Will EU lose top ferrous scrap exporter tag on road to decarbonisation?

• EU increases share of EAF-route steelmaking
  
  
• Mills oppose exports amid scarce resources
  
  
• New export norms on anvil; steel demand to remain moderate
  
  

Morning Brief: Environmental degradation and ways to resolve this growing challenge are the key talk points across the globe today. Steel being one of the most polluting industries, the pressure of cleaning up its act is more pronounced than ever. All major crude steel producing countries are in a tizzy to enhance green steel-making capacity. The European Union is no different. It is making a concerted effort to increasingly switch to steel production through the electric arc furnace (EAF) route. So much so that, as per some reports, the EU may soon change position from being a net scrap exporter to net importer of the same.

Data reveals that EU-27's blast furnace steel production percentage has dropped from 59.6% in 2019 to 56.3% in 2020, and further to 56.1% since 2021. The EAF route's share, on the other hand, has risen from 40.4% in 2019 to 43.7% in 2020 and 43.9% in 2021-22.

This pronounced shift to the EAF route is necessitating higher scrap consumption within EU's own shores, leaving little allocation for exports. Importantly, availability of high-quality and unmixed scrap is already limited, driving the EU to adopt a protectionist stance. EU steel mills require scrap which is low in contaminants such as copper.

In fact, IREPAS, at a recent meeting, said that the scrap produced in the EU will be used up domestically within the next five years.

EU mills oppose scrap exports

In recent years, the EU Union has been exporting about 18 million tonnes (mnt) of scrap per annum. European steel producers have opposed this move, and tried at great expense to enforce a complete ban on the same, but have so far only been partially successful, as per a report.

BIR data reveals, the EU-28 was the top ferrous scrap exporter in 2022 with 17.60 mnt. However, this was a 9% y-o-y drop from 19.43 mnt seen last year.

On the other hand, the EU-27's imports of the same showed a steep 26% decline in 2022 to 3.9 mnt against 5.37 mnt in 2021. This indicates scrap's scarcity.

Global hunger for scrap to only grow

The global hunger for ferrous scrap will only continue to grow as more than 70 countries have already imposed restrictions or bans and many more are expected to undertake similar measures. China, the global leader in steel making and consumption, once it starts guzzling scrap, global scarcity will only escalate. Its ferrous scrap consumption is slated to increase 23% by 2025 and its scrap ratio in steel-making is expected to rise to 25% by 2025 and 34% by 2030 from around 22% in 2022.

India is eyeing 20% carbon reduction by 2030, 50% by 2047 and 100% by 2070. It is looking to raise capacity to produce steel through scrap to 300 mnt (60%) by 2047.

Crude steel production

The EU-27's crude steel production in 2022 touched 136 mnt, a 11% decrease compared to 153 mnt in 2021. The drop was propelled by steep fall in demand amid record high gas and energy prices last calendar.

Globally, crude steel output fell 3.9% to 1,885 mnt last calendar from 1962.30 mnt in 2021.

Europe's steel industry accounts for an estimated 9% of global crude steel production.

Outlook

Moderate demand till 2030: As per a forecasting by Bronk & Company, demand for European steel in the main sales areas may rise to approximately 395 mnt in 2030, representing a growth of around 27% compared to 312 mnt in 2020. Due to a steep decline in demand in Western Europe and North America because of the pandemic, this number is very high in comparison to the global growth of 11%. Changing the baseline to 2021 leads to a growth of only 11%, since demand had already recovered from the pandemic in 2021.

Steel demand in Western Europe will remain nearly stagnant at levels to be seen in 2023. In contrast, a moderate but steady upward trend is expected for North America. For Eastern Europe, too, the forecast sees an almost unbroken uptrend, with demand here expected to exceed 100 mnt by 2030.

European steel producers thus might see a moderate growth in their major sales markets up to 2030 which will support increased scrap intake.

However, the enormous costs associated with the green transformation will probably make it difficult for the European steel industry to compete globally in the next few years without appropriate competition-balancing regulations. However, pioneering the green transformation today might very well unlock new potentials for tomorrow, says the forecast from Bronk & Company.

Revised export policy from 2024: The revised European Waste Shipment Regulation is expected to come into force in 2024 which will make scrap export norms more stringent. While some EU countries support lesser exports, others do not.

Once the Council of the European Union drafts a compromise then a trialogue between the Council, European Commission and EU Parliament will ensue and a final decision is expected by 2024.