The European Steel Industry’s Circular Transition: Scrap Metal Becomes a Strategic Resource and the Challenges of Supply

Decarbonization and the Circular Solution

The steel industry, the foundation of all industrial economies, is also one of the largest global polluters, responsible for approximately 7% of the world’s total CO2​ emissions. For the European Union (EU), which aims to be the world’s first carbon-neutral region, the pressure to “green” the steel sector is not merely a strategic choice but a historical commitment.

In this context, the European steel industry is embarking on a vital transformation towards a circular economy, centered on the increased use of Electric Arc Furnaces (EAF). EAF technology primarily produces steel from scrap metal, in contrast to the traditional Blast Furnace (BF) which uses iron ore and coking coal. This shift promises significant emission reductions but is simultaneously shaking up the entire raw material supply chain.

Recent research, combining trade data with business intelligence data, has pointed to an undeniable reality: the increase in EAF capacity in Europe is transforming scrap metal from a conventional commodity into a key strategic resource. This transition necessitates a deep restructuring of global and European scrap trade operations, while also promoting a significant expansion of the related business ecosystem. This analysis will delve into the data proving this, assess the emerging supply challenges, and analyze the specific strategies being deployed by European steel giants like ArcelorMittal and ThyssenKrupp.

1: Electric Arc Furnace (EAF) – The Pillar of the Circular Steel Economy

The switch to EAF is currently the fastest and most effective decarbonization strategy for the steel industry. The EAF uses electrical energy to melt and refine scrap into new steel, with significantly lower CO2​ emissions compared to the traditional Blast Furnace-Basic Oxygen Furnace (BF-BOF) method. This technology not only reduces emissions but also strengthens the material’s circularity within the economy.

1.1. Evidence of Acceleration and Shifts in Trade Flows

Data has shown a distinct change in Europe’s scrap trade pattern. Since 2007, scrap imports by European nations with large EAF installations have gradually decreased. This reflects a trend where regional steel producers are attempting to optimize and utilize more domestic scrap for their “green” production.

However, while Europe tightens its domestic scrap supply, global scrap trade has recently begun to increase. This contradiction is the first warning sign of heating competition for raw materials worldwide, as other nations, particularly China, also begin to expand EAF capacity to meet their own climate targets.

1.2. Fierce Competition: Quantitative Analysis of EAF Capacity and Scrap Trade

Statistical modeling has provided a sharp, quantitative view of the relationship between EAF installations and the scrap market. The data indicates that:

Every 1,000 tonnes of newly installed EAF capacity is associated with:

• An increase of 550 tonnes in annual scrap imports.
• A decrease of 1,000 tonnes in annual scrap exports.

This result is a powerful indicator of the escalating scrap competition. As countries increase EAF capacity, they immediately boost import demand while simultaneously reducing export supply to the world market. This creates a competitive spiral where scrap supply could become scarcer and more expensive, especially for manufacturers relying on imports.

This analysis confirms the core thesis: the demand for technological transition has created direct pressure on the raw materials market, solidifying scrap’s position as a strategic resource. Securing a stable, high-quality scrap supply has become a crucial factor determining the competitiveness and success of the European steel industry’s decarbonization process.

2: Scrap Metal – From Common Commodity to Strategic Resource

2.1. Policy Leverage: CBAM and Supply Protection

Recognizing the importance of scrap, European regulators and steel industry associations have taken decisive policy actions. The European Steel Association (EUROFER) has consistently emphasized retaining scrap within the region as one of its top four priorities to maintain the industry’s competitiveness.

The European Commission (EC) materialized this view through the Action Plan on steel and metals (March 2025). This plan includes a series of measures to promote circularity and decarbonization, including setting scrap usage targets (starting with the automotive and construction sectors) and, most importantly, a commitment to measures ensuring the supply of metal scrap, expected in Q3 2025.

Another critical move is the EU’s restriction on scrap metal exports to non-Organisation for Economic Co-operation and Development (non-OECD) countries starting in 2027, unless those countries can demonstrate sustainable recycling operations. This policy, similar to the UK Steel proposal, aims to retain scrap within the region to feed the $\text{EAF}$s being built, while also preventing “carbon leakage” when scrap is processed in countries with lower environmental standards.

The combination of a strong Carbon Border Adjustment Mechanism (CBAM) (preventing cheap “dirty” steel from abroad) and domestic scrap retention measures shows the EU is building a “green fortress” to protect its steel industry and scrap supply chain.

2.2. Global Pressure and the Race for Scrap

Scrap is becoming a strategic resource not only due to European demand but also global dynamics. As China, the world’s largest steel producer, and other emerging economies intensify their transition to $\text{EAF}$s, global scrap demand will surge. This competition poses a major challenge: Europe, traditionally a scrap exporter, now faces the risk of losing this precious raw material to competitors.

This situation requires the EU not only to retain scrap but also to optimize domestic collection and processing. Scrap quality is also a key issue, as steel produced from $\text{EAF}$s requires low-impurity scrap to meet the quality requirements of high-end products, further increasing the value and strategic nature of clean scrap.

3: Analysis of European Steel Giants’ Strategies: The Green Dream and the Wall of Reality

Leading European steel groups like ArcelorMittal and ThyssenKrupp have announced ambitious decarbonization strategies. Their roadmaps are often a combination of building $\text{EAF}$s and Direct Reduced Iron ($\text{DRI}$) plants, using Natural Gas or Green Hydrogen as the reducing agent, to produce high-quality (primary) steel with low carbon emissions.

3.1. ArcelorMittal’s Strategy and Challenges

ArcelorMittal, the world’s second-largest steel producer, places Hydrogen at the core of its decarbonization strategy, aiming for carbon neutrality by 2050. The company has major plans for DRI-EAF projects, receiving significant support from the Belgian (€280 million) and German governments (over €1 billion) to convert operations in Ghent and other facilities.

However, ArcelorMittal’s “green dream” is hitting the “wall of reality” of energy costs.

• Delay and Cancellation: The company announced a delay in the Final Investment Decision (FID) for DRI and EAF plans in Europe because the “European policy, energy, and market environment has not moved in a favorable direction.”
• Green Hydrogen Cost: CEO Aditya Mittal admitted that Carbon Capture and Storage (CCS) or renewable Hydrogen technology are unlikely to be economically viable before 2030.
• Consequence: ArcelorMittal canceled the project to convert two plants in Germany to clean Hydrogen-based steel production, despite being promised a €1.3 billion subsidy. The reason cited was the excessively high energy costs in Germany, making green steel production commercially unfeasible. The company also noted that even using natural gas for DRI production is not competitive, even with a carbon price.

3.2. ThyssenKrupp’s Strategy and Crisis

The German steel giant, ThyssenKrupp, is pursuing a similar roadmap with plans to build a DRI facility in Duisburg. However, they face similar challenges:

• Overambition: CEO Miguel Lopez admitted that initial assumptions about using renewable Hydrogen were “overambitious” and that using Green Hydrogen at the planned DRI facility might not be “economically feasible” in the coming years.
• Economic Crisis: Amidst rising energy costs and fierce competition, ThyssenKrupp has had to cut 40% of its workforce and 25% of its production capacity, signaling the severe crisis the European steel industry is facing during the transition.

3.3. General Assessment of Corporate Strategies

The general strategy of European companies is technologically sound (EAF and DRI/Hydrogen combination), but they are stuck between environmental ambition and economic reality:

• Reliance on Policy: These multi-billion dollar investments are heavily dependent on government support (subsidies) and infrastructure development (hydrogen pipelines, stable power grids).
• Energy Costs: Europe is grappling with high and unstable energy prices (especially renewable electricity), making the cost of producing green steel 30-60% higher than the old method.
• Importance of Scrap: In the short to medium term, the expansion of EAF – which relies on scrap – is the most effective path. Therefore, securing an uninterrupted domestic scrap supply is a vital factor for new EAF projects to become operational and gradually replace old blast furnaces.

4 Restructuring the Scrap Business Ecosystem and Growth Opportunities

The transition to EAF is not only a major technological change for steel producers but also an unprecedented growth opportunity for the scrap and recycling business ecosystem.

4.1. The Need for Scrap Ecosystem Expansion

Analytical data has quantified the close link between scrap companies and EAF production capacity:

Each scrap company is estimated to help increase annual EAF steel output in the EU by about 79,000 tonnes.

This relationship shows that scrap companies are the lifeblood of the circular steel economy, playing a critical role in collecting, sorting, and supplying high-quality raw materials.

4.2. Forecasts for Growth and Investment

If this relationship is taken as causal and extrapolated based on currently planned EAF capacity, researchers have made astonishing forecasts for the necessary expansion of the scrap ecosystem:

• Number of Companies to Add: Approximately 730 (SD 140) new companies may be required.
• New Jobs: This will create approximately 35,000 new jobs (IQR 29,000-50,000).
• Additional Revenue: Estimated to generate an additional $35 billion (IQR $27-$48 billion) in annual revenue.

These figures illustrate the scale of the massive restructuring of the industry’s supply networks that is underway. This is a clear signal of a significant growth opportunity for companies involved in the scrap value chain, from collection and processing to sorting and refining technology.

4.3. Factors Driving Ecosystem Development

To achieve this expansion, policy intervention and support are necessary:

• Investment Support: Governments need to provide investment incentives and capital for scrap companies to modernize sorting and processing technology.
• Quality Standards: Establish stringent quality standards for scrap to ensure high-quality input for premium EAF steel.
• Flow Assurance: Measures to retain domestic scrap (such as export restrictions) are essential to ensure a stable flow for EAF plants in the region.
• Technology Development: Invest in advanced technologies like AI and robotics in scrap sorting to increase efficiency and quality.

The Way Forward

The European steel industry’s circular transition is an irreversible journey, driven by climate pressure and policy mechanisms like CBAM. This transition has established scrap metal’s position as a strategic resource on par with iron ore.

The core challenge for Europe now is balancing green ambition with economic reality. Major steel companies are having to delay Hydrogen-based green steel projects due to excessively high energy costs. This further elevates the importance of the EAF strategy, making the need for a stable, affordable scrap supply more urgent than ever.

To ensure the success of this grand transition, the European Union needs to act in concert on three fronts:

1. Strategic Protection Policy: Tighten CBAM and strictly implement measures to retain domestic scrap supply to mitigate global competition.
2. Technology and Energy Support: Stronger mechanisms are needed to reduce the cost of clean energy for the steel industry, making DRI/EAF projects economically viable.
3. Ecosystem Development: Promote and support investment to expand and modernize the scrap business ecosystem, ensuring a supply of high-quality raw materials for the hundreds of new $\text{EAF}$s planned.

Scrap metal is the key to unlocking a carbon-neutral European steel industry. The EU’s success will depend on its ability to translate the forecasts for scrap ecosystem expansion into reality, turning the supply challenge into a growth opportunity for the entire value chain.

According to: arxiv and collected from the internet.