Large volumes of EU scrap may need new domestic markets

The European Commission is scheduled to publish a draft of the final adoption of the EU waste shipment regulations (WSR) review on 17 November, with the draft expected to include some form of ban on ferrous and non-ferrous scrap exports.

The two types of ban on scrap exports thought most likely to be implemented are a total ban on exports to countries outside the EU, and a ban on exports to non-OECD countries that do not meet EU waste processing standards. Argus considers the potential impact of these possible outcomes on European and global ferrous scrap markets.

Total ban

A total ban of all ferrous and non-ferrous scrap exports from the EU was not initially considered a likely outcome of the WSR review. But intensified warnings in the past week from trade associations and industry leaders regarding the damage that an outright ban could cause suggest that the potential scope of any export restrictions may have increased.

Europe generated around 110mn t of steel scrap in 2018 and 2019, according to data from the Bureau of International Recycling (BIR) and European Recycling Industries Confederation (EuRIC). Combined consumption of EU 27 states and former member the UK totalled around 90mn t in 2018 and 2019.

The EU, excluding the UK, exported 14.5mn t of steel scrap to countries outside the bloc in 2019, which represented around 13pc of supply. This means that if the commission implements an outright ban of scrap exports, at least 14mn-15mn t of steel scrap will be redirected to the domestic market.

Europe has around 23mn t/yr of spare electric arc furnace (EAF) production capacity and 8mn t/yr of spare blast furnace and basic oxygen furnace capacity, according to production capacity data from industry association Eurofer and output data from Worldsteel.

In theory, European steelmakers could absorb all the excess supply from the export ban simply through higher utilisation of production capacity. But in reality, most of the spare capacity, particularly for EAFs, is located in countries such as Spain and Greece, where scrap availability is limited relative to higher-flow regions such as northwest Europe.

Steel mills typically have a scrap catchment area of no larger than a 100-150km radius because transportation costs become uncompetitive beyond this range unless cargoes are shipped on trains or water vessels. But a shortage of railcars and lorry drivers, and sporadic disruptions to inland waterways, has been a major challenge for European buyers and sellers of scrap in recent years.

Additionally, most EU ferrous scrap exports are of obsolete grades such as HMS, which EU steelmakers do not consume in large volumes. It is possible that some European mills will increase their utilisation of these scrap grades if the metal is further processed into a higher-yield product. But further processing will incur additional costs to scrap suppliers, which may lower their appetite or ability to collect scrap, particularly as scrap values in Europe are likely to fall if any export ban is introduced.

Ban on exports to non-OECD countries that fail to meet standards

Many market participants still consider that the commission is more likely to propose a ban on scrap exports to countries that fail to meet EU waste treatment standards rather than impose a blanket ban. If this is the case, exports to non-OECD countries are more at risk because most OECD countries already adhere to similar standards enforced in the EU.

The EU exported 3.6mn t of steel scrap to non-OECD countries in 2019. The largest non-OECD buyers in 2019 were Egypt, India and Pakistan, which purchased more than 2.3mn t combined. China and some other Asian countries are more likely to be deemed as "not meeting EU standards" by the commission. Exports to these countries totalled 1.9mn t in 2019.

By Chi Hin Ling