Availability of feedstock, low-carbon fuel a concern for green steel industry

The steel industry may struggle to find enough low-carbon fuels and high-quality feedstocks to effectively reduce emissions, industry executives and analysts said during the 2024 Global Steel Dynamics Forum in New York this week.

The steel industry is responsible for about 2.8 gigatons of CO2 emissions per year, the International Energy Agency said in an April 2023 report. The sector is not on track to meet net-zero targets by mid-century, and it would need to reduce emissions by about 25% by 2030 to get on track, the IEA said in a September 2023 report.

Steel producers have traditionally used coal to power the blast furnaces used in the process. The most common production methods to lower emissions include using natural gas or hydrogen as a reductant, using direct reduced iron and scrap as feedstock, and switching to 100% recycled steel using electric arc furnaces (EAF).

The strong push to decarbonize the industry and scale to meet growing demand will drive shortages in the fuels and inputs needed to produce low-carbon or "green steel", industry participants said during the event June 17-18.

"There is no silver bullet. There are going to be multiple, multiple approaches taken to meet our climate change aspirations as were dictated in the [Paris Agreement on climate change]," John Bianchini, CEO of Hatch, said during a conference panel. Hatch is a consulting firm working in the metals, energy and infrastructure sectors.

"The elephant in the room [is], 'Where do you get the access to your iron ore units?'," Bianchini said, before musing about fuels. "We are really down to hydrogen and natural gas as a reductant before we get to pure electricity. We really have to look forward to where the natural gas and hydrogen is likely to appear."

Direct reduced iron is one of the feedstocks used in the steelmaking process, and one of the concerns facing the industry.

"The big question becomes about the long-term availability of high-quality iron units to feed your EAF," Bianchini said.

From junkyard to industry spotlight

Steel is infinitely recyclable without losing its key characteristics. Using scrap steel means the energy source for the EAF becomes the primary source of new emissions. But growing demand for scrap will make the market for the feedstock tight, analysts said.

"With the new scrap demand coming from new EAF capacity, scrap costs could go higher," Timna Tanners, managing director and senior analyst at Wolfe Research, said during an analyst roundtable.

"Someone is not going to have enough scrap," Lucas Pipes, managing director at B. Riley Securities, said during the session.

The availability of scrap supply will depend on the region of the steelmaking operations, John Lichtenstein, managing partner at the World Steel Dynamics consulting firm, said during a keynote speech.

"Scrap has become a very hot geopolitical topic and emblematic of the global north/global south debate," Lichtenstein said. "The global north advanced economies have a surplus of scrap. .... The developing south has a scrap shortage."

In the short term, scrap prices have been down since the start of 2024. The Platts assessed No. 1 busheling price was $395/lt delivered to the US South as of June 20, decreasing by 19.4% compared to $490/lt on Dec. 29, 2023, according to S&P Global Commodity Insights data.

Cleaner fuels

Using cleaner fuels in both blast and shaft furnaces is the most common alternative for reducing emissions when making higher quality steels that cannot be made using scrap.

But the supply of "green hydrogen," which is produced using renewable energy and would provide the highest amount of emission reductions, may be tight, executives added.

"At some stage we will get to renewable hydrogen in the future. My view — it's going to be after 2030," said Sanjiv Lamba, CEO of Linde, an industrial gases and engineering company.

Lamba said green hydrogen faces three major challenges: technology immaturity, poor cost competitiveness and a lack of renewable energy.

These limitations could drive up the cost of green steel, and producers will need to collect a premium for the product, analysts and industry players said.

"To decarbonize costs a lot of money ... to produce a green steel in Europe costs, more or less, 50% more than present steel production," said Mario Caldonazzo, CEO of Finarvedi, an Italy-based steel producer.

"The only way is to get a premium from green steel, otherwise it's impossible to survive," Caldonazzo said.