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Commodities 2022: Green steel transformation gathers pace

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Commodities 2022: Green steel transformation gathers pace

  • Author
  • Annalisa Villa
  • Editor
  • Justine Coyne
  • Commodity
  • Coal Electric Power Energy Transition Metals
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  • United States
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  • Commodities 2022 Energy Transition

The shift towards "green steel" production is set to be an increasingly key theme for the steel industry in 2022, as countries and steelmakers compete and cooperate in the race to transform an industry that currently accounts for some 7% of global CO2 emissions.

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With governments increasingly requiring, and offering support for, decarbonization of industry, and with the major consumers of steel products -- the automotive, construction and white goods industries – demanding more zero-carbon steel products, the market for green steel is developing rapidly.

A number of projects have been launched in recent years, and more are likely to emerge in the coming year and beyond. In Europe, 60% of total EU steel output is still produced via the conventional, coal-dependent blast furnace-basic oxygen furnace (BF-BOF), while the remainder is produced using ferrous scrap or direct reduced iron as the main raw material in an electric arc furnace (EAF).

Expansion of green steel production can be achieved basically either by replacing coking coal with green hydrogen in the BF-BOF route, or by increasing the share of scrap-based EAFs using renewable electricity.

Scrap flows

One consequence of an increase in EAF-based production is likely to be greater restrictions on scrap flows as countries look to discourage exports of the valuable raw material, and more moves like Ukraine's recent decision to triple the customs duty on steel scrap exports can be expected.

The European Commission in November published its long-awaited proposal on waste regulations, which did not propose a blanket ban on exports from the EU – collectively the largest exporter in the world – but did recommend stopping scrap exports to non-OECD countries that do not meet EU processing standards.

Europe is aiming to be the frontrunner in cutting heavy industry pollution with the aim to achieve net-zero carbon emissions by 2050 and most of its steelmakers are developing decarbonization strategies and running pilot projects to assess different production technologies.

Europe's largest steel producer ArcelorMittal started to offer its first green steel solutions to customers in 2020, and will continue to scale up its offering in 2022 as it aims to deliver a 30% CO2 emissions reduction by 2030, and achieve net-zero by 2050.

Sweden is a frontrunner driving the transformation to green steel through two projects, Hybrit and H2 Green Steel.

Swedish steelmakers SSAB and LKAB and utility Vattenfall created Hybrit, or Hydrogen Breakthrough Ironmaking Technology, in 2016 with the goal of developing a technology for fossil-free iron and steelmaking. The project produced its first steel in late 2021 and aims to be supplying the market with zero-carbon steel at a commercial scale by 2026, after the conversion of SSAB's Oxelösund BFs into an EAF.

The H2 Green steel, or H2GS, project will see the construction of a greenfield steel plant in northern Sweden, including a green hydrogen plant as an integrated part of the steel production facility. Production is planned to start in 2024 and rise to 5 million mt/year of high-quality steel by 2030.

In October, German steel stockholder Klöckner signed a distribution deal with H2GS to distribute up to 250,000 mt/year of green steel from 2025 to meet the expectations of customers pressing for a lower emissions supply chain.

Paying the premium

More deals between green steelmakers and buyers are expected in 2022 and onwards, as well as steel buyers becoming financial partners in green steel ventures to help meet the costs of the new technologies.

Due to the high cost of green steel technologies, steel mills are likely to seek government funding, as well as introduce extra charges to finance the higher production and equipment costs on the path to decarbonization. Surcharges are expected to become part of the new cost structure of green steel, which is expected to price at a premium to conventional steel.

Swedish special steel producer Ovako said that from January 2022 it will introduce a "climate surcharge" to support initiatives and new technology investments as its production goes carbon-neutral from January 2022.

Explore this topic: Commodities 2022

International agreements

Meanwhile, inter-governmental deals will be a key driver of decarbonization efforts.

At the COP26 climate conference in Glasgow in November, the UK, India, Germany, Canada and UAE committed to support new markets for low carbon steel, cement and concrete. The countries pledged to achieve net-zero in major public construction steel and concrete by 2050, with specific interim targets for 2030 due to be agreed by mid-2022.

Perhaps more significantly, Europe and the US agreed at the end of October, just ahead of the COP26 conference, to end the steel and aluminum tariffs brought applied in 2018 under the Trump administration. The new agreement not only ended trade friction between political allies but also will allow them to address steel overcapacity.

European steel association Eurofer welcomed the arrangement between the US and the EU, describing it as potentially an important step towards a globally decarbonized industry.

"We welcome the announcement of the agreement which could be the starting point of a new, transatlantic partnership tackling global trade distortions and climate change together, addressing the inter-linkage between both," European steel association Eurofer said.

"State-supported steel production and capacity built with CO2 intensive technologies contribute significantly to climate change... The arrangement between the US and the EU is therefore the first important commitment towards a global, market-based and decarbonized industry."