HMS 1&2 80:20 and the Decarbonisation of Steel: Economics, Supply and Carbon Advantage

Discussions on steel decarbonisation typically centre on green hydrogen, direct reduced iron (DRI), renewable electricity, carbon capture (CCUS) and energy efficiency. A less headline-grabbing but economically significant lever is ferrous scrap – and specifically, internationally traded scrap grades such as HMS 1&2 80:20, which feed Electric Arc Furnace (EAF) steelmaking around the world.

The strategic question for producers, procurement teams and investors is no longer simply "what is the price of HMS?". It is increasingly "what does the availability and delivered cost of quality scrap mean for the cost and carbon intensity of steel?" This article examines that question, connecting scrap fundamentals to EAF economics, carbon intensity and carbon-adjusted commodity economics. It does not claim that scrap is automatically "green" – the carbon advantage of scrap-based steelmaking depends on route, quality, electricity source, efficiency and accounting methodology, as discussed throughout.

What Exactly Is HMS 1&2 80:20?

Heavy Melting Scrap (HMS) is a widely used ferrous scrap category. HMS 1 comprises heavier steel and wrought-iron scrap without galvanised or blackened material, while HMS 2 includes galvanised and blackened steel scrap of somewhat lighter gauge. Both grades are obsolete (end-of-life) scrap, defined internationally under classifications such as the U.S. Institute of Scrap Recycling Industries (ISRI) codes 200–206.

HMS 1&2 80:20 refers to a blend of approximately 80% HMS 1 and 20% HMS 2. It is a commercially recognised commodity specification rather than a proprietary product, and is referenced in public exchange research – for example, the London Metal Exchange's published research on ferrous contracts describes HMS 1&2 80:20 as a benchmark blend used in internationally traded scrap indices. Because it combines reasonable density, manageable contamination and wide availability, the 80:20 blend is commercially important as a reference grade for scrap pricing and EAF procurement worldwide.

Figure 1. Anatomy of HMS 1&2 80:20. Note: illustrative composition diagram; actual blend ratios vary by supplier and contract.

Why Scrap Matters to Steel Decarbonisation

Three principal pathways dominate global steelmaking: (i) BF-BOF, in which iron ore and coke are converted to hot metal in a blast furnace before refining in a basic oxygen furnace; (ii) DRI-EAF, in which iron ore is reduced to direct reduced iron before melting in an EAF; and (iii) Scrap-EAF, in which recycled steel scrap is melted directly in an EAF. Because it bypasses primary ironmaking, scrap-based EAF production can have a substantially lower process emissions intensity than the conventional BF-BOF route.

Chart 1. Data shown are sample and illustrative unless otherwise stated. Actual values vary by geography, technology, product specification, market conditions and accounting methodology. Indicative ranges informed by worldsteel Sustainability Indicators reporting; figures are directional, not plant-specific.

The Carbon Advantage Is Not the Same as a Free Carbon Advantage

A lower average emissions intensity for scrap-EAF does not mean scrap-based steel is automatically zero-carbon or uniformly low-carbon. The realised carbon advantage depends on multiple factors operating simultaneously:

• Grid electricity mix and renewable electricity availability at the EAF site
• Scrap transportation distance and logistics emissions
• Scrap processing, shredding and pre-treatment energy use
• Electrode consumption, auxiliary fuels and furnace efficiency
• Scrap quality, contamination and resulting yield losses
• Use of DRI or pig iron supplementation alongside scrap
• Upstream (scope 3) emissions and the accounting boundary applied

HMS Economics: What Actually Drives the Price?

HMS 1&2 80:20 pricing reflects an interaction of demand, supply and macro/trade variables rather than any single factor:

Figure 2. HMS 1&2 80:20 price driver wheel (illustrative, non-exhaustive).

The Real Constraint: Quality Scrap Supply

As EAF capacity expands globally, scrap demand could rise correspondingly, placing greater pressure on collection and processing infrastructure and potentially supporting scrap premiums – though this is not a claim that prices will rise continuously or in a straight line. Constraints include the geographic concentration of scrap-generating economies, uneven collection infrastructure, contamination and quality variability, the split between obsolete and prompt scrap, differing domestic recycling rates, trade restrictions on scrap exports, transportation economics, and competition between domestic mills and exporters for available tonnage.

India: Why HMS Could Become Strategically Important

India combines rapidly growing steel demand with an expanding secondary steelmaking base (EAF and induction furnace routes), alongside continued reliance on imported scrap to supplement domestic collection. Growth in vehicle scrappage, more organised scrap processing, and the country's substantial renewable electricity build-out could, over time, improve both the availability and the carbon profile of scrap-based steelmaking. India's steel decarbonisation roadmap discussions, led by the Ministry of Steel, identify EAF/scrap-based steelmaking and hydrogen-DRI pathways among options under consideration – not as a settled or exclusive outcome, but as pathways being actively evaluated alongside continued BF-BOF production. No specific forecast of scrap prices or volumes is implied.

Table 1. Factors shaping HMS in India and their potential impact.

Competing – or Complementary – Pathways

Table 2. Comparison of principal steelmaking routes.

These routes are not necessarily mutually exclusive. The future steel system is likely to contain multiple coexisting pathways, with scrap, DRI, renewable electricity and hydrogen interacting – for example, DRI can supplement scrap in EAFs to manage quality or availability constraints – rather than competing in strict isolation.

Carbon-Adjusted Steel Economics

A simple conceptual framework helps connect commodity, production and carbon economics:

The economic attractiveness of HMS-based steel therefore depends not only on the physical scrap price, but on scrap yield, processing cost, freight, electricity cost and emissions factor, any applicable carbon price or regulatory cost, the prevailing steel price, and increasingly, customer willingness to pay for lower-carbon steel. Together these determine what might be termed carbon-adjusted commodity economics – the idea that a nominally cheaper input can become less competitive once its embedded carbon cost is priced in, and vice versa.

Can HMS Become a Strategic Low-Carbon Commodity?

On balance, HMS 1&2 80:20 is likely to become more strategically relevant to steel decarbonisation economics – but its actual role will depend on physical availability and delivered economics, not on scrap's reputation as an inherently "green" material.

Future Outlook

Over the next five to ten years, several forces are likely to shape the strategic position of HMS 1&2 80:20: continued EAF capacity growth in both established and emerging steel markets; gradual improvement in scrap collection and processing infrastructure; rising vehicle scrappage volumes in markets such as India; evolving regional trade policy on scrap flows; expanding renewable electricity availability that could improve the realised carbon advantage of EAF steelmaking; the emergence of carbon pricing and carbon border mechanisms; growing (though still nascent) demand for verified lower-carbon steel; increasing use of DRI and, over time, hydrogen-based reduction alongside scrap; and the gradual adoption of carbon-adjusted procurement practices by steel buyers and OEMs.

Chart 2. Data shown are sample and illustrative unless otherwise stated. Scenario index values are illustrative constructs, not market forecasts, and are intended only to convey directional scrap-demand pressure under differing EAF expansion assumptions.

Research built for steel decarbonisation decisions

Questions of this kind – spanning commodity prices, carbon intensity, production economics, technology choice, supply-demand balances, trade flows, regulation and decarbonisation pathways – sit at the intersection of several disciplines that are rarely analysed together. ESIQ works with companies on this intersection, offering carbon-adjusted commodity economics, carbon intensity benchmarking, technology benchmarking, production-cost analysis, commodity price intelligence, supply-demand analytics, scenario analysis and broader decarbonisation intelligence.

These capabilities can help organisations evaluate:

1. 01Which steelmaking route is economically competitive under different carbon-price scenarios
2. 02How scrap availability could affect steel costs
3. 03How carbon intensity alters supplier competitiveness
4. 04What happens to delivered steel economics under different carbon prices
5. 05How EAF, DRI and hydrogen pathways could evolve
6. 06Where low-carbon steel could create competitive advantage