Closing the loop on steel: what we can learn from a manufacturer in Ecuador

Closing the loop on steel: what we can learn from a manufacturer in Ecuador

Article by Wayne Visser

Part of the Sustainable Innovation & Technology series for The Guardian.

Despite a strong business case for recycling scrap steel, uptake has been low. One company in Ecuador is blazing a trail for steel and the circular economy in Latin America.

In the next few decades, as resource scarcity starts to bite, and resource prices steadily climb, mining and metals companies will be forced to shape-shift from primary extractors to secondary recyclers. Necessity, rather than an unexpected attack of conscience, will be the driving force behind this transition to a circular economy. So let’s look at some lessons from the sector most ripe for revolution, namely the steel industry.

In 2013, world crude steel production totalled 1.6bn tonnes and employed 50 million people, either directly or indirectly. The industry is vocal in its support for sustainable development, claiming that – despite massive growth in demand – the amount of energy required to produce a tonne of steel has been reduced by 50% in the past 30 years.

A far stronger virtue in its pursuit of sustainability is that steel is 100% recyclable and backed by an impressive business case: more than 1,400kg of iron ore, 740kg of coal, and 120kg of limestone are saved for every tonne of steel scrap made into new steel (because these products are required if steel is produced as raw material). It is puzzling, therefore, that usage of scrap steel in 2013 was still only around 580m tonnes. Why is closing the loop on steel so difficult?

Lessons can be learned from Adelca, an Ecuadorian steel manufacturer that is trying to blaze a trail for the circular economy in Latin America. Ecuador is still a relatively small player, making up about 1% of the Latin American crude steel market, which is dominated by Brazil at 53% and Mexico at 27% (ranked nine and 13 respectively in the world market).

Adelca supplies Ecuador, Venezuela, Colombia, Peru and Chile with a variety of rolled and stretched steel products. Before 2008, Adelca was importing billets (a narrow, generally square, bar of steel) from China and elsewhere, but after analysing the economic and environmental benefits, the company decided to invest in an electric arc furnace (EAF) and start recycling metal scrap in order to make products for the construction sector.

The first part of Adelca’s sustainable technology solution was to install the EAF, thus allowing it to make its own steel billets from recycled scrap steel. According to Isabel Meza, head of integrated management at Adelca, by importing fewer billets, they are saving $12m (£7.6m) on the 20,000 tonnes of steel they produce every month. Apart from using fewer mineral resources, each tonne of recycled steel uses 40% less water, 75% less energy and generates 1.28 tonnes less solid waste than steel from raw materials. There is also an 86% reduction in air emissions and a 76% reduction in water pollution.

The second part of Adelca’s sustainable technology solution was to help to stimulate and organise the metals recycling sector in Ecuador, since it does not have enough supply of scrap metal to meet its own steel production demand. Today, Adelca’s Recyclers Network generates about 4,000 jobs (direct and indirect), with income exceeding $1m (£637,000) a month. Also, the steelworks, scrap iron preparation process, transportation system and complementary services generate more than 1,500 direct jobs for 50 small companies. Although Adelca still imports $80m (£51m) a year in raw materials, it estimates it contributes $120m (£76.5m) a year to the national economy just from the avoided imports.

The third part of Adelca’s sustainable technology solution was to install a bio-digester that turns the company’s organic waste into methane gas for community use, as well as to generate fertiliser for local crops. Although the financial savings are not big at about $35 (£22) a day in energy savings for the community and $100 (£63) in waste disposal costs for the company, there is a significant payoff in terms of “social license to operate”, ie improved community relations.

Lessons learned

1. Financial returns

The EAF technology was bought from the US and funded by taking a substantial mortgage from the bank. Commercially, the scale of the investment represented a significant risk, but the expected financial returns from the technology allowed the company to take this risk. Environmental benefits alone would not have sufficed.

2. Community education

Adelca lost eight months in delayed production due to community resistance to the EAF. The community feared that the heat, power and radiation from the furnace would endanger the health of the community, and that its heavy electricity demands would negatively affect the community’s own supply. Despite being unfounded, these fears required a substantial and expensive education effort to gain a social license to operate.

3. Supplier relations

Since Adelca’s demand for scrap metals is greater than the supply – and recycled scrap costs less than imported billets – the company has invested in building up its network of recyclers, including donating metal cutting equipment, offering loans, providing and paying for training and promising the best price for the scrap metals provided.

4. Marketing benefits

By investing in sustainable technologies, Adelca has differentiated itself in the market. In its public corporate mission, it is able to claim to be “leaders on recycling for the steel production, with excellence in… environmental protection and social responsibility”. This commitment helped it to become the first Ecuadorian company to achieve the Latin American S2M certification for corporate responsibility and sustainability.

The Adelca case shows us why the resource revolution is worthwhile, yet still so slow in happening. The positive impacts on manufacturing and natural capital are clear, but challenges remain in getting access to financial capital and ensuring the human and social capital benefits are effectively communicated.

 

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[button size=”small” color=”blue” new_window=”false” link=”http://www.kaleidoscopefutures.com”]Link[/button] Kaleidoscope Futures (website)

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Cite this article

Visser, W. (2014) Closing the loop on steel: what we can learn from a manufacturer in Ecuador. The Guardian, 20 November 2014.

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Ecuador & Dominican Republic Notes 2012

05 September 2012

En route to Quito. It’s been a tiring day-and-a-half of airports, queues, flights, taxis and a brief few hours in a hotel. London-Miami-Santa Domingo-Panama City-Quito is certainly not the most direct way to get to Ecuador, but needs must.

The air time has been unusually unproductive and unreflective, despite pre-flight plans to mark Cambridge dissertations. Instead, I have been entertained by the Alien prequel Prometheus, an offbeat Scottish heart-warmer The Angel’s Share (bad lad finds meaning in life via a whiskey distillery) and the amusing period film Hysteria (about the invention of the vibrator as a cure for anxiety in housewives). I have also been listening to the Adventures of Sherlock Holmes (A Study in Scarlet) and At World’s End (Ken Follett), besides reading wizard detective Pete’s exploits in Moon Over Soho (Ben Aaronovitch).

Ahead lies a busy schedule of talks in Ecuador, followed by a keynote in Dominican Republic, hopefully with a few days of R&R in and around Santa Domingo.

07 September 2012

Had a great day yesterday – addressed a CEO breakfast in Guayaquil, then drove 3 hours over the Andes to visit a porcelain factory in Cuenca.

I’ve written a review of John Elkington’s The Zeronauts – “guaranteed to inspire a new generation of sustainability”.

08 September 2012

Had a good workshop today in Quito, using the CSR 2.0 Self-Assessment Diagnostic tool. Interesting regional differences between cities.

09 September 2012

Arrived in Dominican Rep last night. Today, explored Santa Domingo’s old city. Hot & sticky, but a wonderfully vibrant culture & great music. Enjoying working at my hotel in Santa Domingo beside a pool with turtles swimming around & basking in the sun on the rocks! 🙂 Watching the US Open Tennis men’s final. Can Murray hold his nerve & go on to win his first grandslam title? Go Andy go!

11 September 2012

Enjoyed giving the keynote at Dominican Republic’s 1st CSR conference by INTRAS. Tonight, a taste of Santa Domingo’s music & dance!

13 September 2012

In transit in Miami airport for the n-th time. One day, I need to get beyond the terminal to the beach! Looking forward to being home.

19 November 2012

I’m in Quito, Ecuador for the week, presenting at various events on the ethical economy, responsible business 2.0. & future fitness

Just heard that I’m to be included in the CSR International Top 20 Sustainability Leaders of 2012, based on an expert poll.

21 November 2012

Had an interesting session today at the Chamber of Commerce in Quito, talking about safe, shared, smart, sustainable & satisfying futures

23 November 2012

Another busy day in Ecuador, including a TV interview. Tomorrow is the Charity Ball, where I’ll be posing as a penguin

24 November 2012

ecuador_wayne_roberto_2012

Had a packed week, presenting to students at the Catholic University, entrepreneurs at the British-Ecuador Chamber of Commerce, local government agencies at the National Decentralisation Strategy event, NGOs dealing with women and rural development, companies embarking on S2M certification in the security and oil sectors, and the newly established Minister of Transparency – all this as part of Responsibility 2.0 Week. The forums gave me a great opportunity to test out my 5-S Future-Fitness Framework, which proved to have great potential as a tool for dialogue and planning among multiple stakeholders. Participants were able to identify problems, measures and actions to guide progress towards a more safe, shared, smart, sustainable and satisfying future.

As always, I was generously hosted by Roberto Salazar and his companies, Hexagon and S2M. We have resolved to collaborate on a research paper based on our experiences this week, and I will also focus one of my Guardian columns on dialogue as a catalyst for social cohesion in Ecuador. We finished off the week with a Charity Ball last night, which saw me schmoozing with the British and EU ambassadors in Ecuador, doing my best to impersonate a penguin (in my tuxedo). There was a fantastic live band called The Academicians and the lively dancing was pure joy to watch – and to indulge in. No wonder Latin Americans score so high on measures of happiness and life satisfaction. Somehow, celebration is at the heart of their culture, despite all the challenges faced by people in the region.

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Ecuador 2011 Notes

01 October 2011

On my flight to Quito from Guayaquil in Ecuador, I watched a really good movie on the plane – directed by Woody Allen, called Midnight in Paris’. It’s about an aspiring writer who gets in touch with his nostalgia through travelling back in time, finally learning to live in and appreciate his present, albeit one in which he is more true to himself and his muse.

Also, I bought some books at the airport that I’m enjoying – Solar, by Ian McEwan, Slow Love, by Dominique Browing, and Pigeon English by Stephen Kelman. This last one is a story told by a boy who recently arrived in London from Ghana. It has echoes of The Curious Incident of the Dog in the Night-Time.

The workshop in Quito went well. Then I spent some time with a colleague, Maria Sara, visiting the indigenous market, while my friend Roberto went to the service for his father, who passed away a month ago. I managed to find a beautiful tablecloth and authentically traditional bag.

After Roberto’s service, he took me to a restaurant overlooking the city. The changing light as the sun set was truly magical, especially as there were storm clouds gathering. After coffee at his brother in law’s, we came home and he played some piano and guitar for me. I even had a strum and tried to dredge up my memory of songs I used to play.

I found out a bit about refugees in Ecuador – a few hundred thousand, mainly from Columbia. The law here is very open and welcoming, which also has its own problems. In Columbia, there are apparently about 4 million internally displaced people.

Well, tomorrow I leave at 6.15 am for Galapagos, via Guayaquil. I am looking forward to a few days break, and the wildlife I will hopefully see. I will take lots of photos.

02 October 2011

I’m on the plane at Guayaquil, in transit from Quito to Galapagos. Once again, I am struck by how fortunate I am. This little escapade is being paid for by someone else (CEAL) as an incentive to induce me to stay on to speak at their conference next week, for which I am most grateful.

As much as the chance to see the islands’ exotic creatures, I am looking forward to getting more connected to Darwin’s story, a second link, after his Cambridge history. It is hard not to be swept up by the profound eddies of fate which brought Darwin to these islands and helped to confirm his theory of evolution. In a world of grey ordinariness, we inevitably bask in the reflected colourfulness of great discoverers, wishing that we could be the ones who left a luminous mark on the cave walls of history. I am no different.

Despite this imminent prospect of adventure – or at least new sights – I am reminded of Alain de Botton’s observation in ‘The Art of Travel’ that the only trouble with ‘getaway’ holidays is that we take ourselves along. And so when I read about the tragic fictional character of Nobel Prize winner Prof Beard in McEwan’s ‘Solar’, I am looking for my reflection on the page.

Related Diaries

Galapagos 2011 Notes

Related Poems

Galapagos | Serenity

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