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Impact of scrap use on energy efficiency of Indian steel industry

Recycled scrap is largely used in steel industry globally, and around 570 million tonnes of scrap was used in the steel industry in 2017.
• Even in India, the shift towards scrap recycling to enhance energy efficiency has gathered momentum at the policy level.
• However, an in-depth research by the authors on Indian steel plants between 1999 and 2014 reveals that scrap recycling has not led to gains in energy efficiency.
• The research indicates that promoting scrap-use may not be energy-efficient unless overall factor productivity of the scrap-using plants is also improved.

steel industry

The metal scrap industry owes its genesis and growth to the essential fact that steel can be recycled infinitely without affecting its material properties. The average recycling rate of steel today is 85%, and it is one of the most recycled metals globally. According to estimates, around 670 million tonnes of scrap was recycled in 2017 across the world.

According to data for 2017 from Metal Bulletin Research, India imported 4.38 million tonnes, or 26% of the 16.82 million tonnes of total scrap it consumed in 2017. Ferrous scrap usage is expected to expand further to 22.36 million tonnes by 2023, and increasing scrap imports to 7.37 million tonnes. Per capita steel consumption in India is also expected to rise from 68 kg in 2018 to 160-180 kg in 2031.

While steel production is energy-intensive, modern energy management systems recycling steel scrap have reduced energy intensity of steel production in the world. Recycling of steel accounts for significant energy and raw material savings: estimated to be over 1,400 kg of iron ore, 740 kg of coal and 120 kg of limestone saved for every 1,000 kg of steel scrap converted into new steel. Production of secondary steel (using scrap) is estimated to utilise 74% less energy than production of steel from iron ore.

In India too, scrap recycling to enhance energy efficiency has gathered momentum at the policy level.  The Energy Conservation Act of 2001 provides the institutional framework to reduce energy intensity of the economy, whereby standards, regulations and norms have been implemented. The Bureau of Energy Efficiency, established in 2002, under the Act, facilitates the implementation of different initiatives for energy conservation and efficiency. It is implementing the National Mission for Enhanced Energy Efficiency (NMEEE) under the National Action Plan on Climate Change 2008 to promote energy conservation in the industrial sector.

The NMEEE identified nine energy-intensive sectors of the country for target energy-efficiency norms to achieve a low carbon path for the economy, including iron and steel, a key infrastructure development industry. India is the third largest steel producing country after China and Japan. But energy consumption of Indian iron and steel plants is much higher than steel plants abroad. Data from the Ministry of Steel estimates that integrated steel plants require 6-6.5 Gigacalories per tonne of crude steel compared to 4.5-5 Gigacalories per tonne in steel plants abroad. This is attributed to obsolete technologies, old operating practices and poor quality of raw materials.

Since recycling of steel scrap offers significant energy saving, it is pertinent to understand whether recycling strategy has enhanced energy-efficiency in the Indian iron and steel industry during the last two decades. To ascertain the impact of recycling of steel scrap on energy efficiency, we tracked the energy intensity of Indian steel plants during the period 1999–2014, to determine whether scrap-use provided energy-saving benefits. Our analysis examines the energy efficiency and total factor productivity of Indian steel plants, distinguishing between plants that use external scrap and those that do not use external scrap an input in the production process.

Our research concludes that energy intensity of production in the iron and steel industry has indeed been declining over time, especially in the integrated steel plant, but less so in other (non-integrated) steel plants. It is important to note that the negative time trend in energy-intensity we observe for the sample with large integrated steel plants re-confirms the observation in the existing literature that energy efficiency has improved in the industry since the late 1990s.

After controlling for plant characteristics and location, we find that energy intensity in plants that used external scrap is significantly higher than those which did not or those, which used less scrap in the material mix. In a robustness check of this phenomenon, we examine the total factor productivity of steel plants to measure overall factor efficiency of plants recycling scrap versus non-scrap users. Our analysis of total factor productivity gives the same qualitative result, whereby external-scrap using plants are found to have lower factor productivity than non-scrap users.

While recycling has been identified as one of the key drivers of improvement in energy efficiency in the iron and steel industry, we do not find support for this phenomenon for the Indian iron and steel manufacturing industry. Our analysis suggests that external scrap using steel plants in India are less efficient in total factor use as well as in energy use.

The lower energy-efficiency of the plants using scrap may not be energy saving due to the other factors, like poor quality of raw material, that our analysis has not been able to capture. This has important implications for the strategy to encourage growth in secondary steel production in India, as envisioned in the National Steel Policy 2017. Going forward, the government intends to encourage scrap-based steel manufacturing in order to save energy. However, promoting scrap-use may not be energy-efficient unless the overall factor productivity of the scrap-using plants is also improved.


Aparna Sawhney

Aparna Sawhney is a Professor of Economics at the Centre for International Trade and Development, Jawaharlal Nehru University. Earlier she was faculty at the Indian Institute of Management Bangalore. She has served as Member of the Advisory Committee on Trade and Environment Issues, Ministry of Commerce and Industry; and as External Expert in the Consultative Committee on Trade and Environment, Ministry of Environment and Forest. She has been consultant for the World Bank, UNCTAD, ICTSD, ICRIER, and TERI.

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