India to generate 170 mnt of ferrous scrap by 2047; DRI, metallics mix to reduce

• End-of-life steel to contribute 50% of scrap generated
  
  
• Decarbonisation drive to reduce sponge iron usage
  
  
• Secondary sector to require 145 mnt of scrap, primary, 35 mnt, says draft policy
  
  

Morning Brief: India's scrap generation to touch 170 million tonnes by the next 25 years, as per SteelMint's forecasts.

SteelMint undertook a study of scrap generation over the next 25 years. Further, it broke this up into 'old (EOL)' and 'new' (prompt) scrap generation.

Old scrap: Old scrap is, of course, generated from end-of-life (EOL) steel material which could be vehicles, building demolition, industrial discards - white goods, machinery etc. SteelMint has considered 30 years for any steel consumption to reach EOL, since India is a developing country (unlike developed nations where a 20-year period is considered for estimating EOL). After reaching EOL, 70% will be generated as scrap while the remaining 30% of steel will continue to be used as it is.

How is 70% scrap generation from EOL steel arrived at?

As per industry standards, and which SteelMint has also followed, there are certain segments under which new scrap is derived:

a. Home scrap: This material, for instance, is generated at the steel plant itself during the process of manufacturing finished items. The industry average of scrap derived from 'home' is 5%.

b. Industrial scrap: Under this head, the gamut of finished steel products in India used in the B2B space comprise around 40% and these generate 13% (10-15%) of ferrous scrap. The scrap here is generated from HR and CR coils, structural, rebar, automotive, etc to name a few.

c. Construction scrap: The remaining 60% of steel is used in the construction industry which generates 5% of ferrous scrap.

Thus, based on the above percentages, the new or prompt scrap volume is derived. SteelMint learned from market participants that China and Japan also work on nearly the same percentages from each industry segment for calculating its new scrap generation.

The 70% old scrap generation volume is derived through back-calculation based on total scrap consumption less new scrap generated.

SteelMint analysed the generation and consumption of scrap year-wise to find out the scrap EOL generation in phases. For example, any finished goods steel EOL is 30-35 years (which is eligible for expiry) but a user may wait to use it to its maximum life and may not scrap as per the definition of EOL.

Also, SteelMint feels the 70% share will gradually go up to around 80% by say 2047 because of the growing environmental consciousness, evolution of newer technologies that will emphasise on green steelmaking to reduce the carbon footprint.

India's total scrap consumption (including old and new), excluding imports, is at around 27 mnt. It is assumed that the volume generated will get consumed with no leftover inventory. For instance, over a span of five years, from 2016-2020, the total scrap generated was ~133 mnt and the volume consumed touched ~126 mnt.

Outlook

India is likely to generate around 170 mnt of scrap by 2047, as per SteelMint's estimates, based on the EOL estimates. This tallies with the Draft National Steel Policy for Secondary Steel Sector - 2022. For instance, the draft policy suggests that ferrous scrap requirement for the secondary sector (Electric Furnace) will be 145 mnt and for primary producers'(BF/BoF), 35 mnt, together which total 170-180 mnt.

But will India require ~700 of crude steel, going forward - 350 mnt from primary producers and the balance 350 mnt from secondary? If NOT, India can generate 150+ mnt of scrap that can be consumed wisely to meet its steel-making requirements.

Highlights of the draft National Steel Policy for Secondary Steel Sector - 2022:

India's total crude steel production by 2047: 700 mnt

Secondary steel sector share: 50% - ~ 350 mnt

EAF route: 50% of secondary steel sector = 175 mnt

IF route: 45% of secondary steel sector = 157.5 mnt

EOF: 3% of secondary steel sector = 10.5 mnt

BOF: 2% of secondary steel sector = 7 mnt

Raw material requirement for secondary steel-making:

Iron ore: 365 mnt at average consumption of 1.46 mnt

Coal: 37.5 mnt, imported 30 mnt

Scrap: 145 mnt

DRI: 250 mnt (only 30% coal-based)