The steel industry is a major contributor to CO2 emissions, accounting for 7% of global emissions. The European steel industry is seeking to reduce its emissions by increasing the use of electric arc furnaces (EAFs) and producing steel from scrap, marking a major shift towards a circular steel economy.

Here, by combining international scrap trade, EAF capacity, and firm-level information, we show that this shift requires a deep restructuring of the global and European scrap trade. We find that scrap imports to European countries with large EAF installations and/or planned projects have been steadily decreasing since 2007, while global scrap trade has recently started to increase.

To better understand this discrepancy, we used multivariate regression to examine the relationship between scrap consumption and imports and to identify emerging competitive pressures between regions in the global scrap market. At the firm level, our statistical modelling shows that every 1,000 tonnes of EAF capacity installed is associated with an increase in annual imports of 550 tonnes and a decrease in annual exports of 1,000 tonnes of scrap, suggesting increased competition for scrap as countries increase their EAF capacity.

We argue that to meet this demand and control the quality of scrap, steel producers need to establish direct cooperation with their end-users. By reconstructing firm-level production networks of steel producers from about 100,000 online news channels using an LLM approach, we find that such collaborations are indeed emerging.

Taken together, our results highlight the need for a massive restructuring of the industry’s supply networks and identify the resulting growth opportunities as well as supply risks for firms.