Market Analysis – 11191502 – Basic steel solids

Executive Summary

The global market for basic steel solids (ferrous scrap) is valued at est. $285 billion and is foundational to the decarbonization of the steel industry. The market is projected to grow steadily, driven by the expanding use of Electric Arc Furnaces (EAFs) which rely on scrap as a primary feedstock. The most significant strategic threat is increasing geopolitical risk, with nations implementing export restrictions to secure domestic supply, creating significant price volatility and potential supply chain disruptions for net importers.

Market Size & Growth

The global ferrous scrap market is a mature, large-scale commodity segment critical to circular economies and "green" steel production. The Total Addressable Market (TAM) is projected to grow at a Compound Annual Growth Rate (CAGR) of est. 4.8% over the next five years, driven by sustainability mandates and the cost-efficiency of EAF steelmaking. The three largest markets are China, the European Union, and the United States, which together account for over 60% of global scrap consumption and generation.

Key Drivers & Constraints

1. Demand Driver: EAF Production Growth. The global shift from traditional blast furnaces to lower-emission EAFs is the primary demand driver. EAFs, which can use up to 100% scrap feedstock, now account for nearly 30% of global steel production and are projected to exceed 35% by 2030. [Source - World Steel Association, Oct 2023]
2. Demand Driver: End-Market Activity. Demand is directly correlated with activity in the construction, automotive, and industrial machinery sectors, which together consume over 75% of finished steel products.
3. Supply Constraint: Generation Rates & Quality. Scrap supply is finite and dependent on the lifecycle of steel goods and industrial production rates. The quality and cleanliness of scrap (e.g., presence of copper, tin) is a major constraint, as it directly impacts the quality of the finished steel and the efficiency of the furnace.
4. Cost Constraint: Energy & Logistics Volatility. Processing (shredding, sorting) and transportation (truck, rail, ocean freight) are significant cost components. Fluctuations in electricity and diesel prices directly impact processor margins and landed costs.
5. Regulatory Constraint: Trade Protectionism. A growing number of countries are implementing or considering scrap export restrictions to protect their domestic steel industries. The EU's Waste Shipment Regulation is a key example, potentially re-routing global trade flows.

Competitive Landscape

The ferrous scrap market is highly fragmented but undergoing consolidation. Barriers to entry are high due to significant capital investment for processing equipment (shredders can cost >$20M), extensive environmental permitting, and the need for logistical scale.

⮕ Tier 1 Leaders * Nucor (The David J. Joseph Company): Largest scrap processor in North America; vertically integrated to feed its own EAF mills, providing unparalleled supply security. * Sims Limited (ASX:SGM): Global presence with operations in North America, Australia, and the UK; strong focus on advanced sorting technology and sustainability reporting. * Commercial Metals Company (NYSE:CMC): Major U.S. processor, also vertically integrated with its own EAF mills, focusing on construction-related steel products. * ArcelorMittal (NYSE:MT): As a top global steelmaker, its recycling arm provides a strategic internal source of scrap, leveraging a global collection footprint.

⮕ Emerging/Niche Players * Reibus International: A digital B2B marketplace aiming to improve price transparency and transaction efficiency for prime and excess steel and scrap. * Schnitzer Steel Industries (NASDAQ:SCHN): Strong West Coast U.S. presence and a leader in using 100% net carbon-free electricity in its operations. * Regional Consolidators: Numerous private equity-backed and family-owned businesses are consolidating smaller local yards to build regional scale.

Pricing Mechanics

Ferrous scrap pricing is determined by open market supply and demand, with prices negotiated monthly. The price build-up begins with a benchmark index for a specific grade, such as Platts US Midwest Shredded Scrap or Argus HMS 1/2 North US Export Yard. This benchmark is the primary reference for contracts.

The final delivered price is a formula: Benchmark Price +/- Grade/Quality Premium or Discount + Freight Cost + Processor Margin. Premiums are paid for higher-density, cleaner scrap grades (e.g., "prompt" industrial scrap from manufacturing) that improve furnace yield. Discounts are applied for lower-quality, obsolete scrap with higher contamination. Logistics, particularly for export, can represent 15-25% of the total landed cost.

Most Volatile Cost Elements (Last 12 Months): 1. Benchmark Scrap Price (US Shredded): Fluctuation of est. +/- 25% 2. Ocean Freight (Bulk Carrier Rates): Fluctuation of est. +/- 30% 3. Diesel Fuel (On-Highway): Fluctuation of est. +/- 20%

Recent Trends & Innovation

• Vertical Integration (M&A): Major EAF steelmakers are aggressively acquiring scrap processors to secure feedstock. Cleveland-Cliffs completed its acquisition of Ferrous Processing and Trading (FPT), a major Midwest processor, to internalize its scrap supply. [Nov 2021]
• Advanced Sorting Technology: Processors are increasingly adopting AI-driven sensor sorting (XRF, LIBS) to improve separation of non-ferrous metals and contaminants. This creates higher-purity ferrous grades ("low-residual scrap") that can be used to produce higher-quality finished steel.
• EU Waste Shipment Regulation: The European Commission's proposal to restrict scrap exports to non-OECD countries threatens to reshape global trade. If enacted, it could trap ~19 million tonnes of scrap within the EU, depressing local prices while tightening supply elsewhere. [Proposal - Nov 2021, Ongoing Deliberations]

Supplier Landscape

Regional Focus: North Carolina (USA)

North Carolina presents a highly strategic location for sourcing basic steel solids. The state is home to the corporate headquarters of Nucor, the largest steel producer and recycler in the United States, which operates multiple EAF mills and recycling facilities in the state and surrounding region. This creates a massive and consistent demand center for ferrous scrap. The local supplier landscape is mature and competitive, with major players like Nucor (DJJ), CMC, and Schnitzer operating collection and processing facilities. A favorable business climate and robust transportation infrastructure, including proximity to the Port of Wilmington, support efficient inbound and outbound logistics.

Risk Outlook

Actionable Sourcing Recommendations

1. Secure Regional Volume via Index-Based Contracts. Mitigate spot market volatility, which has exceeded 25% in the last year, by securing 60-70% of required volume through 12-24 month formula-based agreements with 2-3 key suppliers in the Southeast. Index pricing to a transparent benchmark (e.g., Platts) to ensure market alignment while guaranteeing supply and improving budget predictability for our key manufacturing sites.

2. Launch a Scrap Quality Improvement Program. Partner with a primary supplier to co-develop a program focused on reducing contaminants in inbound scrap. A 1% improvement in metallic yield on 250,000 tons of scrap purchased at $450/ton translates to >$1.1M in direct material cost savings. This initiative should include joint quality testing and exploring shared investment in sensor-based sorting technology to create a strategic advantage.