Steel companies that took a massive bet on furnaces fed on cheaper scrap metal rather than more traditional iron ore could find themselves under pressure as scrap supplies become both more expensive and increasingly difficult to find, analysts say.
Around 40 percent of the world's new steel capacity being built this year will be in the form of electric arc furnaces, double the share built last year. These so-called mini-mills are being forced to scour the world for new sources of scrap steel as traditional sellers like Japan and Russia reduce supply.
Scrap prices have doubled this year and are set to rise further, and unlike larger blast furnaces, which rely mainly on iron ore bought under long-term contracts with prices agreed once a year, mini-mills are exposed to the volatile spot market.
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