OCTOBER 2010
                                        

Steel scrap consumption to reach over 631 million tons

According to a report released by Global Industry Analysts, Inc. (GIA), the global steel scrap market is projected to reach 631.5 million tons by 2015, driven by the rise in steel production following a lull in steel industry operations due to the global recession. Improving sales in the automobile industry and enhanced construction activity, the hardest hit segments due to recession, are expected to fuel demand for scrap steel. Steel scrap’s favorable impact on the environment is also expected to boost the consumption levels in steel making industry.

The scrap steel industry has been significantly affected by the global economic meltdown, which led to a steep decline in the global supply of scrap steel. Due to the economic slowdown, consumers across the world delayed purchasing decisions related to new cars and home renovation, which constitute the leading sources of scrap steel. The decline in the recycling activity during the economic recession also affected the supply of steel scrap. However, the economic recovery of developed countries is likely to ensure greater availability of steel scrap. As western economies have traditionally driven the scrap arisings, decline in steel making operations affects the global supply levels of steel scrap.

The anticipated recovery of the global economy is also expected to favor increased demand for steel scrap. Rising demand for raw materials used in steel making industry from rapidly expanding emerging markets such as China, India and Brazil is expected to fuel demand for steel scrap. Establishment and operational commencement of new steel mills using electric arc furnace technology is also expected to fuel demand for steel scrap.

A major challenge facing the steel scrap market is the imposition of restrictions on export of steel scrap by several countries, which is expected to adversely affect countries that rely exclusively on imports for meeting domestic requirements. Such restrictions generally take the form of export prohibitions, taxes, administrative measures and export quotas. The restrictions not only lead to a price rise in the global markets, but also provide unfair competitive advantage to domestic manufacturers and enhance cost of production.

Steel scrap is the key raw material used by electric arc furnaces for steel production. More than 55 percent of steel produced in the European Union employs steel scrap as the raw material. The European steel industry is witnessing lower volumes of steel production, lower scrap consumption and lower levels of new scrap arising. European companies using electric arc furnace technology, which uses steel scrap as the primary raw material for the manufacture of steel, accounted for over 40 percent of all steel production.

China leads the world market in the production of steel. However, the country consumes a relatively smaller proportion of scrap steel for steel production. Robust domestic demand along with strong economic development has been the driving force behind the growth in the Chinese steel industry. However, the sector witnessed turbulent times in 2008 and 2009 with a steep decline in external consumption, leading to decrease in Chinese export of steel. The adverse economic conditions and the subsequent decline in steel demand led to cuts in the production at several domestic steel mills, resulting in substantial decline in the steel output, which is also evident in the decreased consumption of steel scrap.