industry decarbonization. WSD expects global DRI production may reach 240 MT by and 320 MT by 2050, representing 25% of EAF metallics.

However, a narrow focus on building DRI capacity risks sub-optimizing scrap’s decarbonization potential and as a result, increasing the industry’s decarbonization capital investment requirements and slowing decarbonization. Misallocation of metallics may occur in three basic situations: i) when clean (low residual) scrap is used to make commodity long products as is the case in China as it pivot to EAF steelmaking; ii) when DRI is used to produce commodity long products for which they are not required as is the case in MENA; and iii) when EAF flat roll producers use more DRI than is metallurgically required which is potentially the case in the EU.

Clearly, perfect optimization or allocation at the global level is not possible due to local optimization (e.g., DRI may be lower cost than scrap in some countries), trade barriers as discussed above, and market distortions such as the EU giving awarding subsidies almost exclusively for new DRI construction. Nevertheless, opportunities exist for more nuanced assessment of the optimal balancing of scrap and ore based metallics (OBMs), together with more strenuous efforts to manage rising impurities levels as discussed in the last section of this paper.[2]

In the EU, increasing financial support for enhanced scrap processing can lead to a reassessment of the amount of DRI needed for industry decarbonization.  In this regard, EU producers can learn from the leading US minimills who are producing flat roll steels with as much as 80% charge.

The advent of green iron hubs in MENA and elsewhere will potentially provide an arbitrage opportunity for DRI producers for whom exports might create more value than domestic use.  However, this mechanism only works to the extent that there is another side to the arbitrage willing to export scrap.

  • Scrap prices will have to rise to draw out increased supply. Prompt scrap supply is inelastic: an increase in scrap prices will not produce more prompt scrap which is a function of manufacturing activity. Obsolete is price elastic:  higher prices incentivize the collection and processing of EOL products which otherwise would not be economically justified.

The increasing availability of EOL products provide a larger pool from which scrap can be recovered.  However, this scrap is not sitting in a pile, waiting to be recovered.  Costs to recover and process the reservoir will increase, especially since a growing percentage of the reservoir consists of buildings and infrastructure in which the scrap requires more effort to recover. The shape of the elasticity curve is a function of numerous independent and inter-dependent factors. While the perfect equation remains elusive, the fundamental principal nevertheless applies.

Iron ore and scrap are to a certain degree steelmaking substitutes.  As scrap prices rise with growing demand, the EAF industry may find itself for periods of time in the paradoxical situation where the faster it grows, the greater the headwinds facing it.  As scrap prices rise and iron ore prices fall as BFs are shuttered, the marginal cost advantage will shift in favor of BF/BOF configurations. This may slow the phase out of BF/BOFs, especially in countries with growing steel markets.

  • Increasing copper contamination of scrap may slow decarbonization. The presence of copper in steel is deleterious to the EAF production of sheet steels, especially for automotive steels as it causes surface defects, “hot shortness”, and loss of ductility in processing.   Copper cannot be removed once it has melted in with steel. Copper levels have been rising over the past decades as EAF steelmaking has increased and are expected to increase further due to the electrification of vehicles and other products.

Most of the scrap that is traded on the global market is low quality due to the inclusion of copper, dirt, and other non-metallic items.  Exports of contaminated scrap benefit domestic steel producers by reducing its incidence in the home markets.  The copper-intensity of exported scrap can be as much double that of domestic scrap. However, that is not the end of the story.  Contaminated scrap that is exported can come back to the exporting country in finished products made from that scrap. Contaminated scrap is the industry’s “hot potato” which is passed from region to region through the cycle, with each trying to pass it on to the next country in the cycle.

However, while copper contamination is likely to rise, there are levers to minimize the rate of growth and the levels it reaches.  As indicated in the previous discussion, enhanced scrap processing technologies and business models are essential to the optimal allocation of metallics for EAF growth and industry decarbonization.

A follow-up article to be published in the November edition of Steel Times International will provide an in-depth analysis of copper contamination in scrap:  how it enters the scrap steam, how much is already there, and how to manage it going forward.

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[1] https://gmk.center/wp-content/uploads/2025/04/Scrap-Restrict-2025_eng-2.pdf#:~:text=Recognizing%20the%20strategic%20importance%20of%20scrap%20for,nonhazardous%20“waste”%20from%20the%20EU%20will%20stop.

[2] A white paper published by the International Iron Metallics Association (IIMA) and authored by Jeremy Jones, addresses the issue of EAF metallics optimization of scrap and iron units.  https://metallics.org/wp-content/uploads/2025/01/IIMA_Decarbonisation_Whitepaper8_Optimum_EAF_Feedstock_Selection.pdf