A cultural change

The Latin American scrap industry has significant growth potential. However, the lack of public policies, unfair competition and a limited circular economy culture threaten to hinder that growth.

Brazil and Nicaragua are two clear examples of these challenges in the region. Despite their difference in size, both primarily are agricultural countries with much legislative work needed to regulate and support the growth of the scrap metal sector.

The domestic scrap industry in both countries also is weighed down by logistics sector hurdles, especially in terms of freight costs and the availability of vessels for shipments. In fact, shipping fees in the region have increased by around 50 percent since the start of the COVID-19 pandemic.

South America exported 2.2 million metric tons of ferrous scrap in 2022 and imported 300,000 metric tons. Brazil exported 400,000 metric tons of ferrous scrap and did not register any imports in that time frame.

In Central America, exports of iron and steel waste and scrap were valued at $134.8 million last year, according to Trademap data. Among the Central American Common Market (CACM) countries, Nicaragua exported $22.3 million worth of these inputs.

Brazil: Policy on the table

Key scrap exports from Brazil include ferrous, 304 stainless steel and aluminum, while copper and brass scrap are consumed by the domestic market. Companies such as Norte Amazonia handle roughly 10,000 metric tons of these metals annually.

Norte Amazonia owner Jucelio Soares says the Brazilian recycling industry needs government support to take off, adding that while organizations such as the Union of Iron and Steel Scrap Cos. (Sindinesfa) and the National Recycling Institute (Inesfa) are working with the government on a regulatory framework for the recycling industry, much work still is needed to foster government policies considered scrap-friendly.

Soares indicates most recycling companies work informally in Brazil given the lack of capital that forces companies to work without the needed machinery or training to process recycled metal properly.

Some of the actions the government could take to encourage the development of this sector include implementing fiscal incentives for recyclers, as well as credit lines that allow them to modernize their operations.

The sector also is hindered by a dearth of steel mills in Brazil, and most are owned by a single company. Soares says the major players have control of the market, limiting incentives and investment in the scrap industry.

Soares, a third-generation recycler, recalls that scrap is crucial in combating climate change. He says products such as green steel require much more ferrous scrap, which will boost demand for this input material.

The steel industry is one of the most emission-intensive sectors, and countries such as China and India, which are seeking to reduce their polluting emissions, will strive to decarbonize their steel sectors, increasing their consumption of recyclable metal, Soares warns.

Thus, it is imperative for Latin American companies to ensure a reliable and constant supply of scrap to succeed. In this regard, Brazil has a lot of work ahead, as it will need to improve its infrastructure and waste management processes to ensure the recovery of these inputs.

The Latin American metal recycling industry needs to adopt more advanced technology, promote collaboration among players at all levels and improve its regulatory framework to achieve the expected leap in competitiveness and development.

Nicaragua: The weight of legalization

Ferrous scrap, especially Nos. 1 and 2 heavy melting steel (HMS), is most common in Nicaragua. Of the total scrap exports from the country, Nicaragua’s Hanter Metals exports about 30,000 metric tons of ferrous, copper and aluminum scrap, drained batteries and electronics annually. Still, this sector is largely unorganized given the high costs of legalization.

Janny Tercero, owner of Hanter Metals, says getting environmental permits for her operations was costly and time consuming, taking her roughly one-and-a-half years.

However, Hanter Metals became one of the first Nicaraguan recycling companies with environmental permits. Tercero notes her experience is an example that highlights the need for a robust regulatory framework that encourages the creation of formal companies in this field.

She says the Nicaraguan recycling industry started 40 years ago as an alternative for unemployed people to generate income. Since then, the sector has grown in a disorganized and informal manner.

The absence of public policies that encourage the development, modernization and competitiveness of companies also has allowed the proliferation of unfair practices and fraud, among other problems, to legal entities such as Hanter, in Tercero’s view.

Moreover, the lack of development in the steel and manufacturing industries in the country hinders the growth of the scrap industry. Tercero says Nicaragua is the least industrialized country in Central America, so local buyers of recycled metal are limited to artisanal pot and pan manufacturers, also known as “paileros.”

Still, Tercero sees some opportunities to lift Nicaragua’s scrap industry. She says the country has a strategic position in Central America, helping it export 150,000 metric tons of scrap annually, including ferrous and nonferrous metals, plastics, paper, cardboard, drained batteries and electronics.

She adds that the country will take a significant step forward in supporting the scrap industry if it strengthens its processing and waste transformation capabilities. Additionally, the local industry must adopt modern processing technology that allows efficient marketing of materials.

In terms of international trade, Tercero says Nicaragua and Central America must establish a strategic alliance that allows them to negotiate for scrap as a region, just as they do for products such as sugar or meat. This would enable the region to transition to a circular economy, add value to primary products and create a regional industry.

The next big step

The Latin American metal recycling industry needs to adopt more advanced technology, promote collaboration among players at all levels and improve its regulatory framework to achieve the expected leap in competitiveness and development.

Entrepreneurs such as Tercero and Soares lead a new generation of businesses that can make this change happen. The social vision of recycling to generate income for the most vulnerable sectors, combined with the global focus on scrap as a key piece in the fight against climate change, are the main drivers.

Alfonso Garcia is a nonferrous analyst for the Americas at Davis Index and can be reached at alfonso.garcia@davisindex.com.