Investing in scrap metal recycling

Stories by Adewale Sanyaolu

Recycling is one of the businesses of the future that one must invest in now if the resources are available. As the green awareness trend and eco-consciousness increase, the demand for recycled products or items will also increase.

This opens an avenue for smart entrepreneurs to capitalise upon to make a living and amass wealth. Now, for those who are yet to understand the concept of recycling and potential it holds, here are a few tips to guide a potential investor.

That Nigeria is blessed with abundant iron ore deposits of nearly three billion tonnes and other basic minerals for steel production, including coal and limestone, is not in doubt. But despite this potential,  the Nigerian steel sector has collapsed principally due to shortage of raw materials, particularly iron ore, for integrated steel plants and billets for rolling mills. Regrettably, the privatisation of the steel sector that was done in 2004-2005 was unable to revive the sector.

According to a research report by Elijah I. Ohimain of the Bioenergy and Environmental Biotechnology Research Unit, Biological Science Department, Faculty of Science, Niger Delta University, Wilberforce Island, Bayelsa State, Nigeria’s steel sector is now being sustained through the recycling of scrap steel obtained mostly from municipal solid wastes.

In many of the rolling mills, 100 per cent scrap steel is recycled for the production of iron bars used for civil construction. Scrap steel recycling results in the generation of 7 and 7 – 15 per cent slag for low and high carbon steel respectively.

Interestingly, the recycling of scrap metals prevent air, water and soil pollution, saves energy and raw materials and reduces greenhouse gas emissions while also conserving space in landfill sites.

Energy savings during the recycling of metals are 95 per cent for aluminum, 85 per cent for copper, 65 per cent for lead and 60 per cent for zinc.

But despite the enormous environmental and economic benefit of recycling, Nigeria is yet to key into this, as wastes still dot the streets of Nigeria blocking drainages and preventing the free flow of water, especially during rainy season.

What is scrap metal recycling?

In the simplest of terms, scrap metal recycling is the process of re-manufacturing or reproducing old metal products like old cars, steel, aluminium, among others, into new products. Rather than use extraction from minerals and raw materials, these presumed junks are recycled and resold to the consumers.

Benefits of scrap metal recycling

Scrap metal recycling is a very lucrative business and there is a huge market for its end products. Running a scrap metal recycling plant is cheaper and uses less energy, especially when compared to the manufacturing or extraction of metals from their ore or raw state.

The scrap metal recycling business is a trending business with more potential in the future because as people become more eco-conscious and the government implements policies targeted at environmental protection, the business will grow spontaneously.

As a metal recycling entrepreneur, you are contributing your quota in the campaign for natural resources conservation. You will also reduce environmental degradation, pollution and greenhouse gas emissions as the production of metal from virgin ore releases far greater amount of greenhouse gas when compared with recycled metal.

When the recycling company is up and running, it will contribute to the economy with respect to the Gross Domestic Product (GDP) and also create job opportunities for many, both directly and indirectly.

Starting the business proper

You have to decide if you really want to go into the recycling industry, as this business is not a child’s play. It takes effort, time and resources to set up and run a recycling plant. If you believe you are up for the challenges involved, you then need to decide whether to open a general metal recycling facility or a recycling centre that focuses on just one or a few targeted metals.

If you are going to focus on a single metal, which would it be? Gold, aluminium, copper, among others? Of course, opening a metal recycling centre requires significant investment in land and equipment, so you must be up for it.

Scrap metal recycling is a bit time consuming. This is because it takes time to gather the scrap metals, transport them to the recycling plant and finally have them recycled. It is also a capital intensive business as you will need to purchase some heavy duty machinery. It is not a business you can run alone, so you will need to employ helping hands.

Funding

Most recycling businesses are capital intensive and you may not have the capacity to self-finance it, so you have to figure out a way to raise money for the project. For scrap metal recycling, the minimum take-off capital is around N5 million while Return on Investment (ROI) is about 60 per cent. Are you going to raise capital from angel investors, venture capitalists, government agencies or NGOs? Or would you rather take a bank loan? The choice is yours.

Contribution of recycling to the steel sector

Research findings by Ohimain equally proved that recycling contributed 76.9 metric tonnes of metal valued at $ 14.2 billion or 58 per cent of metal supply in the US.

According to him, iron ore is one of the most important minerals today. By weight, iron and steel accounted for 88.6 per cent of metal supply and by value, they accounted for 27.7 per cent.

The estimated annual per capita consumption of steel in Nigeria is increasing astronomically ranging from 5kg in 1968 to 130kg in 2012. Unfortunately, this increase in the demand for steel products has not been met by domestic production despite the abundant iron ore, coal and limestone reserves in the country.

Nigeria’s steel industry at a glance

The Nigerian iron and steel sectors have reached a stage of near collapse. The only iron ore beneficiation plant located at Itakpe is down and unable to supply iron ore to the two integrated steel plants, Ajaokuta Steel Company (ASC) and Delta Steel Company (DSC).

The DSC, which depends on imported iron ore from Brazil and Liberia is epileptic and unable to supply billets to the three government-owned inland rolling mills (Oshogbo, Katsina and Jos), which are also down.

The country is losing a lot of foreign exchange on the importation of iron ore and billets, and many companies are unable to cope with the rising cost. Besides, Nigeria has 13 rolling mills and seven mini steel mills that depend on billets.

These companies are threatened by the shortage of raw materials (billets) from DSC. The total national long products’ rolling capacity is 3.18 million tonnes annually. Unfortunately, there are not enough billets to satisfy this capacity.

Hence, attention has now been focused on the use of steel scrap for the production of reinforced bars by the 20 rolling and mini steel mills. A recent study revealed that 83 – 86 per cent of scrap metals recovered from MSW in Bayelsa State  consist of iron and steel. Recent reports have also shown that scrap steel is sold to rolling mills in Warri, Lagos, Onitsha, Kano and Ibadan. Most mills are now resorting to the use of scrap steel as raw material due to the shortage of billets in the country.