SHANGHAI - German steel recycling firm Cronimet Group on Friday inaugurated a plant in Shanghai in a bid to tap into China's potentially huge scrap steel market.

The 54,000 sq m warehouse, located in the city's Baoshan district, involves a total investment of 15 million euros. It is Cronimet's first plant in Asia and the company's biggest. Its annual production capacity is expected to reach 250,000 tons, according to Joachim Pilarsky, managing director of the company.

"Our Chinese clients include leading steelmakers such as Shanghai-based Baoshan Iron & Steel Co Ltd and Taiyuan Iron & Steel (Group) Co Ltd of Shanxi province," Pilarsky said.

Saving time and money compared to iron ore, steel scrap skips the smelting process.

According to Pilarsky, scrap metal recycling can be a good substitute to iron ore in steel production, and its ratio in steelmaking is increasing worldwide.

"In Europe and America, three-quarters of stainless steel is made from scrap. Not only does this reduce carbon dioxide emissions by up to 20 percent, but it also saves 10 percent in cost compared with iron ore," he said.

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Being the world's largest steel producer and user, China relies heavily on iron ore. In China, most steel is made from primary raw materials.

"China is in the very early stage of steel recycling, the development of which will greatly ease the country's demand for iron ore, and also lower steel production costs substantially," said Lu Fuzhen, consulting manager with Lange Steel Shanghai, a steel information provider.

Less than 20 percent of steel in China is currently made from scrap metal, and almost all of this is imported from overseas, said Lu.

In 2009, China produced 560 million tons of steel, accounting for 40 percent of the world's total and 80 million tons of scrap metal was consumed during the same period, worth 200 billion yuan.

With the development of recycling technology, this ratio will increase too, said Yan Qiping, secretary-general of China Association of Metal Scrap Iron Utilization.

Worldwide, Cronimet processes 1 million tons of recycled steel annually, which accounts for 13 percent of the global total. It set up an office in Shanghai in 2005.