Powder technology can be used for solid state recycling of metallic waste (e.g. iron oxide as forging scales in the forge shop and grinding sludge from the machine shop). Whereas recycling of such shop floor waste by melting and landfill are well known, that by powder metallurgical process has not received significant attention in published literature. The present work attempts to fill this gap. Initially, waste material (forging scale and grinding sludge) was separately pulverised using ball mill to obtain the respective powders. For carbothermic reduction, graphite (powder of particle size < 5 mu m) was homogeneously mixed with the two oxide powders. Each of the two mixtures was compacted in a die into a number of pellets. These were sintered for in-situ reduction of the metallic waste. The effect of the source of powder (grinding sludge or oxide scale), quantity of reducing agent cum lubricant, i.e., graphite powder, compaction parameters such as compaction pressure, compact weight and sintering parameters such as sintering temperature and time on reduction and densification characteristics were analysed using Taguchi based experimental design. The results showed significant effect of graphite content and sintering temperature on the degree of reduction and densification. The source of scrap was found to be important since samples from grinding sludge showed higher reduction and densification than forging scale. The analysis of variance was used to establish the individual effects and interactions like that between source of scrap and graphite addition. This was found to contribute most towards degree of reduction and densification. It was found that degree of reduction alone does not necessarily guarantee high degree of densification. (C) 2014 The Society of Powder Technology Japan. Published by Elsevier B. V. and The Society of Powder Technology Japan. All rights reserved.