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Policy reshapes strategy: China's steel mills using trash as raw material

Steel mills in China are spending big on equipment that shreds cars and other junk metal for use as raw material, as the government demands to make smoke-stack industries cleaner continues to reshape

Reuters  |  Beijing 

Representative image
Representative image

are spending big on equipment that shreds cars and other junk metal for use as raw material, as the government demands to make smoke-stack industries cleaner continues to reshape heavy manufacturing.

Investing in is the latest sign that mills have the cash to spend after bumper margins last year resulting from skyrocketing metal prices. It also indicates that Beijing’s tough rules on pollution are pushing companies to be more efficient.

Scrapyards typically remove paint and other contaminants from used metal, cut it into small pieces and bale it for delivery to factories. But steel plants are increasingly performing those processes themselves to feed their furnaces, according to executives from four mills and a shredder maker.

They say producers want to use cheaper untreated scrap, which is more abundant and typically sells for about 200-500 yuan per tonne less than the cleaner product, potentially saving substantial amounts of money and giving them more control over their raw material supplies.

Hebei Jingye Group, a medium-sized plant in Shijiazhuang, is installing a 3,000-horsepower shredder next month, which would allow it to more than double its scrap intake this year to 2 million tonnes, said Zhang Lijie, manager of the scrap department.

Cheaper raw materials could save the company as much as $157 million a year.

The shredders strip paint and contaminants from scrap and cut it into small pieces, and can also sort it, improving the quality of the final product.

“The quality of scrap steel we buy is quite uneven,” said Zhang. The company makes about 12 million tonnes of steel a year, mostly construction steel rebar.

Mills have been gobbling up more scrap over the past year because the steel sector has borne the brunt of Beijing’s years-long effort to clean the nation’s notoriously toxic air.

Many have installed electric arc furnaces or mini-mills that use only scrap because they emit far less carbon than blast furnaces, which use coal as fuel.

Sintering plants, which melt iron ore before it’s put in blast furnaces, have also been targeted for closures over the winter because they contribute to most of the pollutants during the steelmaking process.

The government closure of mills churning out low-quality steel from induction furnaces - typically big users of scrap - has also boosted availability of junk.

But the arrival of shredders is likely to accelerate the pace of that shift, dealing another blow to global miners, like Vale and Rio Tinto, which have bet big on voracious demand from China, the world’s top importer.

China generated 200 million tonnes of scrap steel in 2017, up 67 percent from a year ago, according to data from the China Association of Metalscrap Utilisation.

That comes as Beijing promotes recycling as part of its push to upgrade heavy manufacturing, but it could potentially replace around 280 million tonnes of iron ore, equivalent to nearly a third of China’s total iron ore imports last year.

BUMPER PROFITS

With profit margins as high as 1,000 yuan a tonne due to higher metal prices and shredders costing 5 million yuan, mills can get their money back within months, executives said.

Wang Guangrui, vice president at Xuzhou Jinhong Iron & Steel Group, warns there may not be enough scrap to meet the country’s burgeoning demand in the long term, which would likely drive up waste metal prices and hurt margins.

First Published: Fri, May 18 2018. 10:29 IST
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