Germany car exchange programme could boost scrap supply

New measures agreed by the German coalition government on 2 October that aim to help diesel car owners to avoid driving bans in inner cities could boost availability of ferrous scrap in mid to long term.

The government would give owners of diesel cars with emission standards Euro 1 to Euro 5 options to participate in a hardware upgrade programme or receive a premium when trading in their old diesel cars for a new or less-polluting second-hand car.

This programme is available to car owners that live in — or in adjacent counties or districts of — the 14 cities that the nitrogen dioxide level exceeded 50 micrograms per cubic meter in 2017. Car owners who work in these cities are also eligible.

Market participants in the automotive industry and industry associations indicated that they expect a strong participation rate from diesel car owners based on the success of previous similar schemes. The industry estimates around 2.5mn diesel cars are eligible for this new measure.

A similar car scrapping premium scheme was introduced in 2009, which saw Germany's end-of-life vehicles (ELVs) registrations rise by over 1.3mn year on year. The country was able to recover over 1mn t of ferrous scrap and 117,000t of non-ferrous scrap from ELVs that year.

Some German car manufacturers launched a separate trade-in premium programme last year and attracted over 200,000 car owners, according to market participants' estimations.

"The schemes offered by various car manufacturers last year have significantly increased the flow of ELVs to car scrapping yards, so I expect the car scrapping industry to further benefit from this new government-led scheme if it is implemented accordingly," one industry association said.

An increase in car scrapping rates would boost ferrous scrap supply, particularly for E40 shredded ferrous scrap. Availability of E1 old scrap would likely see a smaller increase than E40, as the specification for E1 grade only allows the inclusion of light vehicle wheels but not the vehicle body.

The scheme will likely have no impact on availability of E3 grade old scrap as it must exclude vehicle body scrap and wheels from light vehicle, according to the European scrap specification.

This programme is likely to impact scrap supply in northwest and southwest Germany the most, as the majority of the cities covered are located in these two regions. Only two cities in central Germany are covered by the programme but market participants expect Frankfurt and Mainz to be included in the next phase.

Neighbouring countries such as Belgium and the Netherlands could also see a small increase in scrap availability, as over 30,000 units of depolluted and dismantled body shells were exported from Germany in 2016.

The 14 cities covered by the programme are Munich, Stuttgart, Cologne, Reutlingen, Duren, Hamburg, Limburg an der Lahn, Dusseldorf, Kiel, Heilbronn, Backnang, Darmstadt, Bochum and Ludwigsburg. Other cities are expected to introduce similar offers when driving bans are introduced.

Germany's Federal Administrative Court ruled in February that the German federal government and its local administrations could introduce driving bans as a lawful measure to reduce air pollution. This opens the door for the government to introduce diesel car driving bans in inner cities as an attempt to reduce air pollution to comply with the EU's air quality standards.

Some 272,000t of shredded ferrous scrap and 42,000t of non-ferrous scrap were recovered from 413,000 registered ELVs in 2016, according to the Germany Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety.

GermanyMap