The economic conditions for extracting, refining and recycling so-called bulk metals, such as steel, copper and aluminum, and innovation-critical metals, such as rare earth metals, cobalt and graphite, differ. Policy measures aimed at strengthening the competitiveness of primary and secondary production hence need to be conformed with the specific market conditions. This means that any policy instruments aimed at strengthening the competitiveness of primary or secondary production need to be adapted to the respective market.

In this report, we chart the cost structure of primary and secondary production of steel and innovation critical metals and identify dominant cost types. This is the base for an assessment of the comparative advantages and competitiveness of the production. To analyze how existing economic instruments affect firms' incentives for resource efficiency and recycling, we quantify how environmental taxes affect operating costs and how public subsidies are distributed between the primary and secondary production.

Primary metals receive more support for research and innovation

During the period 2007–2022, primary metal production has received SEK 2.1–3.0 billion (probably close to three billion) in state aid, while secondary production has received SEK 0.5–1.4 million (probably close to half a million). Since the markets for primary and secondary metal production are roughly the same in terms of net turnover and number of companies, this means that primary production is favored over secondary. This picture is reinforced by the billions in aid in the form of state guarantees and subsidies for demonstration plants that have been decided or are under preparation for projects relating to steel production with hydrogen.

Raw material costs dominate for primary and secondary steel production

Sweden has a long history of extracting iron ore and steel production. At the same time, steel is now recycled to a very large extent. This indicates that primary and secondary steel production is profitable. Our analysis also shows that normalized output value is higher for primary metal production but value added is higher for secondary production. This is probably due to the fact that secondary producers produce in smaller volumes and can relatively easily switch production to profitable niche markets. Primary metal production and recycling of bulk metals are activities where the cost of raw materials dominates the cost structure. Production costs are also affected by environmental taxes (including energy taxes) and the EU ETS.

The free allocation in the EU ETS has meant that primary steel production has been able to realize an extra addition from unused emission allowance of an average of SEK 150 million per year. For secondary steel production, this amounts to SEK 8 million. An ever-higher price of emission permits has led to a sharp increase in the value of the unused allowances. The free allocation will disappear completely in 2034, creating stronger incentives for emissions from primary steel production to decrease.

Secondary steel production has benefited more than primary steel production from the sector's exemption from the energy tax on electricity. Secondary steel production is produced in electric arc furnaces that require electricity, while primary steel production is produced in blast furnaces that are more dependent on other energy carriers. Both primary and secondary production are completely exempt from energy tax on electricity. Production costs would only increase marginally if companies had to pay the same tax as other manufacturing industries pay today, i.e. 0.6 öre per kWh (which corresponds to the minimum level in the EU's energy tax directive). However, the significance would be greater if the tax on electricity consumption had been the same as for households (around 30 öre per kWh during the investigation period). Secondary steel production would then have an increased tax burden in the range of SEK 120–830 million per year, which can be compared with just over SEK 300 million per year for primary steel production. This corresponds to just over 2 percent of the total production costs for secondary steel and just over 1 percent for primary steel.

Recycling of innovation-critical metals is not profitable and personnel costs stand out

Extraction and recycling of innovation-critical metals and minerals has hardly occurred in Sweden, which makes it difficult to estimate production costs. However, gold and other precious metals are extracted in the recycling of electronic products. By analyzing the costs of these activities, we have tried to make an assessment of which types of costs predominate.

The cost of extracting metals and minerals other than iron ore in Sweden is dominated by other costs that include office rents, devaluations and current assets. The total cost of using recycled raw materials is calculated as the sum of the costs of collection, dismantling and recycling. Raw materials, merchandise and maintenance account for the largest share of the production costs for collection (around 45%) and recycling (over 60%), while personnel costs account for over 60% of the production costs of dismantling e-waste. However, we can expect both total costs and personnel costs to be higher if, for example, rare earth elements are recycled to a greater extent, as these metals are present to a much lesser extent in e-waste.

In a high-wage country like Sweden, it will be difficult to find profitability in recycling metals that are not quite so valuable and that only occur in small quantities in complex products. This applies to most innovation-critical metals and minerals.

Investment decisions and profitability are not just about production costs

Investment decisions and the profitability of a business are only partly dependent on the production costs that have been the focus of this analysis. The scaling up of an industry may result in a different cost distribution than the one we have mapped using historical costs. Demand and other factors affecting supply are also decisive for investment decisions, such as the high volatility of metal prices and the difficulty of obtaining environmental permits for mining activities. These factors are described in more detail in two of our previous reports (Growth Analysis 2021a; Growth Analysis 2021b).