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Green steel costs high in Europe with hydrogen, user preferences key

Highlights

Carbon prices also key

DRI plants to increase: IIMA

London — Low-emission steelmaking costs in Europe remained high in 2020, based on high iron ore pellet prices and green hydrogen cost assumptions, with potential for natural gas-based direct-reduction iron improving on lower gas prices, according to an S&P Global Platts analysis.

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EU market carbon prices last year averaging around Eur24.50/mt ($30.08/mt) were not high enough to significantly narrow cost differences between blast furnaces and DRI. Major raw materials inputs for blast furnace-based steel, accounting for around 2.2 mt of carbon per ton of steel, were far lower than theoretical DR iron ore pellets and renewables-based green hydrogen for DRI.

Even with far higher carbon prices, a sizable cost gap remains, leading to a discussion on government support and mechanisms enabling green steel works and energy infrastructure to get off the ground.

This was based on Platts prices for steel raw materials and energy assessments in the Netherlands, which is a major receiver of coal and iron ore.

Blast furnaces use met coke as the main reductant energy, with low coking coal prices last year helping mitigate higher iron ore costs.

Natural gas prices in the Netherlands were particularly low last year between April through July on lower global industrial activity during the height of the coronavirus pandemic, with manufacturing and services adapting to the initial wave with falls in demand.

HYBRIT

Ferrous scrap-based electric arc furnace plants were supported by low power prices and weaker continental European scrap prices in mid-2020.

Lower gas and power prices helped pull down DRI cash costs for processing by electric arc furnaces. ArcelorMittal operates the region's only commercial natural-gas based DRI plant in Hamburg, while SSAB and LKAB's HYBRIT pilot green hydrogen DRI plant operates in Sweden.

New DRI plants are expected to boost demand for iron ore pellets, with up to 13.8 million mt/year of DRI reliant on seaborne pellets coming on stream by 2030, including projects from Salzgitter and ThyssenKrupp, according to December estimates from the International Iron Metallics Association.

Existing DRI plants run on natural gas and thermal coal, and are mainly in the Middle East and North Africa, India, Russia and in the Americas region. A lack of lower cost gas supply in western Europe has so far limited DRI plants, even though new projects are mulled in Italy, Romania and Germany, even if they transition to hydrogen in future.

Most of the new DRI capacity outlined by IIMA is in Europe and North Africa, with China's HBIS producing 600,000 mt/year later this decade.

According to the International Energy Agency's steel carbon emission data published in October 2020, blast furnace-based steel accounts for around 2.2 mt of total emissions per ton of steel, with natural-gas based DRI and EAF steel comprising 1.4 mt in total emissions, and ferrous scrap-based EAF at 0.3 mt of total emissions.

Steel emissions are dependent on raw materials qualities and preparation, and energy origin through the chain, complicating benchmarking.

Combinations and overlapping usage of metallics and scrap with pig iron in the integrated route and EAF may be adopted, both to lower emissions and test scenarios for bigger changes to operations.

Hydrogen

Platts publishes global hydrogen prices, and in the Netherlands assesses PEM Electrolysis hydrogen, Prices are based on the cost of hydrogen, and a separate series including the higher costs of including fixed capital, operating and water costs, and the variable feedstock cost of electricity.

Even with lower electrolyzer capital costs in the future, the impact on hydrogen's price competitiveness may be limited longer-term compared with fossil-fuel based gray hydrogen or blue hydrogen, which relies on carbon capture and storage, and with natural gas.

While green steel production costs look much higher than existing DRI, EAF and blast furnace routes, even with higher prices for carbon, the price premium commanded for low- and zero-emission steel product sales may need to be evaluated.

Benchmarking green steel and metal prices and premiums by the costs via each steelmaking or smelting route, as well as supply and demand for such steel and aluminum products, is underway.

ArcelorMittal, Salzgitter, Rusal and GFG Alliance/Liberty Steel are among companies commercializing low-emissions metals.

Markets are evolving where increasingly there is a metals and energy procurement motive for overall emission reduction goals. A shift away from a sole focus on markets-based supply by cost with power and carbon prices may be seen.