China's steel mills turn to scrap as polluting industries are told to clean up their act

Steel mills in China are spending large sums on equipment that shreds cars and other junk metal for use as raw material, as government demands to make smoke-stack industries cleaner continue to reshape heavy manufacturing.

Investing in scrap-processing equipment is the latest sign that mills have cash to spend after bumper margins last year resulting from skyrocketing metal prices. It also indicates that Beijing’s tough rules on pollution are pushing companies to be more efficient.

Scrapyards typically remove paint and other contaminants from used metal, cut it into small pieces and bale it for delivery to factories. But steel plants are increasingly performing those processes themselves to feed their furnaces, according to executives from four mills and a shredder maker.

They say producers want to use cheaper untreated scrap, which is more abundant and typically sells for about 200-500 yuan (US$31-78) per tonne less than the cleaner product, potentially saving substantial amounts of money and giving them more control over their raw material supplies.

Hebei Jingye Group, a medium-sized plant in Shijiazhuang, is installing a 3,000-horsepower shredder next month, which would allow it to more than double its scrap intake this year to 2 million tonnes, said Zhang Lijie, manager of the scrap department.