Outright EU scrap export ban unnecessary: Update

Clarifies industry view on extent of proposed ban

The EU should not impose an outright ban on ferrous scrap exports from the bloc as part of its efforts to regulate waste shipments, European steel and recycling trade associations told Argus.

The European Commission began reviewing EU waste shipment regulations in January and aims to complete its evaluation in spring. A key purpose of the review is to enhance control of cross-border movements of hazardous waste and reduce global trade in such material.

Hazardous and hard-to-recycle plastic waste will be included in the scope of the Basel Convention — an international environmental agreement regarding the shipment of wastes — from next year.

Ferrous scrap is categorised as "waste" under EU law, so the EU could limit exports from the bloc — which has long been the subject of lobbying efforts by members of the European steel industry.

But there is not yet any clear indication that ferrous scrap export restrictions will be recommended as a result of the review, and implementation might only come more than a year after the review's conclusion.

"We are far from a final decision. But free trade and fair trade of steel scrap as a commodity is very important to recyclers in Europe and the world," European Recycling Industries Confederation secretary-general Emmanuel Katrakis said.

And European steel association Eurofer on 17 November told Argus that limiting exports to countries with appropriate environmental standards was a preferable outcome to a blanket ban.

Eurofer sees steel scrap as "a strategic resource insofar as its use is essential not only to the completion of the EU's circular economy, but also in supporting the EU's CO2 reduction objectives".

"The EU should promote the availability of ferrous scrap to the EU steel sector, secure its quality and support the use of secondary raw materials — such as industrial co-generated materials — for replacing virgin resources," the association said.

Most of the ferrous scrap-consuming countries that are less likely to observe EU environmental standards are in south and southeast Asia and Africa. The largest European exporter to most of these is the UK, which left the EU in January and will have no obligation to follow any EU restriction unless that requirement is part of the trade deal now under negotiation, or the exit transition period is extended beyond 1 January. The UK accounted for 50-80pc of EU exports to India, Pakistan, Bangladesh and Egypt in 2018.

The 27 member states of the EU — not including the UK — exported over 15mn t of ferrous scrap in 2018, including some 10mn t to Turkey, the world's largest importer.

Other industry associations, including the Bureau of International Recycling (BIR), have previously voiced concerns that the EU will limit ferrous scrap exports.

Scrap collection could fall under outright ban

A ban on EU ferrous scrap exports could hit the region's recyclers and overall recycling rates.

Ukraine, for example, lifted its ferrous scrap export tariff to €52/t in May 2018 and then to €58/t in September 2018, following steelmakers' calls to preserve scrap resources. The higher tariffs succeeded in limiting scrap outflows — Ukrainian exports fell to 32,374t in January-October this year from over 130,000t in the same period of 2017.

Higher export tariffs, which reduced competition for scrap, led to a fall in the value of scrap in Ukraine. Seaborne scrap prices in the region, measured by the monthly average of the Argus A3 fob Black Sea assessment, were at $266.48/t in September, some $55/t above Ukraine's domestic price.

The reduction in competition, and the extent of the drop in scrap prices, would probably be significantly larger in Europe if a ban or tight limits on exports were imposed — the EU is the world's largest ferrous scrap exporter, with typical net outflows exceeding 10mn t/yr.

Any major structural price fall would probably deter scrap suppliers and erode scrap collection rates, particularly among small merchants and pedlars. Ukrainian scrap collection fell to 3.7mn t in 2018 from 4.3mn t in 2015. An equivalent fall in European collections would remove around 5.5mn t from the market.

European apparent ferrous scrap supply, including the UK, totalled 48.1mn t in January-June — based on consumption of 39.8mn t, exports of 9.78mn t and imports of 1.46mn t — according to BIR and customs data.

Southern EU steelmakers stand most to gain from ban

The EU is a large net exporter of ferrous scrap, but its surplus is not evenly spread.

Export restrictions could benefit southern European steelmakers more than counterparts in the north because scrap that would have been exported could be diverted to countries within the bloc that are in deficit, notably Spain and Italy.

Most of the reduction in collection would probably be in northwest Europe — Germany, France, Belgium and the Netherlands — the continent's main ferrous scrap export hub. These countries are also some of Europe's largest scrap consumers, with Germany and France consuming over a combined 25mn t in 2017, according to BIR data. Lower collection rates could intensify competition between mills in the region, in addition to competition from areas with a scrap deficit, and jeopardise northwest European mills' competitiveness within the bloc.

Turkey, the largest overseas buyer of European scrap, would stand to be the biggest loser from a total EU export ban. Turkish ferrous scrap imports totalled 18.8mn t in 2019, with over 9mn t sourced from the EU — excluding the UK — and removing EU supply from the global market would also raise seaborne scrap prices from other origins.

By Chi Hin Ling