The steel industry is under pressure to rapidly decarbonise. Amidst rising demand from industrials, steel producers will need government support.
Boyden's perspectives on the news and trends that are transforming industries
Demand for steel has grown by record amounts in the past few years, and the World Steel Association (WSA) projects another 2.2% increase this year. Steel-hungry buyers in construction, automotive and many other industrial sectors fret over shortages. Apart from these vexing issues, the steel industry is having to come to terms with its heavy carbon footprint. Steel production accounts for as much as 10% of global carbon emissions, and pressure to decarbonise is mounting.
Steel producers in Europe face the most pressure—from customers with climate goals of their own, particularly in automotive, as well as regulators, investors and the public. Moreover, most of Europe’s steel plants still use conventional coal-dependent blast furnaces. Nearly all producers are evaluating decarbonisation strategies including cleantech options. Some plan to replace aging systems with electric arc furnace (EAF) plants, which use steel scrap or direct reduced iron (DRI), and can run on hydrogen and renewable energy.
The world’s second-largest steel producing company, ArcelorMittal, and specifically CEO Aditya Mittal, is under more pressure than most to lead the shift: Half of the sprawling steel and mining company’s revenues come from Europe. Charged with the mammoth goal of transforming the steel industry, Mittal will need a “vast infrastructure of hydrogen and carbon capture to emerge from nowhere to achieve his ambitions”, according to The Economist, as well as a market for more expensive “green steel”.
There are several things working in ArcelorMittal’s favour. Lakshmi Mittal, the founder, former CEO and current executive chairman, years ago purchased mini-mills in various parts of the world that use DRI pellets and EAFs. It also has three low-carbon DRI-EAF projects underway in Europe and Canada. EAF-based steel production in Europe is marginal, but growing, and could become dominant in the next 10 years. Sweden is at the forefront, with Swedish firm SSAB producing the world’s first fossil-free steel.
The economics of transitioning steel production at industrial scale underscore the challenge: McKinsey cites recent studies estimating that “the global steel industry may find approximately 14% of steel companies’ potential value is at risk if they are unable to decrease their environmental impact.” Yet decarbonisation will be costly. McKinsey estimates that it will require annual investments of $145 billion on average for the next 30 years, and the cost of production could increase by up to 30%.
It is widely held that rapid decarbonisation can only be achieved with government support for capital investments in cleantech. Investors would like to see other subsidies as well, for operating expenses, expanding clean hydrogen production, and rolling out renewables to power clean furnaces. Governments could also play a role in boosting demand for green steel. Automotive companies are on board, but the all-important construction industry less so. Public works projects could help.
ArcelorMittal estimates that governments will fund about half of its $10 billion in decarbonisation commitments over the next decade. France has already stepped up. On January 4, the French government announced that it will provide financial support for reducing carbon emissions at two of ArcelorMittal’s seven plants in the country, Radio France Internationale (RFI) reports.
