transforming materials management for the 21 century · the emergence of 3 billion middle-class...
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Transforming materials management for the 21st
Century
January 2012
CONFIDENTIAL AND PROPRIETARYAny use of this material without specific permission of McKinsey & Company is strictly prohibited
McKinsey & Company 1|
Commodity prices have increased sharply since 2000, erasing all the declines of the 20th century
40
60
80
100
120
140
160
180
200
220
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260
1970 201122000199019801960195019401930192019101900
World War I
Post-warDepression
Great Depression
World War II
1970’soil shock
McKinsey Commodity Price Index (years 1999–2001 = 100)1
1 Based on arithmetic average of 4 commodity sub-indices of food, non-food agricultural items, metals and energy. 2 2011 prices based on average of first eight months of 2011.
SOURCE: Grilli and Yang; Pfaffenzeller; World Bank; International Monetary Fund; Organisation for Economic Co-operation and Development statistics; UN Food and Agriculture Organization; UN Comtrade; McKinsey analysis
McKinsey & Company 2|
The emergence of 3 billion middle-class consumers will fuel future demand
Global middle class1
Billions of people
Middle East and North Africa
Sub-Saharan Africa
2030
3.23Central and South America
4.88
3 billion
Asia-Pacific
North America
Europe
0.68
0.32
0.310.23
0.11
2020
3.25
1.74
0.70
0.33
0.250.170.06
2009
1.85
0.53
0.66
0.340.18
0.11 0.03
1 Based on daily consumption per capita ranging from $10 to $100 (in purchasing power parity terms)SOURCE: OECD
McKinsey & Company 3|
Incomes are rising in developing economies faster—and on a greater scale —than at any previous point in history
SOURCE: Angus Maddison; University of Groningen; McKinsey analysis
1 Time to increase per capita GDP (in PPP terms) from $1,300 to $2,600.
9
22
28
822
10
1,023
48
Country
Population at start of growth periodMillion
Years to double per capita GDP1
65
1700 1800 1900 2000
16
Germany
12China
India
United States
United Kingdom
33
53
154
South Korea
Japan
16
Year
McKinsey & Company 4|
0
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16
0
1
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20060504030201200099981997
Replenishing reserves of materials is increasingly difficult and expensive
SOURCE: BHP Billiton; US Geological Survey; MEG Minerals 2009
1 All metal and mining materials; latest data available to 2006.
Despite increasing exploration spend, discoveries are increasingly rare
Number of ore discoveries1
Exploration expenditure$ billion, real
World-class
Major
McKinsey & Company 5| 5
Examples of declining resource quantity/quality – iron ore and copper
84
99
111116
-2% pa
2020201520102006
Known reserves are depleting rapidly
Rich iron ore equivalent – proved reservesBn tons
Average copper grade%
Average grades are declining, driving up costs
0.50
0.55
0.60
0.65
2006 2008 2010 2012 2014 2016 2018 2020
-1% pa
Sources: U.S. GS; BHP Billiton; Brook Hunt; McKinsey 2008; global copper supply model
McKinsey & Company 6|
But there are also unexpected pockets of value
Concentration of goldppm
500
180
60
High grade PCB
Low grade PCB
Med Grade PCB
In ore
<10
TVs,
printers
PCs,
laptops
Mobile
phones
▪ Gold is highly concentrated in electronics:
– 1 ton of motherboards ~$16k
– 1 ton of ore $290
ELECTRONICS EXAMPLE
McKinsey & Company 7|
Parts manufacturer
Product manufacturer
Service provider
Biological nutrients
Technical nutrients
Consumer User
Landfill
Biosphere
Farming, collection
Leakage – to be minimized
Energy recovery (other)
Energy recovery
Recycle
Refurbish/remanufacture
Reuse/redistribute
Maintenance
Anaerobic digestion/
compostingCollectionCollection
Mining/ Materials manufacturing
There is a strong need to reframe materials management - to shift from “waste management” to “capturing value” from resources
SOURCE: McKinsey & Company
McKinsey & Company 8|
For example, e-waste recycling is poised to experience significant growth
Recycled vs. overall e-waste1
Percent
E-waste recycling still limited today, suggesting an untapped pool of value
1.1
1.3
1.4
1.6
1.9
2.1
0.5
0.5
0.5
0.5
0.6
0.6
0.2
+19% p.a.
2013E
8.8
1.0
2.2
2.8
12E
7.5
0.7
1.8
2.5
11E
6.1
0.5
2.1
10
5.1
0.4
1.1
1.7
09
4.2
0.3
0.8
1.4
2008
3.6
0.6
1.2 1.4
Global e-waste recycling revenue2
USD Billion
7279 82
100%
USA
18
EU
21
Japan
28
Recycled
Not recycled
Growth is likely to accelerate, especially in China but also in Europe and other parts of the world
1 Includes video products, audio products and telecommunication equipment2 Assumes recycling fee for PC: $10~18, Cell phone: $8~9, TV: $15~25 (depending on the regions); logistic fee for PC/TV: $14 in US, $9 in Japan and
Europe. $0 shipping cost for cell phones
SOURCE: EPA; IAER; Literature research; McKinsey analysis
Japan
USA
W.Europe
ROW
China
CAGR 08-13Percent
6
13
19
29
38
E-WASTE EXAMPLE
McKinsey & Company 9|
There is significant value that can potentially be captured from electronics
▪ There is a large store of gold in electronics– ~300M mobile phone subscribers in US = 11 tons of
gold = ~$500 M– 5B mobile phone subscribers worldwide = 170 tons
gold = $8.7B– Global gold production (2009) = ~2000 tons
▪ Gold mining has environmental burdens– 1 gram of gold = 300 - 700 tons of mine tailings– 252,000 tonnes of cyanide used annually in gold mining
McKinsey & Company 10|
Gold is just one of several precious metals used in electronics
1 Based on London Exchange Nov 2011
SOURCE: Yu et al., Review and prospects of recycling methods for waste PCBs (2008): Kamberovic et al., Hydrometallurgical process for extraction of metals from e-waste (2009); Hageluken, Improving metal returns and eco-efficiency in e-recycling (2006)
PCB EXAMPLE
180ppm 750ppm80ppm 20% 5% 1% 5% 3% 7%
Medium grade100% = $15.6k1
Wt:
5
7
10
11
100
64
Au Cu Al TotalSnAg FePd Ni Pb
0011
▪ PC-boards▪ Laptop
computers
$/tonPercent
McKinsey & Company 11|
Material recovery is most profitable element of e-waste recycling, though some players vertically integrate to access waste feedstock
Description
Collecting Disassembling Material Recovery
Example companies
Collect obsolete electronic products from end-consumers
Dismantle electronic products into parts
Recover plastics and metals from disassembled e-waste parts1
Location Local Local Developing countries, e.g., China, India, Southeast Asia
Margin rate 5% 3-5% 10-15%
1 Major metals recovered include platinum, gold, copper, palladium, sliver, tin and lead2 Consumer brings obsolete e-products back to retailers, in return for special discount or coupon for purchasing a new e-product
McKinsey & Company 12|
(15%)
The real trick is to harvest the superior (business and national) economics of circularity, not optimizing at the tail end
Landfill & unaccounted 161 (85%)
Mining
End of life 189 (100%)
1 Basic mobile phones include low-cost phones and basic communication devices as defined by Gartner (excl. smartphones)
SOURCE: Gartner, EPA, Eurostat, McKinsey, UNEP
Parts manufacturer
Product manufacturer
Service provider
Collection 29
ROUGH ESTIMATE –E-WASTE EXAMPLE
11(6%)
18(9%)
User
0
Maint-enance
(50%)Landfill & unaccounted95 (50%)
Mining
Parts manufacturer
Product manufacturer
Service provider
Collection 95
36(19%)
20(11%)
39(21%)
Maint-enance
User
Status Quo
Recycle
Remanu-facture
Reuse
Recycle
Remanu-facture
Reuse
End of life 189 (100%)
End-of-life mobile phone1 flows based on 2010 EU figuresMillion (Percent of total EoL devices)
Improved state
McKinsey & Company 13| 13
Generation
Present systems for municipal waste management do not focus on turning waste into a value center
▪ 8.9mn inhabitants and 4mn floating population generate residential waste
▪ 1,355 companies and industries generate industrial waste
▪ 12,000 formal workers in charge of cleaning streets and collecting waste
▪ 5,000 volunteer workers help formal process
▪ 222 workers involved in transfer process
▪ 190 companies paying rights to deposit waste directly
▪ 3,000 unionized workers selecting and classifying waste
▪ 126 workers needed for final landfill disposition
$150mn of
potentially recyclable materials enter the system, but this amount is not recovered because of fragmented and sub-optimal systems
$30mn for the sale of recyclables by
informal workers and volunteers causing financial loss to the city
A substantial amount siphoned off for sale by union workers
$90mn of
potentially recyclable materials disposed in landfill
Collection Transfer Selection Disposal
MUNICIPAL WASTE MANAGEMENT EXAMPLE