Arguments as strong as steel for investing in the Circular Economy

When Canada declared a verbal "war" on the United States, geopolitical tensions undoubtedly reached a new high. Despite their close ties as neighbours, the two countries have recently exchanged threats – and imposed tariffs and counter-tariffs. A key target of the disputes is a commodity of significant importance to both economies: steel shipments in both directions have been subjected to import tariffs of 50%, as reported amongst others by the American TV network CNN.

Trade disputes and rising demand revive stagnant steel sector

The steel dispute between these North American neighbours exemplifies the shifting dynamics in the steel industry. After years of lukewarm demand, intense competition from China, and high capital costs, the sector is now split in different regions with their own supply-demand dynamics. Politically motivated economic protectionism, the relentless push for an energy transition, and the construction boom in AI data centres and infrastructure projects are driving steel prices – and, consequently, producer margins – higher, particularly in the US and Europe.

Steel: Moving towards circular processes

In our view, investors who are interested in sustainability, in particular, would be well advised to take a closer look. While steel production is often associated with a soot-laden heavy industry, cleaner production processes have already made significant inroads (see box below). What’s more: according to the industry association Responsible Steel, steel is the most recycled material of all, with an average of 630 million tonnes (megatonnes, Mt) of scrap processed annually and a recycling rate of around 85 per cent. Steelworks are, by their very nature, recycling plants; they are often supplied exclusively with scrap metal.

Steel thus also serves as a prime example of the sustainable concept of the Circular Economy, which seeks to decouple economic growth from resource consumption in accordance with the four Rs: ‘Reduce, Recycle, Reuse, Replace’. Depending on the source, this paradigm shift is projected to generate long-term growth potential of up to USD 4.5 trillion. The Circular Economy is also recognised for supporting multiple UN Sustainable Development Goals (SDGs).

Steel as a prime example of the strategic importance of the Circular Economy

In the context of trade disputes, competition for critical raw materials, and the trend towards deglobalisation, circular processes are taking on a new and equally vital role. By keeping essential resources within the system, the Circular Economy can significantly contribute to resource security and economic independence for nations. This is one of the reasons we anticipate above-average growth in circular business models.

Few industries illustrate this "new narrative" of the Circular Economy as vividly as the current resurgence of steel production in the US and Europe. While China is currently rationalising its production, both regions are seeking to protect domestic production centres and jobs through trade barriers and tariffs. This politically driven disruption of global supply chains is driving up regional steel prices, encouraging the construction of local steel production capacities. In the case of EAF technology, this also aligns with the sustainable goal of decarbonisation. Below, we delve into these regional developments in more detail:

US: Tariffs and a focus on scrap as drivers for more sustainable steel production and the Circular Economy

• Tariffs as a catalyst for recycling: Tariffs imposed by the administration of US President Donald Trump – currently supported by Section 232 of the US Trade Expansion Act – levy duties of 25% to 50% on foreign steel imports. These measures protect domestic producers from competition, particularly EAF steel plants. Given the current political climate, we do not anticipate changes to these measures in the next two years, which could support the growth of US EAF manufacturers like Steel Dynamics (see below).
• Expansion of EAF facilities: In the US, producers such as Nucor, Commercial Metals Company (CMC), Steel Dynamics and US Steel are currently building new EAF capacities for over 17 mt, according to company announcements. Since EAF plants can be fed with up to 100% scrap metal, this serves as a structural driver for the recycling of scrap metal. We expect the US to significantly expand its scrap recycling capacities to prevent a potential scrap shortage.
• Demand trends support prices: Pent-up demand driven by government-initiated growth and infrastructure projects is likely to continue pushing steel prices higher. Additional demand comes from non-residential construction and the AI boom, where the construction of new data centres consumes vast amounts of steel. The spread between scrap metal as input material and rolled steel (HRC) is expected to remain high, pointing to structurally higher margins for steel producers (see chart below).

The trade tariffs and improving demand have led to an increase in the margin of the steel sector in the US (Price difference between scrap and finished HRC steel from EAF mills in the USA, in USD on a 100 per cent basis)

Europe: The EU is raising trade barriers and emissions prices – but it faces a handicap

• New tariffs and quotas effective since summer: The EU has also moved to shield domestic steel production through trade barriers. As of 1 July 2026, Regulation 2026/1384 came into effect across the Union: the duty-free quota for finished steel imports was reduced to 18.3 mt annually, 47% less than in 2024. The tariff rate outside the quota was doubled to 50%. The European Commission has also considered restricting the export of steel scrap to retain this increasingly strategic raw material within the EU.
• Carbon Border Adjustment Mechanism (CBAM): Effective since early 2026, CBAM imposes a carbon price on certain imported goods from non-EU countries. In practice, CBAM adds costs to steel imports, favouring domestic EAF production, which generates fewer emissions.
• High electricity prices as a handicap: Compared to the US, the competitiveness of the European steel industry remains constrained by electricity prices that are more than double those in the US, as well as limited availability of high-quality scrap suitable for automotive and electrical steel. As a result, tariffs alone cannot close the competitive gap.

Drivers of the Circular Economy: Expected EAF capacities in Europe (in million tons mt)

The combination of the spread of more sustainable production processes and recycling, together with the protection of domestic industry through tariffs and regulations, is providing significant momentum for companies that have already managed to position themselves accordingly. This can be illustrated, for both the US and Europe, by two companies that are also regarded as key players in the Circular Economy.

Company example: Befesa

• Description: An important company specialising in the recycling of hazardous waste – mainly zinc – from the steel and aluminium industries. The company processes around 1.9 mt of waste annually and produces approximately 1.7 mt of new materials from it, making Befesa a flagship company in the Circular Economy.
• Key business segments: According to the company’s figures (as at end 2025), steel dust recycling accounts for 67 per cent of turnover and 87 per cent of operating profit (EBITDA). Befesa recycles hazardous EAF steel dust into rolling oxide, which is sold to zinc smelters. The profitability of the steel dust segment is therefore directly linked to zinc prices (see also the chart below). Zinc is also regarded as a critical mineral and is currently experiencing rising demand, partly due to the energy transition.
• Impact of deglobalisation: The expansion of EAF facilities in the USA and Europe, driven by tariffs, is a direct and structural driver of volume growth. Revenues, in turn, depend on EAF capacity utilisation and throughput, not directly on steel or scrap prices. A second positive impact on earnings stems from higher zinc prices. Here, too, supply chain issues, geopolitical unrest and construction activity in the US are driving the trend.

Befesa's share price has recently benefited from higher zinc prices (zinc price and Befesa’s share price, in USD)

Company example: Steel Dynamics

• Description: Steel Dynamics is an important steel producer, processor and metal recycler (including steel and aluminium) in the US. The company uses exclusively EAF furnaces for steel production, with recycled iron scrap as the main raw material.
• Key business segments: In addition to its leading position in the steel sector, Steel Dynamics has invested heavily in aluminium recycling. The company is in the start-up phase of a new plant for flat-rolled products made from recycled aluminium with a capacity of 650,000 tonnes; this initiative is aimed, amongst other things, at the markets for beverage cans and the automotive industry. The aluminium business is increasingly regarded as Steel Dynamics’ most important long-term growth driver.
• Impact of deglobalisation: The current US import tariffs under Section 232 protect the prices of Steel Dynamics’ (domestic) finished steel, whilst the company’s own metal recycling division supplies its EAF plants. Thanks to its vertical integration, the company is better protected against fluctuations in scrap costs than pure steelworks. In our view, this dual safeguard grants Steel Dynamics the status of a safe haven in markets characterised by geopolitical turbulence.