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. Cheaper raw materials could save the company as much as US$157 million a year. The shredders strip paint and contaminants from scrap and cut it into small pieces, and can also sort it, improving the quality of the final product. “The quality of scrap steel we buy is quite uneven,” said Zhang. The company makes about 12 million tonnes of steel a year, mostly construction steel rebar. Mills have been gobbling up more scrap over the past year because the steel sector has borne the brunt of Beijing’s years-long effort to clean the nation’s notoriously toxic air. Many have installed electric arc furnaces, or mini-mills that use only scrap, because they emit far less carbon than blast furnaces, which use coal as fuel. Chinese steel mills face tough 2020 emissions targets under draft plan Sintering plants, which melt iron ore before it is put in blast furnaces, have also been targeted for closures over the winter because they contribute to most of the pollutants produced during the steelmaking process. The government closure of mills churning out low-quality steel from induction furnaces – typically big users of scrap – has also boosted the availability of junk. But the arrival of shredders is likely to accelerate the pace of that shift, dealing another blow to global miners, like Vale and Rio Tinto, which have bet big on voracious demand from China, the world’s top importer. China generated 200 million tonnes of scrap steel in 2017, up 67 per cent from a year ago, according to data from the China Association of Metalscrap Utilisation. That comes as Beijing promotes recycling as part of its push to upgrade heavy manufacturing, but it could potentially replace around 280 million tonnes of iron ore, equivalent to nearly a third of China’s total iron ore imports last year. With profit margins as high as 1,000 yuan a tonne due to higher metal prices and shredders costing 5 million yuan, mills can get their money back within months, executives said. Wang Guangrui, vice-president at Xuzhou Jinhong Iron & Steel Group, warns there may not be enough scrap to meet the country’s burgeoning demand in the long term, which would likely drive up waste metal prices and hurt margins. China, the world’s top steel producer, aims to raise the portion of scrap usage to 30 per cent by 2025. Analysts expect capacity from electric arc furnaces to reach 166 million tonnes this year, up by nearly 20 per cent from 2017. A ban on imports of 16 more categories of scrap metal including steel, at the end of the year may also hurt supplies. That hasn’t deterred Jiangsu Shagang Group, China’s number one private-owned steel mill by capacity. It plans to buy two 6,000-horsepower shredders – the most powerful on the market, worth 16 million yuan each – and upgrade existing equipment, said Zhang Hua, a scrap manager. The investment will boost junk metal use by 17 per cent to 7 million tonnes this year. The company is purchasing the machines from China Recycling Newell Equipment Co Ltd, a joint venture launched by Newell Recycling Equipment and the state-backed China Recycling Development Corporation. China expands battle against pollution to its top coal producing province The drive to process scrap at home also marks a shift for China’s mills as they look to become more integrated operators with ready supplies of raw material. Until now, the sector has not expanded upstream like some of their US counterparts – Nucor Corp bought one of the biggest US recyclers, David J Joseph, a decade ago. In a move that mirrors its US peers, Hebei Yongyang Special Steel Group in Handan, a major Chinese steelmaking city, may add a shredder at its vehicle-breaking operation. That could give it surplus scrap to sell to other mills, said Wu Zhihua, manager at Yonghai Vehicle Dismantle Co, subsidiary of Yongyang. Richard Lu, an analyst at CRU consultancy in Beijing, said that scrap supplies should be able to meet demand, but added that it depended also on whether China’s recycling system had the capacity to collect and process enough metal.