Cost Efficient Scrap Metal Sourcing

Abstract

The steel industry in Sweden is responsible for 10% of the annual Swedish CO2 emissions. As a way to abate this sector, H2 Green Steel are establishing a new green steel production site in Boden. Their way of producing steel, through the EAF route and by using hydrogen-reduced DRI will reduce the CO2 emissions by over 90%. Besides iron ore, steel scrap is the most important input raw material for the EAF production. Scrap is generated where there is industry and society, meaning the local supply in northern Sweden is very limited. H2 Green Steel is therefore going to source a major share of the scrap in continental Europe and the UK, incurring additional logistical costs compared to their European steel competitors.
This thesis investigates the European scrap market and the scrap logistics to find the best sourcing strategy for H2 Green steel. The methodology used is exploratory design science research, implying a wide problem solving approach to find a context specific solution. Data is gathered through industry reports and many interviews with industry experts as there is limited academic research available.
The research shows that the scrap market is complex, with a high level of subjectivity regarding availability, quality, and efficient logistics. The largest scrap volumes are generated in Germany and the UK, and exported from Benelux and the UK. As scrap is a low value voluminous product, it is best transported in bulk vessels and bulk trains. The qualitative research resulted in a number of hypotheses regarding the best transportation options, the best origin harbors and regions to source from. These sourcing routes were then quantitatively investigated by using transportation cost data from a number of partner sea- and train freight companies as well as handling cost data from interviews with stevedore companies. The data was then extrapolated to make additional estimations.
Based on both qualitative and quantitative analysis, the recommendation is to utilize 35k DWT bulk vessels from Rotterdam and/or Amsterdam and Tilbury in the UK. Also, a 16k DWT bulk vessel from Gdansk and a 2k bulk train from Rheinkamp (in the Ruhr-area in Germany) is recommended. The train option is more expensive, but is important as it can provide high quality scrap directly from the automotive industry, reduce the bottlenecks of Luleå hamn and improve logistics sustainability. The recommendation also includes building strong supplier relationships to secure volumes and scrap quality, and minimizing sea freight during winter due to the more expensive ice-classed vessels required. Overall, the recommendation emphasizes the need to act on the strategy to secure volumes now, before scrap demand in Europe rockets.

Popular Abstract

Steel is endlessly recyclable, and the scrap is a critical input raw material for steel production. With decarbonisation of our society, demand for steel scrap is increasing in Europe, and H2 Green Steel’s localization in Boden is a competitive disadvantage due to the long distances from scrap generating areas. Europe is currently the largest exporter of scrap worldwide, and has a well-established scrap market that is complex and rigid. This thesis, on behalf of H2 Green Steel, is looking to challenge many of the current ways of working to find a cost-competitive scrap sourcing strategy.

Scrap is any product that contains steel and has lost its initial value, most commonly obsolete products such as old cars. It is generated where there is industry and society, and is exported worldwide from North sea ports. The European countries generating the most scrap are therefore Germany and the UK, and the largest exports come from ports in Benelux and the UK. Scrap suppliers process the scrap in heavy machinery that removes residual elements and cuts the material into smaller pieces that are easier to transport and re-melt in the steel mill. The transportation is usually done in bulk vessels or bulk trains, and on barges within Europe.

For H2 Green Steel who require large annual volumes of scrap, it is economically beneficial to utilize large bulk vessels. This is the recommendation for sourcing from Rotterdam and Amsterdam in the Netherlands and Tilbury in the UK, where large scrap volumes exist. However, this strategy faces some difficulties in the winter, when ice-classed vessels are necessary to transport to Boden, and the market supply of large bulk ice-classed vessels is limited. Consequently, H2 Green Steel should also source scrap in smaller bulk vessels from Gdansk, which is the cheapest alternative due to the shorter distance. Luleå Hamn is likely to become a bottleneck due to all the new industrial activity in the region, not only from H2 Green Steel. In order to minimize the risk of supply chain disruptions, certain scrap volumes should be delivered on bulk trains. This includes both scrap volumes generated within Sweden, and with a direct train from the Ruhr-region in Germany. The Ruhr-region has an additional benefit of being an automotive hub, where a lot of new high-quality scrap can be sourced, that is especially sought after.

By using the recommended strategy, H2 Green Steel can be a real competitor in the scrap market despite their localization and secure the volumes they need to scale up their production in the coming five years.

• author: Sandström, Sophia and Ivarsson, Sofia
• supervisor: Jan Olhager
• organization: Engineering Logistics
• alternative title: A design science research project to develop a strategy for how H2 Green Steel can source scrap metal with cost efficient logistics
• course: MTTM05 20221
• year: 2022
• type: H2 - Master's Degree (Two Years)
• subject: Technology and Engineering
• keywords: Scrap sourcing, Scrap logistics, European scrap market, Sea freight strategies, Bulk shipping
• report number: 5972
• language: English
• id: 9096053
• date added to LUP: 2022-07-22 10:43:44
• date last changed: 2022-07-22 10:43:44