Steel scrap has been recycled and heat-treated as a potential raw material for the synthesis of hematite-based ceramic pigments for the ceramics industry. Hematite is one of the most important types of iron ore, particularly in Brazil, the major producer of iron ore in the world. XRF analysis reveals that the steel scrap is composed of the main metals also present in the initial steel composition, a smaller amount of SiO2, and iron oxide as the predominant mineral. The DTA and the TGA of the steel scrap reveal a weight increase of 6.7% between 200 and 850°C, which is attributed to the reactions of oxidation and reduction of iron oxide. Steel scrap is successfully converted to iron oxide (hematite) by controlled thermal treatment with oxygen-gas injection. The hematite exhibits a dark-red color and a particle size distribution that are able properties for it to be used as a chromophore for encapsulation in the production of ceramic pigment for the ceramics industry.