McKinsey forecasts recycled steel, plastic premiums

A report and forecast by global consultancy McKinsey predicts demand for low-carbon steel and plastic the rest of this decade likely will put a premium on those products, which often are made with recycled content.

That future, to some extent, is already here, McKinsey says, writing in part, “For example, in the past decade high-quality recycled plastics reached an average premium of up to 60 percent over virgin plastics, depending on the product. In the case of low-CO₂ steel, premiums could also be significant by 2030.”

Despite moves by governments and automakers to ramp up the electric vehicle (EV) sector and the grid that supports it, McKinsey forecasts, “The green (low-CO₂ and secondary) aluminum market is expected to stay balanced by 2030, leading to limited premiums.”

Its forecast on copper is similar, writing, “The low-CO₂ copper market is expected to be balanced or oversupplied by 2030 as supply increases with grid decarbonization and demand for low-CO₂ grades lags, leading to small premiums.”

Although McKinsey is not forecasting high premiums for recycled-content aluminum or copper, the firm does foresee steady to rising demand. “The overall copper market is structurally undersupplied,” McKinsey says. “Demand growth is expected to outpace supply through 2030, driven by an increasing need for copper in modern applications, such as batteries and energy infrastructure.”

In the steel sector, the consultancy notes producers in Europe have been the most consistent to make low-carbon or recycled-content pledges. “Demand for low-CO₂ steel is expected to surge from around 84 million tons in 2021 to nearly 200 million tons in 2030, mainly driven by automotive and construction demand in Europe and China," McKinsey says.

Scrap-fed electric arc furnace steelmakers in the United States, including Nucor Corp. and Steel Dynamics Inc., have increasingly been pointing out the steel sector in the U.S already leads with world in low-carbon steelmaking percentages.

McKinsey says the global demand for low-carbon flat-rolled steel may outstrip supply by as much as 23 million metric tons by 2030.

The supply shortage for what McKinsey calls high-quality recycled plastic could be even greater in 2030. The consultancy’s forecast predicts a supply deficit of as much as 56 million metric tons in 2030.

The authors (Marcelo Azevedo, Anna Moore, Caroline Van den Heuvel and Michel Van Hoey) write, “Supply could grow from around 5 million tons to around 20 to 30 million tons by 2030. This increased supply still lags significantly behind demand from applications such as packaging, consumer electronics and automotive, which is expected to grow from 11 million tons in 2020 to 66 million tons in 2030.”

They continue, “The supply–demand imbalance for high-quality recycled plastics is thus expected to reach more than 35 to 45 million tons by 2030, leading to the potential for high premiums. These high premiums are already observed for several plastics categories. For instance, from 2010 to 2022, there have been premiums of more than 60 percent for natural recycled high-density polythene [rHDPE].”

McKinsey says companies beyond traditional recycling firms may need to pay greater attention to the sector. “Companies can work to develop novel sourcing strategies to lock in the supply of green materials at the required grades and carbon profiles, such as partnering with raw materials providers to lock in volumes, engaging with producers in earlier stages of development of projects, and leveraging the order book to incentivize production,” the firm writes.

The researchers conclude, “The world is quickly decarbonizing—and the window of opportunity for materials producers and purchasers is rapidly closing. In the years to come, the value from green premiums will be accrued by those who make quick and bold decisions. An understanding of how and when these green premiums will emerge, as well as how the implications of a green-materials strategy will affect the business, can make the difference between leaders and laggards.”