Market Analysis – 11191612 – Iron scrap

Executive Summary

The global iron scrap market, valued at est. $115.4 billion in 2024, is a critical input for decarbonizing the steel industry. Projected to grow at a 5.2% CAGR over the next five years, the market's expansion is directly tied to the increasing adoption of Electric Arc Furnace (EAF) steelmaking. While this presents a significant opportunity for circularity and reduced emissions, the primary threat remains high price volatility, driven by fluctuating steel demand, energy costs, and protectionist trade policies that can disrupt global supply chains.

Market Size & Growth

The Total Addressable Market (TAM) for iron scrap is substantial and poised for steady growth, driven by global industrial demand and sustainability mandates. The market is dominated by regions with high levels of steel production and consumption. The three largest geographic markets are 1. China, 2. European Union, and 3. United States, which collectively account for over 60% of global scrap consumption.

Key Drivers & Constraints

1. Demand from Steel Sector: Over 95% of iron scrap is consumed by the steel industry. The global shift from traditional Basic Oxygen Furnaces (BOF) to lower-emission Electric Arc Furnaces (EAF), which use 70-100% scrap as a feedstock, is the primary demand driver.
2. Decarbonization & Regulation: Global pressure to reduce CO2 emissions heavily favors scrap. Using scrap to produce one tonne of steel reduces CO2 emissions by est. 1.5 tonnes compared to virgin iron ore. Regulations like the EU's Carbon Border Adjustment Mechanism (CBAM) will further advantage scrap-based steel.
3. Industrial & Economic Activity: The generation of "prompt" scrap is directly correlated with manufacturing output (e.g., automotive, construction). Economic slowdowns reduce both the supply of new scrap and the demand for finished steel, creating dual pressure on the market.
4. Logistics & Energy Costs: Scrap is a high-volume, low-value commodity, making it highly sensitive to transportation (truck, rail, ocean freight) and energy costs for processing (shredding, baling). Price volatility in these inputs directly impacts scrap processor margins and final prices.
5. Geopolitical Trade Measures: Nations increasingly view scrap as a strategic raw material. Export restrictions, tariffs, or outright bans (e.g., temporary measures by India, UAE) are used to secure domestic supply and control local steel prices, creating significant uncertainty in global trade flows.

Competitive Landscape

The market is highly fragmented, comprising a few global consolidators and thousands of smaller, regional collectors and yards.

⮕ Tier 1 Leaders * Commercial Metals Company (CMC): Vertically integrated with EAF steel mills, providing a natural hedge and securing its own feedstock. * Sims Limited: Global leader with a strong presence in North America and Australia; heavily invested in advanced sorting technology and sustainability reporting. * ArcelorMittal: As one of the world's largest steelmakers, it operates a significant global scrap collection and processing network to feed its own mills. * EMR (European Metal Recycling): A private global leader in metal recycling with extensive operations across the US, UK, and EU, known for its scale and logistical network.

⮕ Emerging/Niche Players * Scrap-It, Inc.: Regional player known for customized industrial scrap management programs. * PSNI (Peak Seven International): Digital brokerage platform connecting buyers and sellers, aiming to increase price transparency. * SAI Advanced Power Solutions: Focuses on recycling and processing complex scrap from electronics and energy infrastructure.

Barriers to Entry are High, primarily due to high capital intensity (shredders and logistics fleets cost millions), the need for extensive and dense collection networks, and navigating complex environmental and safety regulations.

Pricing Mechanics

Iron scrap pricing is benchmark-driven and highly transparent, though subject to significant volatility. The final transaction price is a build-up based on a recognized index, adjusted for several factors. The process typically begins with a benchmark price for a specific grade (e.g., Platts Shredded Scrap, US Midwest or Argus HMS 1/2, Turkey Import). To this base, suppliers add premiums or apply discounts based on quality (chemistry, cleanliness, density), quantity, and payment terms. Finally, costs for processing, logistics (freight from yard to mill), and the supplier's margin are factored in.

This structure makes pricing highly sensitive to underlying commodity and energy markets. The three most volatile cost elements are: 1. Finished Steel Prices (e.g., Hot-Rolled Coil): Scrap prices have a >0.85 correlation with steel prices. HRC futures have seen swings of +/- 30% over the last 12 months. 2. Energy Costs (Diesel & Electricity): Directly impacts collection and processing. US diesel prices have fluctuated by ~25% in the past 24 months. 3. Global Freight Rates: Critical for seaborne scrap. The Baltic Dry Index, a proxy for shipping costs, has seen volatility exceeding +/- 50% in the last 24 months.

Recent Trends & Innovation

• Advanced Sorting Technology (Q4 2023): Major recyclers are increasingly deploying AI-powered sensor-based sorters and LIBS (Laser-Induced Breakdown Spectroscopy) analyzers. This technology allows for better separation of non-ferrous metals and removal of contaminants (e.g., copper), producing higher-purity furnace-ready scrap that commands a premium.
• Industry Consolidation (Ongoing): The market continues to see M&A activity as large players seek to expand geographic reach and achieve economies of scale. For example, BlueScope acquired the ferrous scrap business of MetalX in Ohio and Indiana to secure prime scrap for its North Star mill [BlueScope, March 2023].
• Digital Trading Platforms (Q1 2024): The emergence of digital marketplaces (e.g., Reibus, Xomerty) is slowly increasing transparency and efficiency in the spot market, particularly for small to mid-sized transactions, though most large-volume contracts remain relationship-based.
• Focus on "Green Steel" Inputs (H2 2023): Steelmakers are actively seeking partnerships and offtake agreements for high-quality, low-residual scrap grades to support their "green steel" product lines. This is creating a clear price premium for prime grades and well-segregated obsolete scrap.

Supplier Landscape

Regional Focus: North Carolina (USA)

North Carolina presents a robust and growing market for iron scrap. Demand is anchored by Nucor, the largest steel producer in the US, which is headquartered in Charlotte and operates multiple EAF mills in the state (e.g., Hertford County). This creates a significant and consistent demand base. The state's expanding manufacturing sector, including automotive, appliance, and new investments in EV/battery production, ensures a steady generation of prime industrial scrap.

Local supply capacity is well-established, with major players like Nucor's own recycling arm (DJJ), CMC, and numerous independent yards creating a competitive collection landscape. North Carolina's strong rail infrastructure and access to ports (Wilmington, Morehead City) facilitate both intra-state movement and potential export activity. The state's pro-business regulatory environment and stable labor market present no significant barriers to scrap collection and processing operations. The outlook is for tightening supply-demand balance as industrial consumption grows.

Risk Outlook

Actionable Sourcing Recommendations

1. Implement Indexed Pricing on Key Contracts. To mitigate price volatility, renegotiate our top 3 supplier contracts to a formula-based price: 60% tied to a published steel index (e.g., Platts Shredded), 20% to a diesel fuel index, and 20% fixed. This shares risk, reduces supplier hedging costs passed on to us, and creates more predictable spend. This can reduce price premiums by an est. 2-4%.

2. Pilot a Closed-Loop Program in North Carolina. Partner with a regional supplier to establish a closed-loop system for our manufacturing scrap. This involves dedicated logistics for our scrap to be returned to a specific EAF mill producing our steel. This secures a high-quality supply, reduces freight costs by est. 15-20% through route optimization, and provides auditable data for Scope 3 emissions and circularity reporting.