Final Thoughts

The steel industry in the US, and across much of the developed world, finds itself between two greens. On the one hand is the constant innovation towards sustainable, decarbonized “green” steel. And, on the other, is a more traditional green, the bottom line: money.

The hope is to keep the two aligned, increasing profits while going easy on the environment. SMU just reported that the Biden administration announced a $6-billion decarbonization program. A green wind is definitely blowing through steel. And there is no doubt, especially with widespread adoption of electric-arc furnace (EAF) steelmaking, that the US industry is both leaner and cleaner than in times past. But looking forward, all those EAFs might result in a tug-of-war between the greens, with demand for scrap serving as the rope.

Most EAF sheet mills rely on prime scrap. As of this writing, scrap prices had not settled for March. But you can be sure that they’re not going down. We’ve seen prices jump in flat-rolled steel, and it might be time for scrap to rocket up as well. There are a few near-term factors behind that rise. But further out, a bigger question around tightness could arise. As countries around the world rush to go green and switch to EAFs, where will the scrap come from, and what will happen to the price?

The US has in the past been able to draw scrap from Canada and Mexico. They’re right in our backyard. But Canada’s Algoma Steel is in the midst of switching from blast furnace to EAF steelmaking, and Ternium Mexico is constructing an EAF at its Pesqueria location.

Also, we’ve recently seen both Canadian and Mexican steel associations start grumbling about protecting their domestic industries. Will scrap exports eventually be brought into the mix?

To see that in action, we need look no further than the European Union. SMU recently wrote about US senators hitting back against the EU’s proposed Waste Shipment Regulations. Environmental impact was cited as the motivation behind the regulation. In practice, the proposed rules would result in restrictions on EU scrap exports.

As events like the war in Ukraine have shown, globalization is fragile. Add to that a protectionist sentiment around the world at the moment. The free flow of goods is no longer the unquestioned certainty it was in the pre-pandemic world. 

So in this new arena an analogy could be made with electric vehicles (EVs). If you snapped your fingers and everyone had one, where does the extra electricity come from? Likewise, if every mill in the world becomes an EAF, where would we find all the scrap? Especially if new trade barriers have sprouted up. Of course, iron is MUCH more abundant than battery materials like cobalt, but the basic point about supply remains.

Fortunately, mills don’t have their eggs all in one basket. Alternatives include direct-reduced iron (DRI) and hot-briquetted iron (HBI) as well as pig iron. On the DRI front, Essar Group just announced increased investment in Mesabi Metallics in Minnesota, and both Cleveland-Cliffs and US Steel have interests in the region as well. We all know Russian and Ukrainian pig iron are effectively gone from the US market these days. But alternatives – not only Brazil but also China, Chile and Canada – have been found.

For the moment, prime scrap is still the most popular game in town. Will innovation swoop in before a squeeze comes? Or do you think there will somehow be enough scrap to go around?

Here at SMU we’re interested to know how you see this issue developing in the future—whether at the mills or all along the supply chain. And, more generally, do you see green (CO2) vs. green ($$$) as antagonists, or are they happily working together?

By Ethan Bernard, ethan@steelmarketupdate.com