Contrary to popular belief, a profitable business model for reused construction steel is not nearly as impossible as one may believe.
Steelmakers have almost perfected the “recycle” element of the four hierarchical elements of the circular economy — reduce, reuse, remanufacture and recycle — with steel recycling rates of almost 90 percent.
Despite the recycling success, however, the steel industry is increasingly facing pressure to decarbonize. Recycling steel is still both energy- and cost-intensive, and both steelmakers and their customers must go further to reduce environmental impacts. One way to do this is to shift to a reuse model.
Simultaneously, the built environment is working on lowering the embodied carbon of buildings — emissions from the manufacture of building materials — which make up about 11 percent of total global emissions. With steel being a main contributor to embodied carbon in buildings, one approach — the reuse of steel from older buildings in new construction projects — has gained attention, yet the supply of reused construction steel remains low.
The practice of steel reuse is not new. For example, the industry has reused train rails and automotive components for decades, but reusing construction steel poses unique challenges. Experts in the steel industry view the barriers to a profitable reused construction steel model as insurmountable. Even if they are not, who are the main players in this new circular supply chain?
In particular, is there even a role for a primary steel producer? How will steelmakers adapt their supply chains, manage storage and validate the steel quality? If steelmakers are involved, can this new business model create shareholder value without cannibalizing new steel sales?
Our team of four graduate students at the Yale School of the Environment tackled these questions as part of a consulting clinic course and developed one potential business model for our “client,” ArcelorMittal, one of the world’s largest steel producers. Dubbed the “Steel Buyback Bundle Program,” the proposed model we developed on its behalf would enable steelmakers to offer reused construction steel profitably.
Circular business model
Our suggested business model encompasses the following five steps: partner with demolition contractors; buy back the steel; inspect the steel; bundle reused steel with new steel; and trace all steel specifications.
In Step 1, the steelmaker develops relationships with demolition contractors in locations where they operate. These partnerships are meant to encourage contractors to deconstruct instead of demolishing and for contractors to alert the steelmaker that a building is set to come down.
In Step 2, the demolition contractor deconstructs a building, incentivized by the premium price that the steelmaker offers for reusable steel over scrap steel. The demolition contractor transports the steel to the closest mill. The steelmaker pays a premium for construction steel that appears reusable based on visual inspection and offers a market price for the remaining scrap steel.
In Step 3, the steelmaker validates 100 percent of the recovered steel according to applicable standards using already existing technology at the mills. Steel that does not meet the standards is recycled as scrap, minimizing financial loss.
In Step 4, the steelmaker bundles new and reused steel in current orders, eliminating holding costs. The proportion of reused steel in the bundle is based on its supply and the steelmaker’s goal to minimize holding costs.
In Step 5, the steelmaker’s customers enter steel bundle specifications into an inventory database for traceability, to promote future reuse.
We believe wide adoption of this proposed model would enable the transition from partnerships with demolition contractors to a steel inventory database.
The database would track buildings going up or down, and maintain specifications of the steel in buildings. Maintaining the steel specifications in a database would eliminate the need for partnerships with demolition contractors and minimize the inspection burden and cost for steelmakers.
As part of our exercise, we demonstrated the model’s profitability using data on steel sections manufactured by ArcelorMittal. We focused on the United Kingdom, where embodied carbon and reuse of building materials is at the forefront of discussions. Based on the company’s numbers, we estimated a profit of about $565 per tonne for reused steel, seven times the profit per tonne for new steel sections.
“The thinking out of the box worked with a very straightforward solution,” said Alan Knight, head of corporate sustainability and sustainable development with ArcelorMittal and an adviser for our project. “Many in the construction steel sector have wrestled with how to make steel reuse workable, the simple step of combining the reused with new is a significant step forward. It shows how a fresh look often finds choices that others close to the industry sometimes do not.”
The Steel Buyback Bundle Program we proposed for ArcelorMittal successfully mitigates the logistical challenges associated with the sourcing, transportation, storage and inspection of reused steel. This no-regret business model could help steelmakers promote circular economy practices in the steel industry, lower emissions and secure the future supply of reused steel.
In light of the changing regulatory landscape regarding building material reuse (such as European regulation EN 15804, The London Plan Policy SI7), it is imperative that steelmakers prioritize decarbonization and implement reuse strategies such as this proposed model.
Over time, industry-wide adoption of models such as the one we have proposed could strengthen their financial and operational feasibility and make reused construction steel an industry norm.