Malaysia’s aspiration to reduce steel raw material consumption by 5% by 2027 reflects the nation’s growing commitment to sustainable resource management and circular economy development. However, with current achievement standing at only 1.62%, considerable efforts are required to bridge the gap and accelerate progress.
The steel sector is one of the most resource-intensive industries. Through the adoption of circular economy principles, steel manufacturers can significantly reduce dependence on virgin materials while simultaneously improving environmental performance and strengthening ESG outcomes.
The Malaysian Steel Institute (MSI) has played an important role in encouraging steel manufacturers to adopt cleaner technologies such as electric arc furnaces (EAF), improve energy efficiency and increase the use of recycled steel scrap. It also organises training programmes, workshops and industry dialogues to raise awareness of green manufacturing practices and ESG principles.
Having attended the MSI’s Steel Industry 101 training, I was inspired by the significant potentials of the steel industry to advance circular economy principles. Building on these insights, I plan to design and develop a “Circular Economy in the Steel Awareness” training module for Malaysian Green Tech and Climate Change Corporation (MGTC) Learning and Education Training Programme this year.
One of the key challenges that will be addressed is the steel industry’s continued reliance on conventional steelmaking technologies, which are inherently carbon-intensive. In addition, replacing existing steelmaking facilities requires substantial capital investment, making the transition to low-carbon production a significant challenge.
Increase scrap steel use
Among the most effective strategies for reducing raw material consumption is the increased utilisation of recycled steel scrap.
Steel possesses a unique characteristic that distinguishes it from many other industrial materials: it can be recycled repeatedly without significant deterioration in its mechanical properties or quality. This inherent recyclability makes steel an ideal material within a circular economy framework.
In Malaysia, substantial volumes of steel scrap are generated through construction activities, manufacturing processes, end-of-life vehicles, household appliances and industrial equipment replacement. However, a significant proportion of this valuable resource remains underutilised due to inefficiencies in collection, sorting and recovery systems.
Enhancing scrap recovery infrastructure and encouraging greater use of recycled steel can substantially reduce the demand for virgin iron ore and metallurgical coal.
Beyond resource conservation, increased scrap utilisation contributes to lower energy consumption, reduced greenhouse gas emissions and decreased environmental impacts associated with mining activities.
Expand EAF production
The transition towards EAF technology represents another critical pathway for reducing raw material consumption within the steel sector. Unlike conventional blast furnace operations, which depend heavily on iron ore and coke as primary inputs, EAF systems primarily utilise recycled steel scrap as feedstock.
The expansion of EAF capacity within Malaysia would allow steel producers to increase the proportion of recycled materials used in production while reducing dependence on newly extracted resources. This shift aligns closely with circular economy objectives by transforming waste materials into valuable production inputs.
Furthermore, EAF technology offers substantial environmental benefits. When powered by renewable electricity, EAF production can achieve significantly lower carbon emissions compared to traditional steelmaking methods. While Malaysia continues to develop its renewable energy sector, particularly through solar energy initiatives, the integration of clean electricity into EAF operations can further enhance the sustainability of domestic steel production.
Promote circular design
Reducing raw material consumption requires interventions not only at the production stage but also during product design. Circular economy principles emphasise the importance of designing products and structures that maximise material efficiency throughout their entire lifecycle.
In Malaysia, the construction industry represents one of the largest consumers of steel products. Therefore, incorporating circular design principles into building and infrastructure projects can significantly reduce future demand for virgin materials.
Buildings designed using modular steel components, for example, allow materials to be recovered, reused or refurbished at the end of a structure’s life rather than being discarded as waste. Similarly, standardised steel components can facilitate future reuse across multiple projects, extending material lifespans and preserving resource value.
By embedding circularity at the design stage, industries can shift from a consumption-based model towards a regenerative system that minimises resource extraction while maximising material utilisation.
Enhance industrial material efficiency
Another important strategy for reducing raw material consumption involves improving material efficiency within manufacturing operations. In many industrial processes, significant quantities of raw materials are lost due to production inefficiencies, defective products, off-cuts and waste generation.
The adoption of Industrial Revolution 4.0 technologies offers opportunities to address these inefficiencies. Advanced data analytics, artificial intelligence, digital monitoring systems, predictive maintenance and automated production planning can optimise material usage throughout the manufacturing process. By improving process precision and minimising waste generation, manufacturers can achieve higher output using fewer resources.
Material efficiency improvements generate both environmental and economic benefits. Reduced material consumption lowers production costs while simultaneously decreasing the environmental footprint associated with resource extraction and processing.
Enhance steel recovery
A fundamental principle of the circular economy is ensuring that materials remain within productive use cycles for as long as possible. Achieving this objective requires effective systems for recovering steel products at the end of their useful lives.
In Malaysia, large quantities of recoverable steel are generated from demolished buildings, decommissioned industrial facilities, obsolete machinery and end-of-life vehicles. However, recovery rates are often constrained by fragmented collection networks, inadequate sorting facilities and inconsistent recycling practices.
Enhancing end-of-life recovery systems would enable more steel products to be diverted from landfills and returned to manufacturing cycles. Investments in advanced recycling infrastructure, automated sorting technologies and improved waste collection systems can significantly enhance material recovery rates.
In addition, policy measures such as mandatory construction waste segregation and extended producer responsibility schemes can further improve resource recovery outcomes. By retaining valuable materials within the economy, end-of-life recovery systems reduce the need for virgin resource extraction and support the long-term sustainability of the steel sector.
Develop circular supply chains
The successful implementation of circular economy principles extends beyond individual companies and requires collaboration across the entire value chain. Circular supply chains seek to maximise resource circulation by facilitating the continuous movement of materials between manufacturers, suppliers, recyclers, contractors and end users.
Within the Malaysian steel industry, circular supply chains can be developed through scrap exchange platforms, closed-loop recycling agreements, industrial symbiosis initiatives and collaborative resource-sharing networks. Such arrangements enable waste materials generated by one organisation to become valuable inputs for another, thereby reducing overall resource consumption.
The development of circular supply chains also enhances supply chain resilience by reducing dependence on imported raw materials and mitigating exposure to global commodity price volatility. As resource security becomes an increasingly important concern, circular supply chains provide a strategic mechanism for strengthening both economic and environmental sustainability.
Policy support and green financing
Government policies and financial incentives are essential for accelerating circular economy adoption within Malaysia’s steel industry. Measures such as tax incentives, grants for recycling infrastructure, recycled-content requirements and sustainability reporting frameworks can encourage greater industry participation in resource-efficient practices.
Equally important is the role of financial institutions in facilitating the transition towards circular and low-carbon steel production. Investments in recycling technologies, EAF facilities, renewable energy integration and advanced material recovery systems often require significant capital expenditure. Financial institutions can support these investments through green financing instruments such as green loans, sustainability-linked financing, green bonds and transition finance mechanisms.
By incorporating ESG considerations into lending and investment decisions, banks and investors can encourage steel manufacturers to adopt circular economy practices and improve sustainability performance. Preferential financing terms for companies that achieve resource efficiency targets, increase recycled material usage or reduce carbon emissions can further incentivise industry transformation.
In addition, financial institutions play a critical role in evaluating climate-related risks and supporting businesses in their transition towards more sustainable operating models. Through responsible financing strategies, they can channel capital towards projects that contribute to Malaysia’s circular economy objectives and national sustainability commitments.
The combined efforts of government policies and financial sector participation create an enabling ecosystem that supports innovation, resource efficiency and green steel development. This not only accelerates progress towards Malaysia’s raw material consumption reduction target but also strengthens corporate ESG performance and long-term industrial competitiveness.
