1. Cost Structures and Production Economics Are Driving the Shift
The global steel industry is witnessing a structural recalibration in raw material preference, driven by measurable differences in cost economics between the blast furnace–basic oxygen furnace (BF-BOF) route and the Electric Arc Furnace (EAF) route. Historically, the BF-BOF route has dominated due to its ability to produce large volumes at scale, particularly in resource-rich economies. However, rising volatility in iron ore and coking coal prices, combined with environmental pressures, is forcing a reassessment of this long-standing dominance.
The BF-BOF route is heavily dependent on iron ore and coking coal, with raw materials contributing nearly 60–65% of total steel production costs. Over the past two years, iron ore prices have fluctuated significantly between USD 95 and USD 140 per tonne, while premium hard coking coal has traded in a wide band of USD 220 to USD 300 per tonne, driven by supply disruptions and geopolitical uncertainties. These fluctuations directly impact steelmaking margins, particularly in import-dependent regions.
In contrast, the EAF route, which relies primarily on scrap, eliminates the need for coking coal and reduces energy intensity. While scrap prices have also experienced upward pressure due to rising demand, they have remained relatively more stable in comparison to the combined volatility of iron ore and coal. As a result, EAF-based steelmaking has increasingly become cost-competitive, particularly in regions with established scrap ecosystems.
Global Steel Production Split by Route
| Region | BF-BOF Share (%) | EAF Share (%) |
|---|---|---|
| Global Average | 70–72 | 28–30 |
| United States | 30–32 | 68–70 |
| European Union | 55–60 | 40–45 |
| China | 85–88 | 12–15 |
| India | 55–60 | 40–45 |
This divergence in production routes reflects not only resource availability but also evolving economic priorities. Developed economies have transitioned more aggressively toward scrap-based production due to environmental regulations and mature recycling systems, whereas emerging economies continue to rely on iron ore due to infrastructure and resource advantages.
Comparative Cost Structure (Indicative)
| Cost Component | BF-BOF Route | EAF Route |
|---|---|---|
| Iron Ore | High dependency | Not required |
| Coking Coal | Essential (30–35%) | Not required |
| Scrap | Limited usage | Primary input (70–80%) |
| Energy Cost | High | Moderate |
| Total Cost Volatility | High | Moderate |
The cost differential between the two routes becomes particularly evident during periods of raw material inflation. When coking coal prices surge, the BF-BOF route becomes significantly more expensive, while the EAF route remains relatively insulated. This dynamic is increasingly influencing production decisions, especially among flexible steel producers.
2. Scrap Demand Growth and Supply Constraints Are Creating a New Market Balance
The global scrap market is emerging as a critical component of steel production, with demand steadily increasing as steelmakers seek cost efficiency and lower carbon intensity. Global scrap consumption is currently estimated at approximately 650–700 million tonnes annually and is growing at a rate of 3–4% per year, supported by rising EAF adoption and policy-driven sustainability initiatives.
The demand growth is particularly evident in major scrap-importing regions, where domestic availability is insufficient to meet steel production requirements. Turkey remains the world’s largest scrap importer, while regions such as Southeast Asia and India are increasingly competing for global scrap supplies.
Global Scrap Consumption and Trade
| Region | Scrap Consumption (MnT) | Import Dependency |
|---|---|---|
| United States | 70–75 | Low |
| European Union | 90–100 | Moderate |
| China | 250–270 | Low (domestic heavy) |
| Turkey | 30–35 | Very High |
| India | 30–35 | High |
China’s scrap consumption has increased significantly in recent years, rising from approximately 180 million tonnes in 2020 to over 250 million tonnes, driven by decarbonisation policies and improved recycling mechanisms. However, despite this growth, scrap accounts for a relatively small share of China’s total steel production due to the overwhelming dominance of the BF-BOF route.
India, on the other hand, is structurally dependent on scrap imports, with domestic scrap generation still underdeveloped. Annual scrap imports are estimated at 8–10 million tonnes, exposing Indian steelmakers to global price fluctuations and supply risks.
Key Raw Material Price Comparison (Recent Range)
| Raw Material | Price Range (USD/tonne) |
|---|---|
| Iron Ore | 95 – 140 |
| Coking Coal | 220 – 300 |
| HMS Scrap (80:20) | 360 – 420 |
The interplay between these raw material prices is shaping steel production strategies. When iron ore and coal prices rise simultaneously, the cost advantage of scrap becomes more pronounced. However, as scrap demand increases globally, supply constraints are beginning to emerge, leading to upward pressure on scrap prices.
This creates a cyclical dynamic where the relative competitiveness of scrap and iron ore shifts based on market conditions. Steelmakers are increasingly adopting flexible procurement strategies to navigate this volatility, adjusting their raw material mix based on prevailing price trends.
Carbon Emissions Comparison
| Route | CO₂ Emissions (tonne per tonne of steel) |
|---|---|
| BF-BOF | 1.8 – 2.2 |
| EAF | 0.6 – 0.8 |
The environmental dimension further strengthens the case for scrap-based steelmaking. With emissions from the BF-BOF route nearly three times higher than EAF, regulatory pressures and carbon pricing mechanisms are expected to accelerate the shift toward scrap in the long term.
Conclusion
The evolving dynamics between scrap and iron ore highlight a deeper structural transformation within the global steel industry. Rather than a linear transition from one raw material to another, the market is moving toward a dual equilibrium where both inputs coexist, with their relative importance determined by cost, availability, and regulatory factors. Steelmakers are increasingly operating in a dynamic environment where raw material selection is driven by real-time economics and long-term sustainability considerations.
