ORCID iDIntroduction
Welcome to SteelOnTheNet Podcasts. I'm Dr Andrzej M Kotas, and today is 16 October 2025.
Today we're examining one of the most critical supply chain challenges facing the steel industry: ferrous scrap availability and its strategic implications for decarbonisation.
As the steel industry accelerates its transition from blast furnace to electric arc furnace production, scrap has evolved from a commodity input to a strategic resource that could determine which companies and regions succeed in the low-carbon economy.
This isn't just about raw material procurement anymore. We're seeing fundamental shifts in global trade flows, strategic acquisitions driven by scrap access, and growing recognition that scrap availability may become the primary constraint on EAF expansion in many regions.
Over the next 22 minutes, we'll explore the economics driving the BOF-to-EAF transition, analyse global scrap trade patterns, and discuss the strategic responses steelmakers are deploying to secure scrap access.
Let's begin with the decarbonisation imperative that's making scrap so strategically important.
1. The Decarbonisation Imperative
Decarbonisation is no longer a distant goal—it's happening now, driven by both regulatory pressure and economic reality.
The EU's Carbon Border Adjustment Mechanism, or CBAM, begins implementation in early 2026. This means steel imports into Europe will face carbon-based tariffs unless producers can demonstrate low emissions. This fundamentally changes the competitive landscape, making high-carbon steel increasingly uneconomical in major markets.
Across Europe, we're seeing significant investment in low-carbon steel production. Eurofer has published an excellent interactive map showing all the key low-carbon steel projects across Europe—I'll include a link to this map in the show notes. The map is on the Eurofer website under their Climate and Energy section, and it shows over 50 hydrogen DRI projects in various stages of development.
Now, there's clearly a lot of activity here, but let's be precise about scale. Many of these hydrogen projects are relatively small—typically priced at tens or hundreds of millions of euros. These are important demonstration projects and niche applications, but they're not yet the massive industrial-scale transformations we need.
The real volume shift in decarbonisation—and this is crucial to understand—is the transition from blast furnace BOF routes to electric arc furnaces using scrap. This will happen at larger scale, and with proven technology. Whilst hydrogen-based DRI is the future for primary steelmaking, EAF expansion using scrap is the present.
And this is where our scrap supply challenge becomes critical. Every major integrated steelmaker considering decarbonisation faces a choice: invest billions in hydrogen-based DRI technology, or transition to EAF steelmaking using scrap. For many, the EAF route looks more attractive economically and technically—but only if they can secure reliable scrap supplies.
Companies like ArcelorMittal, ThyssenKrupp, and Tata Steel are all announcing EAF investments across Europe. Liberty Steel and British Steel are exploring similar transitions. In each case, the fundamental question isn't just "can we build the EAF?"—it's "can we source enough scrap to feed it?"
This brings us to the economics that are driving this transition.
2. BOF versus EAF Economics: The €140 Per Tonne Gap
Let me walk you through the carbon cost economics that are forcing this industry transformation, because the numbers are stark.
The main switchover in decarbonisation is the switch from iron ore-based—or what we call 'integrated'—steel production using iron ore and coke in blast furnaces and BOF converters, to the use of scrap in an electric arc furnace.
This switchover is driven by fundamentally different carbon footprints. The typical integrated steelmaker generates about 2.2 tonnes of CO2 per tonne of finished steel (or more). In contrast, the typical EAF producer makes just 0.2 tonnes of CO2 per tonne. That's an order of magnitude difference.
Now let's translate this into euros. With the current cost of EU carbon allowances at €70 per tonne—and remember, prices have ranged between €60 and €100 recently—the integrated steelmaker will, without free allowances, incur a CO2 cost penalty of 2.2 times €70, which equals €154 per tonne.
Compare this to the EAF producer who will need to pay just 0.2 times €70, which equals €14 per tonne as a carbon cost penalty.
That's a difference of €140 per tonne—a massive cost disadvantage for the blast furnace operator in the context of steel products sometimes priced at €600 or €700 per tonne. And critically, this gap widens with every increase in carbon prices. If carbon allowances reach €100 per tonne, which many analysts expect within the next few years, that gap expands to €200 per tonne.
It is this structural cost difference that's increasingly compelling large steelmakers to switch from BOF to EAF. This isn't about environmental preferences—this is about basic competitive survival in a carbon-constrained market.
However, here's the capital investment reality: converting an integrated steel plant to EAF operation isn't cheap. These projects typically cost billions of euros for each large-scale plant transformation at a multi-million tonne steel plant. ArcelorMittal's recent announcements in Spain and Belgium each involve investments of over €1 billion. British Steel's proposed Scunthorpe transformation would require similar scale investment.
But even at these capital costs, the payback period looks attractive when you're avoiding €140 per tonne in ongoing carbon costs. On a plant producing 2 million tonnes annually, that's €280 million in annual carbon cost savings. A €2 billion investment with €280 million annual savings delivers payback in about seven years—quite acceptable for long-lived industrial assets.
The economics are clear. The EAF route offers both lower carbon emissions and superior economics in a carbon-priced world. But this leads us directly to the scrap supply challenge.
3. Raw Material Requirements: Understanding the Scrap Equation
Let's get specific about what EAF steelmaking actually requires, because this determines the scale of the scrap challenge we're facing.
Unlike the integrated steel plant, which relies on supply of iron ore and coking coal or coke, the electric arc furnace uses ferrous scrap as its main raw material. This scrap can be supplemented with pig iron or DRI—direct reduced iron—but in the main, it's steel scrap that comprises 85 to 100 per cent of the metallic charge.
So let's work through the numbers. If you want to produce a million tonnes of finished steel products, you'll need roughly 1.1 million tonnes of liquid steel to account for losses during rolling and finishing. To produce that liquid steel in an EAF, you'll need approximately 1.2 million tonnes of steel scrap, accounting for yield losses, slag generation, and typical furnace operations.
You'll also need some alloys for chemistry control, some lime for slag formation, some carbon for foaming slag and heat generation—but let's focus on the scrap requirement because that's the strategic bottleneck.
Now, here's where it gets interesting. Not all scrap is created equal. The steel industry categorises scrap into various grades based on quality, cleanliness, and residual element content.
At the top end, you have prime scrap—factory offcuts and production scrap that's clean, uncontaminated, and of known composition. This is the easiest to use and commands premium prices.
Then you have obsolete scrap—material recovered from demolished buildings, scrapped vehicles, discarded appliances. This material may contain copper from wiring, tin from coatings, and other residual elements that complicate steelmaking. Different steel products have different tolerance for these residuals.
For high-quality flat products—automotive sheet, electrical steels, precision engineering grades—you need cleaner scrap. For construction products like rebar and structural sections, you can tolerate higher residual levels.
This quality dimension adds another layer to the supply challenge. It's not just "do we have enough scrap?" but "do we have enough of the right grades of scrap for our product mix?"
Deep Dive: For comprehensive technical coverage of scrap grades, quality specifications, residual element management, and pricing differentials, explore our Steel Scrap & Recycling Essentials with 14 detailed FAQs.
And this brings us to global scrap trade patterns, because scrap availability varies dramatically by region.
4. Global Scrap Trade: Exporters and Importers
The global ferrous scrap market reveals clear patterns of supply and demand that have major strategic implications.
Let's start with the exporters—the scrap-rich nations.
The USA is the world's largest exporter of steel scrap, shipping approximately 15 million tonnes per year. This reflects America's mature economy with high rates of steel consumption decades ago—those products are now reaching end of life—combined with relatively limited domestic EAF capacity growth in recent years. US scrap traditionally flows to Turkey, India, Mexico, and increasingly to Southeast Asian markets.
In Europe, the UK, France, Germany, and the Netherlands each export approximately 6 to 7 million tonnes per year. These are mature, developed economies with declining manufacturing bases and ageing infrastructure, generating substantial obsolete scrap flows. The UK in particular has become a major scrap exporter following the decline of its domestic steel industry.
Belgium and Spain also export significant volumes—around 3 to 4 million tonnes annually each. Even Italy, despite its large domestic EAF industry, exports about 2 million tonnes of lower-grade scrap whilst importing higher-grade material.
Japan exports about 8 million tonnes annually, reflecting its mature economy and declining domestic steel production.
Collectively, these exporters supply roughly 50 to 60 million tonnes of scrap to international markets annually.
Now let's look at the importers—and this is where the strategic challenge becomes clear.
Turkey is by far the world's largest scrap importer, typically importing close to 20 million tonnes each year. Turkey's large EAF-based steel industry is fundamentally dependent on imported scrap—the country generates only about 8 million tonnes domestically but consumes nearly 30 million tonnes annually in its mills.
India imports approximately 7 to 8 million tonnes annually, though this has been growing as India's EAF capacity expands.
Spain, despite being an exporter of some scrap grades, imports about 6 million tonnes of specific scrap grades for its EAF producers.
Italy imports close to 6 million tonnes per year—primarily higher-grade obsolete scrap to supplement its domestic generation.
South Korea, Taiwan, and Thailand are each importing 3 to 5 million tonnes annually, reflecting growing EAF sectors across Asia.
Egypt imports about 6 million tonnes to feed its growing long products industry.
Here's the critical insight: these importers are competing for access to the same scrap pools. When European steelmakers announce major new EAF projects, they're not just competing with each other—they're competing with Turkish, Indian, and Asian buyers for scrap supplies from the UK, France, Germany, and the Netherlands.
And this competition is about to intensify significantly. If Europe converts even a fraction of its 80 million tonne integrated steel capacity to EAF operation, that could require an additional 20 to 30 million tonnes of scrap annually—essentially doubling current European scrap demand.
Or imagine that you are a country like Poland with maybe 2 to 3 million tonnes of scrap exports. If you have a large domestic steelmaker who is planning to switch from BOF to EAF—as Poland has, at ArcelorMittal in Dabrowa Gornicza near Katowice—you could suddenly turn from being scrap rich to scrap poor.
Where will this scrap come from? This is the strategic question keeping steel executives awake at night.
5. Strategic Responses: The Race to Secure Scrap Access
Faced with this supply challenge, we're seeing steel companies deploy increasingly sophisticated strategies to secure scrap access. Strategic acquisition seems to be the name of the game.
The most direct approach is vertical integration—steel companies acquiring scrap collection, processing, and trading businesses.
Looking at the data from recent acquisitions in scrap-rich regions, we can see clear patterns emerging. In the United States, which as we noted is the world's largest scrap exporter, we've seen major deals like Nucor's acquisition of David J. Joseph in 2008 for $1.44 billion—that business handles 20 million tonnes of scrap annually. More recently, Cleveland-Cliffs acquired Ferrous Processing & Trading in 2021 for $775 million, bringing 2.7 million tonnes of annual capacity. Steel Dynamics bought OmniSource back in 2007 for effectively $1.1 billion, securing 4.7 million tonnes of annual capacity.
What's the price tag for securing scrap capacity? Looking across these transactions, acquisition costs typically range from $72 to $333 per tonne of annual scrap processing capacity, with an average around $200 per tonne. So if you're looking to secure access to a million tonnes of scrap annually, you might expect to pay $150 to $250 million for the right acquisition target.
In Europe, another scrap-rich region, we're seeing similar activity. ArcelorMittal has been particularly active, acquiring Zlomex in Poland (400,000 tonnes), ALBA International Recycling in Germany (400,000 tonnes), and Riwald Recycling in the Netherlands (330,000 tonnes). In the UK, we've seen Unimetals Group acquire Sims UK Metal for £195 million—that's about $250 million—bringing 1.4 million tonnes of capacity, which works out to roughly $178 per tonne.
Aperam's acquisition of ELG for $433 million brought 1.3 million tonnes of stainless steel scrap capacity globally—that's $333 per tonne, reflecting the premium nature of stainless scrap processing.
What's particularly noteworthy is that these acquisitions are concentrated in scrap-rich regions—the USA and Western Europe. Steel companies are moving upstream to secure control over scrap collection and processing in regions where scrap is generated, rather than simply competing in merchant markets.
But vertical integration isn't the only strategy. Companies are also pursuing long-term supply contracts with existing scrap dealers, essentially locking in access without the capital commitment of acquisition. These contracts can span 5 to 10 years and often include volume guarantees and price indexation mechanisms.
Some companies are thinking even more creatively about foreign acquisitions. If you're a European steelmaker, why not acquire scrap dealerships in the USA or UK—major exporting regions—to secure direct access to export flows? We're starting to see cross-border M&A activity driven by this logic.
And there's another option entirely: instead of relying solely on scrap, some companies are investing in alternative metallic sources. Pig iron and DRI can substitute for a portion of the scrap charge in an EAF. This is why we're seeing some steelmakers investing in DRI facilities or securing long-term pig iron supply contracts—it's risk diversification for their metallic feedstock supply.
The message is clear: leading steel companies recognise that scrap access is too strategic to leave to merchant markets alone. Whether through acquisition, long-term contracts, or alternative metallics, securing reliable access to metallic feedstock is becoming a board-level priority.
Conclusion: The New Reality
Let me leave you with this thought: in 2015, steel scrap was a commodity. In 2025, it's becoming a strategic asset. By 2030, it may well be the factor that determines which steel companies survive the decarbonisation transition.
The economics are irrefutable. With a €140 per tonne carbon cost penalty—rising to €200 per tonne as carbon prices increase—integrated steelmakers cannot compete without transforming their production routes. The EAF path offers the clearest solution, but only for those who can secure the scrap.
Here's what this means practically:
For steel producers: if you're planning EAF expansion without a robust scrap security strategy, you're building on sand. Vertical integration through acquisition—typically $150 to $250 per tonne of annual capacity—isn't an expense, it's insurance. Start moving now whilst prime acquisition targets remain available.
For scrap-dependent regions like Turkey and India: the era of reliable, affordable scrap imports is ending. As European demand surges by potentially 20 to 30 million tonnes over the next decade, prepare for supply competition and price volatility that will test your industry's competitiveness.
For investors and traders: the structural shift towards EAF steelmaking creates a generational opportunity in scrap processing, collection infrastructure, and logistics. This isn't cyclical—it's a fundamental revaluation of what was once considered waste.
And for policymakers: scrap flows will increasingly influence regional competitiveness. The countries and regions that facilitate efficient scrap collection, processing, and allocation will have industrial advantages in the low-carbon economy.
The transition from blast furnace to electric arc furnace isn't just about carbon reduction—it's about who controls the metallic feedstock that makes that reduction possible. In the steel industry's decarbonising future, scrap is the new iron ore.
This has been a SteelOnTheNet Podcast. I'm Dr Andrzej M Kotas. For full show notes, including the Eurofer project map and our steel M&A database, visit steelonthenet.com/insights/podcasts.
Thank you for listening.