Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

Sebastian Will, vice president, BVSE

Sebastian Will, vice president of Bundesverband Sekundarrohstoffe and Ertsorgung (BVSE), spoke with Davis Index about the German recycling industry and European export scrap restrictions’ potential impact.


How has the German recycling industry fared so far this year?

The business was sluggish after being hit by COVID-19 last year and many of our colleagues feared for their businesses. But I must admit we got a lucky break after more than a year of lockdowns and economic turmoil. The pandemic’s impact on the recycling industry was lesser than most other industries allowing us to get away mostly unscathed. Moreover, from December 2020 onwards, the economic recovery was driven by demand for steel outpacing supply at a record pace. In terms of prices, demand, and business, this year has exceeded levels last seen in 2008.


How are scrap flows across Germany at present?

Scrap flows remain healthy. We had some issues early on as the semiconductor chip shortages that are affecting the automotive industry and the Suez Canal blockage affected productive output. Still, secondary grades are readily available now due to increased collection efforts and a lot of revamping, which was postponed in 2020.


Where do you see demand for ferrous scrap at present and what is the most popular material among buyers this year?

Demand is significantly outweighing supply as reflected in the recent price hikes. Until May, this development was supported, if not driven by strong international demand from the booming US and Chinese economies. In May-June, however, domestic pricing outpaced international pricing, and this is not witnessed often. Also new for us was the widening gap, first in demand, and then in pricing, between new arisings (primary scrap) and obsolete materials. Mills suddenly started favoring new arisings for their production.


This was first thought to be an issue of quality control since more high-quality steel grades were in high demand. But we were wrong since comparable high-quality obsolete grades have been shunned for more than six months now and scarce new arising grades are highly sought after. This is a peculiar market environment for producers of quality ensured mill feedstock from obsolete materials.


How do steelmakers benefit from using scrap as a raw material?

This is a wide-ranging topic that needs a much more detailed study but essentially the key benefits are as follows:

  • – Steel scrap is the archetype of recyclability and closed-loop economies as intended by the EU. Limitless reprocessing virtually without loss in technical properties.
  • – Primary resource-intensive raw steel production is replaced by using recyclates.
  • – Scrap is usually generated and consumed locally for the most part so availability is a key advantage.
  • – Using scrap saves up to 70pc energy input compared to primary raw materials. Less energy needed means lower carbon emissions.
  • – Scrap is generated, processed, transported, and consumed (mostly) under strict EU legislation for waste treatment. Unlike most primary raw materials used in steel production. It does not involve strip mining, child labor, or environmental issues from production residues and processing.


How will the EU’s potential export scrap restrictions affect the German recycling business?

Germany imports most of its goods or at least parts for manufacturing from other nations outside the EU making it possible for us to generate more scrap than we can use domestically. This has been the case for years and will continue as domestic industrial output is decreasing for various reasons including some industries moving production abroad to benefit from cheap labor, fewer regulations, bureaucracy, and lax environmental norms.


We, therefore, need to do something useful with our excess production of mill-ready scrap, which is how we exported it to countries that face a shortage. Most of these nations are outside the EU and do not have decent waste management legislation and are thus less able to generate sufficient input recyclables to use in their upcoming industries.


This is good for us as we get stable pricing, domestic market equilibrium, and export CO2 reduction to areas that usually ignore these rules.


This functioning market will be disrupted if the new EU restrictions are implemented. There will be an excess supply of material of both new arisings and obsolete grades. Should the mill’s bias towards new arisings persist, the oversupply of obsolete material will be even more prominent.


As a result, pricing will decline and collections will suffer. After a certain point, processing will suffer and the market could collapse. Obsolete scrap will mutate from a much sought-after resource to a disposable item. This development will take place in the shuttered area of the intra EU market only. Meanwhile, the rest of the world will face a significant reduction in the supply of input material since material from the EU will no longer be available. Since this shortage cannot be mitigated in the short term, more primary raw materials will be used as substitutes.


Together, these factors would result in:

  • – Disrupted recycling circles in the EU and Germany as recycling becomes unprofitable,
  • – Declining recycling and collection rates in the EU contradicting ecological goals of becoming a closed-loop economy,
  • – Less CO2 conservation, and
  • – More CO2 emissions outside the EU as producers turn towards primary raw materials to substitute the missing EU scrap.

Thus, the new norms would be a lose-lose situation in all aspects.

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