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China’s scrap consumption to grow

Keywords: Tags  China scrap, scrap consumption, scrap usage, steelmaking, BOF, EF, electric-arc furnaces, basic oxygen furnaces steelmaking

LONDON — Chinese scrap consumption will remain high over the next decade based on patterns in the global ferrous scrap sector, AMM sister publication Metal Bulletin reported, based on a report by Metal Bulletin Research (MBR).

Scrap consumption in the global steelmaking and foundry industries has risen rapidly since 1985 and is expected to grow until 2021, with the pattern of consumption likely to change radically over the same period.

The consensus among many observers is that China will become a net exporter of scrap after 2020.

Before then, however, the transition from the country being a net importer of scrap to a net exporter will be delayed by increased domestic consumption of scrap, mostly in the basic oxygen furnace (BOF) sector, and government policy, according to MBR.

Beijing will likely work to discourage scrap exports and instead divert material toward feeding the growing Chinese steel industry, albeit one growing at a slower pace than in the recent past.

The country’s foundry sector will be an important driver for global scrap market trends overall until 2021, with demand for scrap in China expected to increase 7 percent per year on average until 2021, at a time when the world’s scrap supply will dramatically increase to well over 2 billion tonnes. The bulk of this supply will come from obsolete scrap, stemming from the past decade’s substantial manufacturing.

China’s abundance of domestic scrap could lead to convincing arguments for the country to refocus its steel industry from now until 2021 toward start-up and expansion of electric-arc furnaces (EFs), which will see greater scrap consumption, in addition to rising consumption by the BOF sector.

There are a number of reasons why EFs will proliferate in China in the years leading up to 2021.

Chinese infrastructure spending will continue to increase steel consumption and will require the building of new steelmaking capacity, particularly in the country’s central and western provinces.

So mills will be built, despite the slowdown in China’s top-line economic growth, because the relationship between the country’s gross domestic product (GDP) growth and rates of steel production and consumption will remain largely unchanged until 2021.

Beijing will count on the construction of new EFs to mitigate the political consequences of the closures of obsolete and uneconomical capacity.

This strategy will enable new investment and employment to be poured into the right locations, which in turn will suit an increasingly localized construction product industry.

Investment in EFs will be stepped up in response to China’s growing concerns about pollution, with a concerted central government campaign to cut coal usage.

New integrated capacity costs $600 to $1,200 per tonne up to the semi-finished product level, depending on global location, with Chinese production at the cheaper end of this spectrum. New EF capacity, however, costs $200 to $350 per tonne up to the semi-finished level, again with Chinese production being toward the lower end of this range.

Annual maintenance costs represent, on average, 6 percent of capital expenditures, or $46 to $75 per tonne for integrated mills and $18 to $20 per tonne for EFs.

Costs incurred for environmental protection compound the difficulties.

Compared with BOFs, EFs use 75 to 85 percent less energy, 90 percent less virgin materials and 52 percent less water. They also produce 76 percent fewer water pollutants, 86 percent fewer air pollutants and 97 percent less mining waste.

The risk of scrap shortages in China over the next eight years is low. The only potential issue foreseen is the sheer size of the expected increase in domestic scrap consumption in the decade between 2012 and 2021. The one potential problem will be the ability of the supply chain to develop the infrastructure necessary to meet demand.

EF steelmaking in China could viably increase from the 10 percent share it commands today to closer to 15 percent over the forecast period.

A version of this article was first published in AMM sister publication Metal Bulletin.

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