Future of the Environment

The role of steel in a sustainable world

Roland Haslehner
Partner and Managing Director, Boston Consulting Group
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Future of the Environment

As of today, metal production processes involve a combination of primary resources and metal scrap. Although the use of primary resources has always been the main production source, the recycling of scrap is gaining ground and has become the main source in some regions. The general worldwide trend of making value chains of keys industries more sustainable is obviously pushing towards a stronger use of recycling routes versus primary resources.

It is unclear at this stage how the public bodies will engage in order to support this transition. Moreover, different regions will respond at different speed and this expected transition will not be homogenous. However, the change has started and players need to forecast the magnitude of the potential changes to come in order to understand how to best respond to it.

In the context of the initiative Mining & Metals in a Sustainable World 2050, The World economic Forum has decided to look at how a world geared towards stronger sustainability and strongly promoting recycling could practically impact a key industry like steel. Steel is a key commodity which is used in several key value chains – value chains which are also relevant for other commodities – and, therefore, strongly correlated.

To have a clear picture of what exactly this could mean, the analysis has been conducted under two opposed scenarios: “Keeping a green line” and “True change”.

Under the first scenario most of the assumptions supporting the current steel market will remain constant in the future. The second on the other hand assumes a more sustainable world in the future geared towards more circular use of resources and, therefore, more recycling. In this scenario it is implied that the worldwide steel production will, to a certain extent, switch from primary production to scrap recycling.

This shift could be due to a wave of regulation in Europe, the United States but especially in China putting the focus on recycling in the steel production process. As a result steel producers will ncrease their usage of scrap as a source of steel rather than other primary materials. The amount of scrap used in the two main types of infrastructures, oxygen and electric, will be maximized (to respectively 25% and 100%) and going forward electric routes will be preferred as they can absorb more scrap. This is true especially in China where the percentage of electric infrastructures would more than double. Moreover, the evolution of primary materials and scrap prices (whether driven by regulation or not) will make such a shift feasible.

The results are significantly different for these two scenarios and offer a very interesting view on the directions the steel market can take in the future (insights that can, to a certain extent, be replicated into the other metals markets).

Under “True Change” the volume of total steel production coming from primary resources is expected to be up to 30% lower in the 2050 horizon than in the “Keeping Green Line” scenario where it is expected to be close to 1.4 bt.

As a result the use of met coal and iron ore (the two main resources used in the steel making process) would also be impacted and their demand would decline after 2020 to reach today’s levels in 2050.

The main takeaways from the modeling are that even in a case where the world will move strongly towards more sustainability, and promote recycling, room will remain for primary steel production and, therefore, for the producers of primary resources. However, depending on the intensity of the changes players might need to adapt their business models more rapidly and embrace some changes in order to remain competitive. It will be crucial for them to understand different outcomes and scenarios of the future.

The report, Mining & Metals in a Sustainable World 2050, is available here.

Author: Roland Haslehner, Partner and Managing Director, BCG

Image: Conveyers deliver different grades of ore to stockpiles at a Rio Tinto iron ore mine at Tom Price, about 1,300 km (800 miles) north of Perth May 28, 2008. Picture taken May 28, 2008. REUTERS/Tim Wimborne

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