Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

Charles de Lusignan, spokesperson and head of communications for Eurofer, recently spoke with Davis Index on the European steel industry and how carbon-neutrality will be a big part of the sector’s business moving forward.


The Green Deal

The steel industry, one of the highest polluters accounting for 7pc of carbon emissions globally, has turned to technology to help it attain EU’s emissions objectives of 55pc lower emissions by 2030 and 80-95pc by 2050. The pathways to achieve these emissions goals include smart carbon usage and carbon direct avoidance, which could eventually lead to the abolishment of the present carbon credit regime.


According to de Lusignan, the Green Deal was initially established by the European Union (EU) to transform the region’s economy as part of its “carbon-free by 2050” goal. However, the recent economic challenges posed by the COVID-19 pandemic have mutated that plan into one for economic recovery.


Thus, the Green Deal has become more important than ever for the European steel industry, which took a significant hit as demand weakened and production halted during the first round of government lockdowns due to the pandemic in H1 2020.


“As an association representing all steel production in the region, Eurofer is now focusing on the headwinds and opportunities that the steel sector faces in its quest to become carbon-free as the EU begins to recover,” de Lusignan noted. He added that domestic steel production would now, more than ever, require additional safeguards along with a long-term plan to support the industry’s growth in a carbon-free zone.


Eurofer focuses on eight policy matters within the EU to advocate for the steel industry according to de Lusignan. They include research & development (R&D), environment, energy, climate, finance, sustainable finance strategy, fair international trade, and the circular economy and EU product policy.


Hydrogen technology

Giving insights into how hydrogen technology could help steel companies achieve their carbon-free goals de Lusignan said that it is one of the most revolutionary technological developments for the steel industry.


“The process replaces coal and uses hydrogen as a reductant without using the power of burning,” he explained. “The challenge is the propagation of energy sources as well as the adoption of the technology by mills.”


Steelmakers like SSAB currently use HYBRIT, (a process that uses hydrogen and fossil-free electricity) which will make the company fossil-free by 2045. The company is developing sponge iron using this technology to feed into its furnaces and support the production of fossil-free steel.


Although it has many benefits, the biggest drawback of hydrogen technology is the cost associated with it. “Hydrogen requires the full supply chain of hydrogen sources delivered to the


industry site for the technology to work the way it is meant to. But hydrogen is difficult and expensive to store, transport, and deliver. The task requires improved energy sources, delivery infrastructures, and matching consumer technology,” de Lusignan noted.


Moreover, substantially more electricity capacity is necessary to achieve this goal by 2050. “In the EU, new electricity installations totaling 400TW (terra watts) will be needed to support the steel industry, which is equal to all of France’s capacity. 250TW is estimated to be needed to produce hydrogen alone. Other sectors will require an additional estimated 2000TW1,” he observed.


The EU plans to invest €470bn ($551bn) in private and public investments by 2050 towards hydrogen sites and plans to build 40GW of renewable hydrogen electrolyzers by 2030. Yet, the high cost of renewable hydrogen remains a major concern. With a cost of $2.5-4.5/kg, investments are required to bring the price below $1/kg to make it compatible with lower-cost hydrogen made from fossil fuels.


Thus, while the adoption of hydrogen technology is an attainable goal in the long term, companies are looking to implement and expand electric arc furnaces (EAFs) to lower their carbon emissions in the short term. For example. companies like SSAB plan to transform their blast furnace operations to EAFs in the next five years since the latter’s use of renewable energy sources are essential to minimize carbon emissions.


Towards renewable steel

Renewable energy sources, innovative hydrogen solutions, and other technologies mean that responsibly produced green steel will be more expensive by 35-100pc by 2050 compared to today’s costs. De Lusignan noted two major factors for a robust green steel market—the need for investments to update old facilities and fair international trade.


European steelmakers have received financing via the EU ‘Framework Programmes’ towards climate change and digitalization initiatives over the past two decades. However, according to de Lusignan, without an improved regulatory, policy, and financial framework the transition could be an untenable proposition.


“Without financial support, the goals are only statements of lofty, ambitious dreams,” de Lusignan said. “There are financial support schemes, but more is required. Moreover, the regulatory and legislative framework does not yet match the objectives the EU has set for industry.”


Even with a substantial investment towards achieving the EU goals of carbon emissions, European steel faces unfair competition from imported steel produced without regard to environmental concerns or freight-caused emissions. Eurofer has therefore recommended a carbon border adjustment mechanism to minimize the import of cheaper, carbon-intense goods, de Lusignan noted, which will provide a market for the ‘greener’ steels EU producers are producing. 


“The new carbon mechanism needs to be well thought through because it needs to provide support for the green transition, not undermine existing policies, such as the EU Emissions Trading System (EU ETS) – for instance by removing the ‘free allocation’ that is central to the functioning of the EU ETS”, he observed. The higher costs would also wipe European steel out of the export market whilst doing nothing to stem carbon-intense imports.


According to de Lusignan, the EU’s continued reliance on the World Trade Organization (WTO) as a mechanism to address trade issues, despite the entity’s current paralysis, is undermining the region’s ability to manage fair trading.


He added that the EU, as an open market, has become a dumping ground for deflected volumes of steel post the US Section 232 tariffs that redirected trade flows. Per a recent report by the Economic Committee of Eurofer, India, Russia, South Korea, Turkey, and Ukraine were the largest finished steel import sources into the EU accounting for 68pc of total imports in the first eight months in 2020.


At risk is the expected recovery in steel demand in early 2021, which is likely to benefit imports more than domestic steel due to the renewal of quotas and the unused quota transfer mechanism. “The present safeguard measures are insufficient in the short-term as are set at levels of historically high import volumes – but demand and imports are suddenly sharply down because of the pandemic. Once the pandemic passes and demand picks up again, the safeguard will leave the door wide open for a massive resurgence of import volumes,” he said.

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