Steel industry under rising pressure to produce greener product
Companies across the steel sector are looking at greener ways to produce a material used in a wide array of products, including steel tubes used by the oil and gas industry.
Crafting greener steel is crucial to achieving the decarbonization necessary to meet global targets aligned with the Paris Agreement on climate change, but many challenges lie ahead.
Steel is an emissions-intensive material used in a broad array of products. Producers are under rising pressure to lower their environmental footprints as investors increasingly focus on environmental, social and governance issues.
Major steel companies worldwide have committed to net-zero emissions by 2050, including Luxembourg-based steelmaker ArcelorMittal, Japanese producer Nippon Steel Corp., South Korean company POSCO, and China Baowu Steel Group Corp. Ltd.
World Steel Association data from 2019 shows that ArcelorMittal is the largest steel producer in the world. It also produces the most greenhouse gas emissions in the sector, according to data from Trucost.
"You don't need to phase out steel use. We've just got to change the way we make it," said Alan Knight, head of corporate responsibility and sustainable development at ArcelorMittal. "It means changing everything, and it means changing it to a process which is just more expensive."
Can hydrogen tech make steel greener?
There are a few different routes to "green steel," Knight said in an interview. Producers can recycle old steel, create steel with hydrogen, or combine more traditional steelmaking processes with technologies that capture emissions.
Knight said the industry already has a high recycling rate, but there is not nearly enough scrap to meet world steel demand. ArcelorMittal is pursuing both hydrogen and carbon capture and utilization technologies.
Hydrogen-based steelmaking would create double- or triple-digit cost increases per ton of steel produced, according to a study that researchers at Columbia University published March 9. While this cost would be far lower than the negative hit companies could take under a government mandate such as a carbon price, such a cost is currently unavoidable.
"No single approach today can deliver deep decarbonization to the iron and steel industry and all approaches lead to substantial production cost increase," the study said.
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While final consumers may ultimately not see a huge difference in the prices of certain goods, it creates a challenge for producers competing with steel being made "the old-fashioned way," Knight said.
On a March 11 call with analysts, PAO Severstal CEO Alexander Shevelev said hydrogen seems like an attractive technology that the Russian steelmaker can hopefully use in the future. However, besides a higher cost, there are also issues with storing and transporting hydrogen, Shevelev added.
Knight said using carbon capture and related technologies could allow steel companies to burn waste, create valuable byproducts during the process, and achieve not only carbon-neutral but carbon-negative steelmaking operations.
"We think we owe it to society to test both at this stage," Knight said of hydrogen versus carbon capture technology.
Pressure to act
Knight said policies that would protect green steel producers, such as a carbon border adjustment, could help level the playing field. Such a framework would impose fees on imported products based on their climate footprint. In its recent medium- to long-term management plan, Nippon Steel said the sector needs support for research and development, the establishment of hydrogen supply infrastructure, competitively priced carbon-free power, and national projects for carbon capture projects.
As world leaders prepare to gather for another global climate summit this year, strategies to decarbonize steel and other heavy industries could be among the topics addressed.
"We have a whole new ballgame with the Biden administration," said Margaret Hansbrough, director of the steel industry campaign with environmental group Mighty Earth. "Particularly for these [steel] companies to really be a force for good in terms of policy advocating for the most aggressive climate policy possible."
Several organizations are creating frameworks or guidance to creating a greener steel industry. The industry is paying attention and is trying to get a seat at the table to provide technical input, Clare Broadbent, head of sustainability at the World Steel Association, said in an interview. Broadbent said pressure is coming "all over the place" to reduce steel sector emissions.
For example, General Motors Co. recently committed to producing only electric vehicles and achieving carbon neutrality by 2040 or earlier. According to a 2020 report from the World Steel Association, the automotive sector makes up about 12% of global steel use.
"Stakeholder pressure on us to decarbonize is massive," Knight said. "That ranges from investors who are doing this because they believe in the sort of moral crusade to other investors who just think that money is at risk in investing in a [carbon-intensive] company."
Knight said investors remain supportive of the industry, despite it having a large carbon footprint.
"They know that steel has a future as a product," Knight said. "It's not like coal, where one day people won't be using as much coal so there's no growth."
The steel sector's move away from using coal could further cut an industry already under pressure as large regions of the world are moving away from coal-fired power generation.
Metallurgical coal used in steelmaking, by volume, is a smaller segment of the global coal market than the coal used by power generators. Because it remains a vital steelmaking ingredient, the International Energy Agency is forecasting metallurgical coal consumption to recover in 2021, rising 3.7% compared to 2020.
While mining companies worldwide are ditching thermal coal, many are still embracing the assets that produce coal used to make coke for steelmaking. Several U.S. companies dropped "coal" or "energy" from their names in recent months as they pivot brands to a metallurgical coal focus.
Arch Resources Inc., formerly Arch Coal, is banking on a global economic recovery to drive demand for mass transit systems, wind turbines, electric vehicles and more. While winding down its thermal coal operations, Arch is building one of the few new coal mines in the U.S., a metallurgical coal mine in West Virginia that is expected to "act as a financial linchpin for the company for the next 20 years."
"While we believe steel producers will ultimately need to decarbonize the steelmaking processes entirely, consistent with a net-zero carbon future, we expect metallurgical coal to continue to play a critical role in steel production for the next two decades or more," Arch wrote in a March 15 securities filing.
SSAB AB, a Swedish steelmaker, aims to bring the world's first fossil-free steel to the market in 2026 and become completely fossil-free by 2045. The company also plans to power its Iowa steel operations with renewable energy by 2022.
In an emailed statement, the company said the development of fossil fuel-free steel offers competitive advantages for SSAB and its customers.
"Conversion to fossil-free steel is driven by customer demand, where end-users are increasingly seeking sustainable materials," SSAB wrote. "As vehicles and other machinery are reducing or eliminating their emissions in use, the materials used in these products will have the main impact on lifecycle CO2 emissions."
Australian iron ore producer Fortescue Metals Group Ltd. recently built a green steel pilot plant and is looking to replace coal with hydrogen in its steelmaking process.
"I don't think there will be a coal-fired blast furnace in operation by 2050, period," Fortescue Chairman Andrew Forrest said on a March 15 media call.
Given the major shift in processes required, the steel industry is not likely to be coal-free in the next decade, said Asa Ekdahl, head of environment and climate change at the World Steel Association. However, given the steel business's capital-intensive nature, companies are likely to look closely at green technologies for new projects and potential retrofits for more recently built assets.
"If your assets are coming to the end of their life, that might be kind of a natural step to take," Ekdahl said.
Trucost is part of S&P Global Market Intelligence.