Boston Consulting predicts ferrous scrap shortage

Generators and processors of steel scrap who have seen prices stagnate or fall for the past six months may wonder when ferrous scrap will truly be in short supply, but a global consulting firm says that time is coming.

Four analysts with Boston Consulting Group (BCG) have written a report for the firm titled “Shortfalls in Scrap Will Challenge the Steel Industry.”

In the analysis, Janice Lee, Nicole Voigt, Martin Feth and Gaurav Chhibbar of BCG say the global supply of carbon steel scrap is lagging demand growth and that private and public sector stakeholders should begin preparing for the shortfall by calculating the current availability of scrap and developing short- and long-range forecasts.

The firm says its calculations show that by 2030, a current 9 million metric ton steel scrap surplus will become a 15 million metric ton deficit.

The authors say steel companies already have started to focus on locking in consistent supplies, perhaps by acquiring scrap yards and by using new recycling technologies and consolidation.

The report also suggests government policymakers should explore strategies to address the "impending shortage," such as by incentivizing scrap recycling through tax and fee breaks.

By the numbers, BCG says its analysis found global scrap demand will increase at about a 3.3 percent compounded annual growth rate (CAGR) in the next eight years while supply will rise at closer to a 3 percent CAGR.

Methodologies in place to measure carbon footprints could benefit both finished steel and ferrous scrap demand, according to the analysis.

“That boost in demand will in part be the result of scrap increasingly becoming a material of choice for steel production, especially as industries attempt to reduce carbon emissions from their raw materials,” the report says.

The firm foresees annual scrap consumption in both China and the United States was likely to be from 40 percent to 50 percent higher in 2030 compared with the early years of this decade.

The BCG analysis cites global investments by steelmakers to convert from blast furnace/basic oxygen furnace (BOF) steelmaking to more scrap-friendly electric arc furnace (EAF) technology.

"While EAF minimills have been around since the 1980s, they are becoming more attractive as they ramp up production of advanced high-strength steel using fewer carbon-heavy raw materials," the report says. "Besides being more environmentally friendly, EAF steelmaking provides flexibility in planning and in making changes to production volume and manufacturing capacity. It is expected that, globally, EAF operations—currently about 29 percent of steelmaking capacity—could surpass 41 percent by 2030, especially as new EAF plants open in Europe and China.”

On the supply side, BCG notes manufacturing sector volatility and improved metal stamping processes means prime ferrous scrap could face a deficit of nearly 30 million metric tons by 2030.

Regarding prompt grades like shredded scrap and No. 1 heavy melting steel (HMS), the consulting firm says, “As global economies slowed in the financial collapse of the late 2000s and again during the COVID-19 pandemic and its aftermath, fewer big products were made and sold, reducing the amount of heavy scrap in the pipeline now.”

BCG says the overall situation will have an impact on how scrap flows from one nation to another, pointing to “scrap nationalism” that has found a home in some parts of the world.

While about 110 million metric tons is traded across international borders currently, BCG predicts, “As scrap availability tightens through the decade, we anticipate that trade in the raw material will moderate significantly, to around 93 million metric tons by 2030, as domestic consumption rises and countries reduce exports.”

The full BCG report on ferrous scrap can be found here.