Skip to content
  • KOSPI 2663.34 +48.85 +1.87%
  • KOSDAQ 872.87 +23.64 +2.78%
  • KOSPI200 357.98 +9.40 +2.70%
  • USD/KRW 1202.4 5.40 0.45%
  • JPY100/KRW 1,042.8 -0.56 -0.05%
  • EUR/KRW 1,340.07 -5.48 -0.41%
  • CNH/KRW 189.34 0.22 0.12%
View Market Snapshot
Commodity

Carbon neutrality reshapes global commodity markets

Steel scrap prices surge, iron ore prices tumble as China ups scrap use

By Sep 24, 2021 (Gmt+09:00)

POSCO blast furnace 
POSCO blast furnace 

Global moves for carbon neutrality are reshaping commodity markets around the world. Iron ore prices have tumbled, while steel scrap prices have soared as major steel producers, including China, are increasing scrap use to reduce carbon emissions. Growing demand for eco-friendly products such as electric vehicles (EVs) and renewable energy ramped up prices of non-ferrous metals including lithium, nickel and aluminum.

Such price moves are not a temporary phenomenon but a fundamental shift following widespread industrial reorganization amid accelerated global commitment to decarbonization.

UNUSUAL DECOUPLING OF IRON ORE AND SCRAP

The restructuring in the global commodity markets began with the steel sector with the decoupling of iron ore and steel scrap prices, the industry sources said. The iron ore price tumbled to $130-140 per ton recently from around $220-230 a ton about a month earlier. On the other hand, the scrap price topped 600,000 won ($510.2) per ton, more than double the level of the year previous. 

Steel is made primarily from molten iron in a blast furnace that utilizes the heat generated by burning coke. Molten iron with scrap can also be made in an  electric furnace. But steelmakers add about 10% of scrap to cut costs when they produce molten iron in a blast furnace. Iron ore and steel scrap prices usually move together in line with business cycles of shipbuilders, automakers, electronics makers and construction firms.

The correlation has weakened since China, which produces 50% of global steel, decided to raise its use of steel scrap as part of its aim to achieve carbon neutrality by 2060. China planned to reduce steel production from blast furnaces, one of the main culprits of carbon emissions, and raise output from electric furnaces.

The country aims to ramp up the proportion of electric furnaces, which emit just 25% the carbon of blast furnaces, to 40% of the total steel production by 2030 from the current 10%.

Steel scrap demand in China has already surged by 10-20% since domestic steelmakers also started increasing their use of scrap.

“That is a common move in countries such as Korea, Japan and Russia that produce steel mainly from blast furnaces,” said a steel industry source. “It is a structural change, not a temporary phenomenon.”
Scrap metal
Scrap metal

NEW COMMODITY WAR

Surging demand for secondary batteries has jacked up the prices of non-ferrous metals. Key materials for cathode materials such as lithium and nickel have surged, while core materials for special steel including cobalt, tungsten and magnesium soared.

South Korean companies are going for broke to prepare for the onslaught in demand as most of them import commodities.

Steelmakers are seeking a stable supply source of steel scrap. They have so far procured scrap for steel production mostly at home, importing only 20%, but its domestic supply is expected to decline as the world’s No. 5 POSCO raised use of the scrap.

The industry is trying to diversify overseas sources of the scrap, but it is not easy as major scrap producers such as China and Russia blocked exports with tariff barriers.

Battery and materials manufacturers are also taking steps to insure stable supply. LG Energy Solution recently signed long-term contracts with Australian suppliers, securing 141,000 tins of nickel and 14,000 tons of cobalt to produce batteries for 2.5 million EVs in the next 10 years. POSCO in May signed a 270 billion won deal to acquire a 30% stake in the Ravensthorpe Nickel Operation in Australia for 7,500 tons a year of mixed nickel-cobalt hydroxide precipitate (MHP).

South Korean industries are calling for government support as the recent structural changes in the commodity market are likely to escalate to a “new commodity war.”

“The government has recently started increasing reserves of industrial rare metals, but that is not enough. The government needs to play a more active role in developing overseas resources, which requires huge investment with the risk of failure,” said Ryu Sung-won, head of the industrial strategy team of the Federation of Korean Industries.

Write to Jung-hwan Hwang at jung@hankyung.com

Jongwoo Cheon edited this article.
Comment 0
0/300