Green steel price premiums are likely to be linked to carbon market prices, participants in a webinar on prospects for the green steel market organized by the Brazilian Association of Metallurgy, Materials and Mining (ABM) said May 31.
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Price premiums paid in the future for green steel products should help finance steelworks' installations of new technologies to be able to produce that carbon-neutral green steel. However, government financing or subsidies – for instance to help cover the costs of natural gas in Brazil – may still be needed to produce green steel cost-effectively, some webinar participants said.
"(Green steel) premiums will be at the level the market wants to pay," said Guilherme Abreu, general manager for sustainability at ArcelorMittal Brasil. "If this is very high it will be inflationary, and there's likely to be an accommodation over time. The higher the demand for green steel grows, the higher the premiums will be," he said.
"Premiums will be linked with carbon prices.... and the cost of decarbonization projects such as CCS .... Carbon prices will be the yardstick," Abreu said.
One great challenge is that carbon markets operate differently in different countries, Abreu said, noting that introduction of a formal carbon market in Brazil is "inevitable, although this will be different from the one practiced in Europe."
The Brazilian government in May 2022 launched proposals for the introduction of a formal carbon market. Brazil already has a flourishing voluntary carbon market, based on forests and forestry schemes.
Sandro Raposo, director of sustainability and new business at Aço Verde Brasil, a carbon-neutral steel producer in Brazil's Maranhao state, said that green steel will cost more in the market due to its higher production costs. No formal premium yet exists, but rather agreements with customers, as the market for green steel is still small and fragmented in Brazil.
"This is really incipient and will be related to carbon market pricing, influenced by regulations including the EU's Carbon Border Adjustment Mechanism, which will be officially in force in 2030," Raposo noted. More public policies are needed to support the emergence of green steel production in Brazil, where conditions exist to make this a viable activity, he said.
AVB, a company which according to Raposo "was born green", is an integrated works using biomass and a furnace powered by renewable energy. It currently produces 600,000 mt/year of products and emits 20 kilograms of carbon/metric ton of steel produced – 80 times less than the steelmaking world average - which means it can be considered carbon neutral, the company director said.
Brazil's renewable energy
Raposo highlighted the advantages of Brazil as a green steel production location due to the high ratio of renewable energy in its overall network, which is considerably higher than the world average.
"A new industrial evolution is occurring, silently, with companies starting to move country continent to find places to produce, and many are coming to Brazil," he said.
Last year international tubemaker Vallourec announced it was transferring a tubes plant from Germany to Brazil to reduce costs and its carbon footprint. It is also closing facilities in France and the UK. Major steelmaker ArcelorMittal has steadily increased its presence in Brazil in recent years, including with its recent acquisition of slabmaker Companhia Siderurgica Pecem in Ceara state, where downstream expansion is now being considered.
Luiz Nagata, CEO of Brazilian "green" pig iron producer Vetorial Siderurgia, which supplies to Japanese steelmakers, agreed that government policies are needed to support green steel production in Brazil, including with natural gas costs. Banks abroad have put up financing more willingly to finance exports of green pig iron than Brazilian institutions, he noted.