It is imperative for investors to get ready for the revolution in scrap. A sustained increase in investment in recycled metal will be supported by a number of factors, including the desire to minimize industrial emissions, the exceptional growth in demand for metals, and growing worries about energy security. There are countless opportunities.
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But it won’t be for the weak of heart. Just for metals like steel, copper, aluminum, and lead, the mature markets may be convoluted, fragmented, and opaque when it comes to scrap. Energy transition metal scrap markets from batteries, electric vehicles (EVs), and renewable energy are still in their infancy, but they have a lot of development potential and a fair share of technological risk.
Market structures for scrap will also change. Policy will encourage more domestic processing and consumption while decreasing the amount of low-value trash traded internationally. As manufacturers seek supply security, we see vertical integration occurring up and down the value chain in important growth industries. Pricing will also rise in tandem with the growing demand for metal units from more environmentally friendly sources.
1. Reshoring supply networks for scrap metal
Rules will discourage international scrap commerce and promote domestic use. Scrap is already viewed by governments as a vital domestic source of low-carbon supplies. The areas with a shortage of raw materials and a surplus of demand are seeing the greatest boost.
Policies that ‘onshore’ the scrap supply and discourage exports are becoming increasingly common; they take the form of import bans and stricter quality criteria.
2. Vertical unification and integration: completing the circle
The trend toward circularity is propelling infrastructure investments in scrap metal recycling and fostering cooperation amongst value chain participants. It offers chances for fresh company concepts and creative manufacturing and recycling strategies.
When it comes to market development, emerging markets like those for EV lithium-ion batteries are undeveloped.
3. A more limited supply of scrap
Stricter scrap supply might result from the need for secondary feed and the expansion of new scrap processing capacity, unless recycling rates and utilisation rise. On the other hand, laws imposing minimum recycled content will increase demand, particularly for higher-grade materials.
How rapidly and effectively the growing pool of scrap can be mobilized through collecting, sorting, and processing into end-use items will determine the future landscape.
4. A technological breakthrough in recycling
Technological developments in recycling are improving the effectiveness and caliber of waste metal processing. Better recovery rates and less waste are already being made possible by advances in sensing, sorting, and separation procedures for end-of-life items.
In the scrap metal value chain, digitalization and data analytics are also crucial for boosting material tracking and operational optimization. Plenty more is still to come.
5. Modified pricing systems
Scrap pricing systems across the world are similar to those of many other unique commodities. Price reporting agencies are typically used for price discovery. There is a steel scrap futures market offered by the London Metal Exchange, however there are opportunities for traders and market players and little transparency in the methods.
Are you curious in the future of mined commodities and metals?
Presenting at the Wood Mackenzie Future Facing Commodities Forum was Nick Pickens, who discussed the effects of conflict, the energy trilemma, and China’s changing economic environment in a session titled “Paradigm Playbook.”