The steel and plastics industries, as some of the leading carbon emitters, have come under increasing pressure since the 2015 Paris Agreement, with China's banning of 24 types of solid waste imports in 2018 proving a watershed moment for both sectors.
With the recycling of steel and plastic materials seen as a key path toward decarbonization, and growing legislative efforts globally adding further pressure, demand for sustainable plastic and steel products is currently outpacing supply, creating both considerable opportunities and challenges for producers.
Price transparency is a key element that will drive development, along with technological innovation and changing consumer mindsets – but who makes the first move in upending longstanding practices, producers or legislators?
China's pivotal move in early 2018, which included a ban on imported waste plastics, was followed by a ban on another 16 categories of waste in late 2018, including steel scrap, and a further 16 types in late 2019.
Even though China had already imposed some controls on waste imports from 2013 under its Operation Green Fence policy and its subsequent 2017 National Sword policy, the 2018 move was the proverbial straw that broke the camel's back.
The world's recycling trade literally broke, forcing waste-exporting countries to revisit their policies on disposal, processing and dumping, and intensifying scrutiny of the international trade in recycled materials.
Fast forward to 2021, and recycled plastics and steel have made significant strides forward, finding new trade flows and weaving through new rules and regulations. There has also been an increase in infrastructure and trading investments and greater importance placed on the development of these markets.
As pressure from climate action initiatives has intensified, more emphasis has been placed on achieving a circular economy, in which recycling materials plays a larger role in reducing carbon emissions in production cycles.
Since China clawed its way back from a steel export flood in 2015, Asia has seen an increase in new production capacity. More electric-arc, induction and blast furnaces have come online, with the industry now facing overcapacity.
Some of Asia's steel development stems from Chinese backed infrastructure projects under the Belt and Road initiative, which aided in the expansion of steel production by Chinese companies overseas in recent years, particularly in Southeast Asia.
Growth in production capacity and output inevitably leads to higher usage of raw materials, and unfortunately, greater carbon emissions as well.
The World Steel Association in 2020 estimated that Asia was responsible for 74% of the 1.88 billion mt/year of crude steel produced globally – with China alone contributing 1.06 billion mt – up from 68.5% of global output of 1.62 billion mt in 2015.
This growing dominance has fueled greater scrutiny of Asia's role in the climate crisis.
Each metric ton of crude steel produced in 2020 emitted 1.85 mt of carbon dioxide, representing 7%-9% of the world's anthropogenic CO2 emissions, according to WSA estimates.
Asian production infrastructure is far younger than that in the West, so perhaps the best, or greener, way forward for its steel industry may be to strive for improvements in current processes rather than make any radical structural changes.
Decarbonization goals, stricter pollutant emission standards, the introduction of carbon trading, improving raw material and energy efficiencies, adopting usage of longer-lasting or high-strength lightweight steel, emphasis on hydrogen-based steelmaking, improving carbon capture use and storage, leveraging higher scrap usage and the greater utility of electric-arc furnaces are just some of the ways the industry is evolving to lower emissions.
Although momentum is growing for greater usage of recycled steel, a sudden swing in its demand could, paradoxically, add more friction.
Due to the lack of supply to meet global crude steel production, any sudden surge in scrap demand would lead to unsustainable prices and increase economic barriers for steel producers seeking to make the change.
As Asian economies grow, consumerism and waste generation increase in tandem. This brings greater potential for the development of recycled steel resources, which may ease, but not solve, pressures on demand.
Legislation vs economics
Looking ahead to 2050-60, legislation that pushes for decarbonization goals from steel producing giants in Asia will heighten focus on use of steel scrap.
China's recycling industry is estimated to see growth of 10 million-15 million mt/year in steel scrap generation from its current 2021 estimate of 270 million mt, according to the China Association of Metalscrap Utilization.
This would equate to scrap generation of about 350 million-380 million mt by 2030 - the same year China aims to reach peak emissions.
Supportive legislation for decarbonization, similar to the Blue Sky policy in 2018-2021, may further propel China's recycled steel usage to 40%-50% by 2030. This is more than double the scrap utilization rate achieved during the 13th five-year development plan over 2016-2020.
Legislation plays a crucial role in driving up usage of recycled materials. However, in reality, Asia's recycled steel usage is mostly pivoting around the margins, as there are not many carbon laws in place that would drive scrap utilization to the levels seen in the US or Europe.
Most of Asia's steel is produced via the basic oxygen route. The alternative, via the use of scrap in the electric-arc furnace process, would in theory result in a significantly lower carbon footprint.
The WSA notes that every metric ton of scrap used for steel production saves 1.5 mt of carbon dioxide emissions, as well as the usage of 1.4 mt of iron ore, 0.74 mt of coal and 0.12 mt of limestone. But in Asia, electric-arc furnace producers often find themselves competitively overshadowed by younger blast furnace-based steelmakers, which have considerable production-cost advantages, hence economically capping the growth of electric-arc furnace utilities.
About 83% of steel from major Asian producers uses the basic oxygen furnace process, and only 17% the electric-arc furnace process. In the EU, the ratio tilts toward 58% to 42%, according to the WSA.
With margins being more of a consideration than environmental benefits, the "chicken or egg" paradox for decarbonization may persist – between whether there should first be state support, infrastructurally or financially, to lessen the disadvantages for first movers, or companies should take the lead in overhauling their production lines.
The process of decarbonizing the steel industry may see a bumpy road ahead, as it is a complex global market with low profit margins – despite the recent boom in steel margins arising from disruptions stemming from the coronavirus pandemic. Complexities arise as the steel industry is deemed politically important to governments wanting to project the image of an industrial powerhouse and as a sector that provides jobs.
The development of pro-climate legislation in Asia is an issue to watch, as it has greater potential, if developed in tandem with economic motivations, to help spearhead a more rapid transition to a lower emissions industry and support the growth of Asia's recycled steel markets.
Legislation has been and will continue to be crucial in driving up usage of recycled plastics, though it needs to come in line with fundamental market conditions like variations in supply availability across the Asian region and the current infrastructure base.
Use of recycled plastics has been developing for years in Asia but mainly for lower-value applications such as fibers, rubbish bags, construction materials and other non-food applications.
Price sensitivity is key for these markets, and often price comparison to virgin plastics becomes the dominant factor in recycled material usage.
Legislation can enforce a certain volume of demand for recycled plastics quite quickly, but it also needs to be matched with supply growth – and that is where the challenge lies.
For example, announced legislation in the US and Europe may increase demand for Asian recycled materials as local recycling in Europe and the US cannot satisfy these targets.
Recycled plastics supply has faced severe shortages globally amid the pandemic, adding to legislation driven demand pushing up recycled plastics prices to multi-year highs, especially in Europe and the US.
Under current global supply shortage and logistics challenges, there are concerns over whether such a supply chain model would be sustainable for businesses in pricing, logistics or even carbon emissions.
With that, more focus is shifting toward local recycling for local production and consumption.
Another example of legislation driving demand would be allowing recycled plastics for food packing applications, but it has a long way to go in Asia, where discussion, if any, is at a preliminary stage.
Food packaging is one of the largest consumption sectors of plastic, so allowing recycled plastic to be used in this sector would drive up demand significantly. But once again, the supply of such premium-grade recycled material is scarce and, in some countries, regulators may only allow chemically recycled plastics that are near or equal in terms of quality to virgin material. It is typically capital and technology intensive to build chemical recycled plastics plants, which restrains growth in the short-to-medium term.
It is also fundamentally almost impossible for recycled plastics to fully replace virgin plastics in the near term because there is simply not enough supply given the current infrastructure, technological and economic challenges and, most importantly, customer behavior.
Striving for industrial upgrade
Recycled plastics are embracing optimistic growth and industrial upgrade in the longer term via legislation, increasing public awareness, extended producer responsibility and evolving technologies.
New projects, especially mechanical recycling projects for high-quality and even food-grade recycled plastics, are in the pipeline across Asia, with Southeast Asia gaining particular attention from investors to tackle ocean plastics pollution.
Unlike traditional small- and medium-sized recycling companies, most of the new projects in Southeast Asia are led by international waste management companies, petrochemical companies and major brand owners such as Veolia, Indorama and Coca-Cola.
This signals potential demand growth that may promote a more efficient, standardized and cost-effective recycling value chain in the long term. However, in the near term, supply remains tight, especially for high-quality plastics waste.
In Southeast Asia, recycled PET flakes have risen more than $100/mt since S&P Global Platts first launched an assessment in July 2020. Efficient waste management systems are crucial to ensure the availability and affordability of plastic waste to achieve sustainable growth.
So far, overall recycling rates and plastics waste quality remain low in many developing and even some developed countries, limiting the supply and development of recycled plastics. However, the development of chemical recycling may have an important role to play in Asia's overall mixed plastic waste system and in the production of high grade recycled plastics.
Japan has taken the lead in driving chemical recycling technology as one of the deliverable solutions to meet its 2030 goal of reducing disposable plastic waste by 25% and achieving carbon neutrality by 2050.
Exciting as these technologies are, they should not be taken as the definitive solution without resolving the underlying root-issue of sustainability – overconsumption and the misuse of natural resources. With growing interest in using recycled materials in consumer products as a path toward decarbonization, demand for sustainable products is expected to rise.
Legislation will aid demand growth for recycled products but will need to be matched with an increase in supply and infrastructure. Price transparency is another key aspect for the growth of recycled markets – to help producers, consumers, regulators and investors better understand the market and take necessary actions to drive development.
For producers, the adoption of new technologies to improve processes and lower carbon emissions will also be an important step toward decarbonization.
Finally, for end-product sectors, changing consumers' mindset will be critical to raise awareness of sustainability, reduce over-consumption and shift the use of consumer products made from recycled materials from hype to normal practice.