Scrap is an essential raw material used in electric arc furnaces (EAFs). EAFs are environmentally friendly than blast furnaces (BFs) that use coal and iron ore as a raw material to manufacture steel products and emit carbon emissions. Being more energy efficient, EAFs use lesser energy vis-à-vis BFs which is motivating producers to move away from BFs.
Nations can conserve natural resources by scrap utilization as it reduces the demand for virgin iron ore and other raw materials, conserving finite natural resources. This preservation of resources is essential for long-term sustainability. Additionally, by using scrap, steel producers divert waste from landfills, minimizing the environmental impact of waste disposal. This contribution to waste reduction aligns with circular economy principles.
What is Circular Economy and why is it need of the hour?
Circular economy framework involves paradigm shift from linear economy model of “Take-Make-Dispose” to an environmental-friendly economy which encourages sustainable development. This includes adoption of 6R’s Principle- Reduce, Reuse, Recycle, Recover, Redesign, Remanufacture (through scientific handling, processing, and disposal of all types of recyclable scraps), resulting in optimum utilisation of resources.
In this regard, taking cognizance of the impact of industrialization on global environment, Government of India (GoI) has notified various rules like Plastic Waste Management Rules, e-waste Management Rules, Construction & Demolition Waste Management rules, Metals recycling Policy to foster the shift to circular economy in India.
As steel is the most recyclable material in the world, one of the major focus areas highlighted is to move towards a green and less-carbon emitting production process through use of scrap steel as the primary raw material, instead of iron ore.
The steel sector contributes 12 per cent to the total national and 31 per cent to the aggregate industrial CO2 emissions (Report by Council on Energy, Environment and Water). The use of scrap in steel manufacturing plays a crucial role in enhancing environmental, social, and governance (ESG) performance. By utilizing scrap, steel producers can significantly reduce their environmental footprint, contribute to a more circular economy, and promote responsible sourcing practices.
Current Scenario
India has emerged as world’s second largest producer of crude steel after China in year 2022 (as per worldsteel.org). The growth in Indian steel industry has been remarkable post deregulation in 1991- 92. During fiscal year 2023, the crude steel production and finished steel production stood at 125 MT and 114.9 MT respectively, a y-o-y growth of 6.01% and 28.67% respectively. Further in H1FY2024, the crude steel production was at 69.7 MT.
Scrap as Raw Material, Globally and India
Globally, all major steel producing countries like European countries, Japan, USA, etc., are focusing on scrap-based steel production to reduce CO2 emissions and promote circular steel industry. The use of recycled scrap in crude steel production is very high in other nations compared to India due to absence of steel shredding facilities in India.
Availability of Scrap in India
Currently, the use of scrap in steel production is in the range of 30 MT of which about 30% is imported and rest is procured domestically. As per estimates, about 22% of the steel production is done through scrap as raw material. The lesser proportion is due to highly unorganized scrap market wherein the supply of scrap to manufacturing units is a challenge. The country is dependent on imports for the scrap requirements. It is the second largest importer of recycled steel scraps after Turkey.
During FY2023, the scrap consumption stood around 30 MnTPA, an increase of 15% from FY2022 consumption of 24.34 MnTPA (Source: Steel Mint). The imports also surged from 3.6 Mn tonnes in FY2022 to 9.8 Mn tonnes in FY2023, accounting for about 35% of the total scrap consumption. This is due to surge in global energy prices, recessionary trend, and Russia Ukraine war, affecting the demand and supply in other nations like Turkey, Bangladesh, Pakistan etc. This led to higher scrap shipments coming in India.
Trend in Scrap Import
Major countries that supply scrap to India include USA, UK, South Africa, UAE etc. The scrap imported in Mn tonnes for FY2018 to FY2023 is provided in the graph below-
In H1FY2024, the total scrap import stood at 4.44 MnTPA (50% Y-O-Y increase) as per steel. The increase was backed by:
- Increase in steel production to cater to the growth in domestic steel consumption (by 15%) in H1FY2024 to 64 Mn tonnes compared to 56 mn tonnes in H1FY2023.
- Major importers like Turkey, Bangladesh, Pakistan continue to see a drop in scrap demand amid rising inflation and interest rates. As a result, major exporters like US and UK increased their shipments to India.
- Higher scrap prices domestically compared to imported scraps due to limited domestic availability as result of GST raids to wipe out illegal transactions.
Recent ban from major importing countries acting as a threat to availability of scrap in India-
Recently, at an Indian Steel Market conference conducted by mjunction, Mr. Nagendra Nath Sinha, Steel Secretary has highlighted that about 60 nations have either banned or are in the process of banning scrap exports to achieve their decarbonisation goals. This shall impact domestic availability of scrap as currently about 30% of the total scrap steel consumed is imported. With incremental requirement to increase share of scrap steel in manufacturing process, there is inherent need to increase the domestic supply of scraps to support sustainable steel production and achieve selfsufficiency in steel production.
Expected demand of Scrap and the domestic availability
The government aims to enhance the crude steel production capacity to 300 MTPA and per capita finished steel consumption to Rs. 158 by 2030- 2031 from its current levels of 125 MTPA and Rs. 81.1 (Source: World steel org.) respectively in 2022 as per the National Steel Policy 2017. The estimates are based on the premises that 60-65% of the steel production would be coming through Blast Furnace-Basic Oxygen Furnace route (BF-BOF) and rest through Direct Reduced Iron -Electric Arc Furnace/ Induction Furnace route (EAF/IF). While scrap steel is the primary raw material for EAF/IF route, it accounts to about 15% in BF-BOF route also to improve efficiency. Due to this, the requirement for scrap shall rise from current levels of 29-30 MT to 70-80 MT by 2030.
Government initiatives to increase domestic availability of Scrap
To achieve the targets of NSP-2017 and to make a sustainable shift towards circular economy, the GoI has brought in various polices to increase domestic availability of scrap steel and subsequently increase the use of scrap steel from current levels of 15% to 25% by FY27 and 50% by FY47 in primary steel production. Therefore, the requirement of scrap shall rise to 70-80 MT by 2030.
Here, we present the key highlights of the Steel Recycling Policy, 2019 – one of the major policies to increase scrap availability in India:
- The aim is to promote circular economy through steel sector and produce high quality ferrous scrap by adopting an organised collection, dismantling, and processing systems.
- Adequate collection and dismantling centres working on hub-spoke model and feed the scrap to processing centres/ shredders. Assuming the shredder has annual capacity of 1 lakh tonnes, the policy aims to install 300 collection and dismantling centres and 70 scrap processing centres.
- Development of an organized scrapping/shredding industry through a self- regulatory ecosystem based on a system of shared responsibility between aggregators, scrapping centres, OEMs, owners and Government.
- The domestic supply of scrap is expected to increase from current levels of 20 MT to 48-52 MT by 2030.
Some of the Initiatives by Pioneers in the steel sector
Mahindra MSTC Recycling Private Limited (MMRPL)
The company is a JV between Mahindra Intertrade Ltd and MSTC Ltd (a government of India Enterprise), incorporated in the year 2018. It is the first organised state-of-the-art auto shredding plant in India located in Greater Noida, Uttar Pradesh. for recycling ELVs and other white goods by converting these into shredded scrap under the brand CERO.
TATA Steel-Foray into Steel Recycling Business
In 2021, to move towards sustainable steel development and reduce the dependency on scrap imports, TATA Steel has commissioned a 0.5 MnTPA Steel Recycling Plant at Rohtak, Haryana to produce high-quality shredded scrap. It is the first company to set up a scrap collection and shredding facility in India. Besides, the group has increased use of scrap in its melting shops in India from 4.8% in FY2021 to 6.6% in FY2022. The group is also setting up 0.75 MnTPA, 100% scrap-based electric arc furnace Plant in Ludhiana, Punjab, India’s first low-carbon green steel plant to commission by March 2025.
JSW Steel- Targets to reduce CO2 emissions to 1.95tCO2 by 2030
On similar lines, to reduce the carbon dioxide emission to around 1.95 tCO2 by 2030, JSW Steel has also set up a metal recycling plant at Pen in Raigad district of Maharashtra in joint venture with New Zealand’s metal recycler National Steel Holdings at an investment of Rs. 175 crores. The plant is located about 4 kms away from its existing 10 million tonne per annum integrated steel plant at Dolvi. In September 2023, the group has acquired 100% stake in the NSL Green Steel Recycling.
Impact on Steel Manufacturers in India
With the government’s focus to move towards circular economy and reduce carbon emissions, the coming decade is expected to bring in remarkable shift in steel manufacturing industry. The key takeaways for Indian Steel Manufacturers include-
- Shift from fossil fuel intensive BF-BOF route and coal- based DRI-EAF/IF to gas-based DRIEAF to ensure a successful transition to green steel.
- Increased use of scrap as the major raw material for primary as well as secondary steel manufacturers in India.
- Increase in domestic availability of scrap steel from current levels of 25 MnTPA to about 38- 39 MnTPA by FY2025 and 48-52 MnTPA by FY2030, as per Steel Scrap Recycling Policy, 2019.
- As the share of scrap increases in steel production, it would cut down the costs as scraps already have the desired qualities of steel and hence requires less heating vis-à-vis primary raw materials iron ore. Overall, the shift towards scrap-based steel production would lead to efficient utilisation of capacities with lesser raw materials requirements.
- Besides, the higher use of scrap in steel production would lead to reduction in power requirements and lower pollution.
- Lower forex exposure for corporates with reduced imports for scrap.
Overall, we expect that the incremental use of scrap in steel manufacturing would improve the operational efficiency and support the profitability of corporates.
Conclusion
While the use of scrap in steel production is beneficial for the nation both in terms of becoming circular economy and achieving the target of 300 MT steel production by 2030, the availability of scrap is a challenge.
Domestically, the availability is on a lower side due to lower shredding facilities and highly unregulated markets. Further initiatives at Government as well as corporate level would be the need of the hour to increase the domestic scrap availability. We at MPFASL are of the opinion that with nations moving towards reducing Co2 emissions and aiming towards circular economy, most of the countries would ban scrap exports, this shall further act as a hindrance (for adequate supply of steel scrap) and rightly so should incentivise the sector to come out with innovative ways to increase the scrap usage in the steel manufacturing.