Tariffs, China, energy prices: Can European steel stay competitive? | Transforming Business

Key Concepts:

• Steel production: Global production, CO2 emissions, blast furnaces, direct reduction plants.
• Green steel: Production using hydrogen, reduced CO2 emissions, cost factors.
• EU steel policy: Subsidies, regulations, CO2 certificates, steel and metals action plan, carbon border adjustment mechanism (CBAM).
• Global trade: Chinese steel exports, anti-dumping tariffs, WTO disputes, US tariffs.
• Hydrogen: Production challenges, pricing, infrastructure.
• Carbon lock-in: Risk of new coal-based steel capacity.

1. The State of the Steel Industry:

• Global steel production exceeds 1.8 billion tons annually, but it's a carbon-intensive industry.
• The industry is undergoing a technological shift towards greener production methods.
• Global trade disputes, particularly involving China, are significantly impacting the sector.
• Chinese steel exports have nearly doubled in 5 years, leading to concerns about dumping in Europe.
• High energy prices and weak demand are creating a crisis for the German steel industry.
• In 2024, China produced over half of the world's steel, exceeding 1 billion tons.

2. Traditional Steel Production and its Environmental Impact:

• Traditional blast furnaces, like the one at Tusen Crop, use coal and coke to produce pig iron.
• These furnaces emit significant amounts of CO2, even with retrofitting.
• Tusen Crop's blast furnaces emit around 20 million tons of CO2 annually, despite reduced output.
• The company has cut production from 11.5 to 9 million tons of steel annually and plans to eliminate or outsource over 10,000 jobs.
• Globally, steel production contributes 8% to global greenhouse gas emissions.

3. The Transition to Green Steel:

• The goal is to phase out traditional blast furnaces and adopt direct reduction plants.
• Direct reduction plants use hydrogen instead of coal or coke, producing water as the only byproduct.
• Fico Okahhat from the Potam Institute for Climate Impact Research believes the current crisis is pushing the steel sector towards green steel.
• Tusen Crop is converting its plants, starting with switching off blast furnaces as new direct reduction plants become operational.
• The first direct reduction plant at DBook is expected to be commissioned in 2027.
• The DBook plant is being funded in part by nearly €2 billion in taxpayer subsidies.

4. Challenges and Opportunities in Green Steel Production:

• A major challenge is securing sufficient hydrogen at an affordable price.
• Hydrogen pricing is unpredictable but will significantly impact the cost of green steel.
• A study by the German hydrogen association indicates that at €7 per kilo, hydrogen becomes the largest cost driver in steel production.
• European producers face a disadvantage because they must pay for CO2 emissions through CO2 certificates.
• The EU's new steel and metals action plan aims to address loopholes and provide protection from cheap imports.
• Demand for green steel will be generated through new EU regulations.
• Direct reduction plants can initially run on natural gas, reducing emissions by roughly 2/3, before transitioning to hydrogen.

5. EU Steel Policy and Support:

• Germany is restructuring its steel sector and investing heavily, with nearly €7 billion in public funding committed.
• The European Commission and Germany are providing subsidies to support the transformation.
• EU industry commissioner Stefan Sedon has indicated that more support is coming.
• The EU is implementing a carbon border adjustment mechanism (CBAM) to level the playing field.

6. Global Implications and the Risk of Carbon Lock-in:

• If the new technology works in Europe, it could offer an alternative to building new high-emission blast furnaces in other countries.
• India's plan to build its own steel industry using coal-based technology poses a significant risk of carbon lock-in.
• This carbon lock-in could cause global climate targets to slip out of reach.

7. Conclusion:

• The way steel is produced will significantly impact the future of the climate crisis.
• The transition to green steel is crucial for reducing CO2 emissions and mitigating climate change.
• Europe's steel policy aims to support this transition, but challenges remain, particularly regarding hydrogen supply and cost.
• The success of Europe's efforts could provide a model for other countries to adopt greener steel production methods.