A recap of European steel decarbonization amid the ongoing energy crisis

The transition from traditional blast furnace-based steelmaking to so-called “green” routes of production has become a central element in major European steel companies’ strategies. Fastmarkets looked at the key milestones, opportunities and challenges the European industry is facing.
Carbon metals’ green transition
Most European blast furnace-based steelmakers have been investing in green steel projects in the past years, cutting emissions to comply with strict EU regulations. Under the European Green Deal, the European Commission proposed a new EU target to reduce greenhouse gas emissions by at least 55% by 2030, compared with the levels emitted in 1990.

Additionally, the growing cost of carbon emissions in the EU has also pushed mills to seek alternative ways of steelmaking.

Particularly, the price for a CO2 emissions permit in the EU reached a historical peak of €98 ($96) per tonne in August 2022, according to market participants.

Demand for green steel from end-users has also been growing recently, but mainly in the flat steel sector, a source said. Long steel products have mainly been considered “green by nature” since these are mostly produced in electric-arc furnaces (EAF), using scrap as a primary raw material.

Low-carbon steel is an integral part of sustainability goals for blast-furnace (BF) steelmakers.

Key green steel projects in Europe
German flat steelmaker Salzgitter is focused on accelerated decarbonization as part of its Salcos project, under which it plans to replace BFs at its Flachstahl mill with direct-reduction plants.

The company will put €723 million of its own funds into the first stage of its Salcos green steel project, Fastmarkets reported.

Swedish steelmaker SSAB, state-owned iron-ore producer LKAB and power company Vattenfall established the joint-venture project Hybrit – which stands for hydrogen breakthrough ironmaking technology – back in 2018 with test production started in 2020.

Another Nordic producer, the newly created H2 Green Steel, plans to build a direct-reduced iron (DRI) unit powered entirely through green hydrogen, with a facility expected to reach a full capacity by 2026.

Liberty Steel plans to replace BFs at Czech and Romanian plants with EAFs, aiming to become carbon neutral by 2030.

In July this year, the company ordered two hybrid electric-arc furnaces for its integrated steelworks in Ostrava, Czech Republic, and started the tender process to supply a new hybrid EAF for its integrated steel works in Galati, Romania.

ArcelorMittal has a number of green steel initiatives, including plans to invest €1 billion in new capacity to develop hydrogen-based steelmaking across two of its existing German plants.

The steelmaker will build a direct-reduction of iron (DRI) and electric-arc furnace (EAF)-based steel production plant at its Bremen site, and will supplement EAF production at its Eisenhuttenstadt site with a new DRI pilot plant.

German industrial Group Thyssenkrupp plans to replace coal-fueled blast furnaces at its plant in Duisburg, Germany, with hydrogen-powered direct-reduction plants, to produce low-CO2 steel within the existing plant structure. The project estimated to cost more than €2 billion and would require public funding, the company announced in September of this year.

By 2030, the company planned to be capable of producing around 5 million tonnes per year of low-CO2 steel.

Austrian steelmaker Voestalpine plans to switch to green steel production via EAFs by 2027, with the estimated investment during the first phase from 2022 to 2024 in the low triple-digit million-euro range, with total investment estimated around €1 billion, Fastmarkets reported.

Unfolding energy crisis in Europe
The price uptrend in the European energy market that started in autumn 2021 has continued into 2022, with the situation worsening after February 24, when the Russia invaded Ukraine.

For example, the average monthly wholesale electricity price in Italy was around €431.47 per megawatt hour in September, up sharply from a monthly average of €158.59 per MWh in September 2021, according to local energy service company Gestore dei Mercati Energetici.

The average wholesale price of electricity in Germany surpassed €500 per MWh for the first time in history during August 2022, sources told Fastmarkets.

Faced with these unprecedented energy price rises, steel mills have tried to increase prices for flat steel products, but these attempts were not successful due to lack of end-user demand.

European flat steel producers have been squeezed between high production costs on one side and low demand on another side.

Fastmarkets calculated its daily steel hot-rolled coil index domestic, exw Northern Europe at €700.00 per tonne on Friday October 14, down by €1.00 per tonne from €701.00 per tonne on Thursday October 13.

The latest calculation of the index is down by €35.00 per tonne week on week and by €86.25 per tonne month on month.

Effect of energy crisis on green steel initiatives
With the mounting pressure on steel prices from unprecedented energy costs on one side and the weak performance of key steel-consuming sectors with looming inflation on another side, there were concerns about the sustainability of green steel initiatives.

Sources expressed concerns about the installation of DRI modules, since that equipment is very energy intensive – specifically, gas intensive.

Some sources suggested that costly green steel projects might be postponed until the macroeconomic situation improves.

“Of course, we all need to go greener and greener, but I don’t think at this moment it’s the time to do it,” a trader in Northern Europe said.

Another trader in Northern Europe said they believe wide-spread use of green steel in Europe will take a long time to achieve – much longer than in the next few years – and that the current plans are wishful thinking.

“The market, the economy, energy [costs] – everything is very uncertain – and then we make large changes to other methods of production. I don’t think it’s the time at this moment,” a third trading source said.

“We don’t have the infrastructure yet, and if we look back at how long it took before we had a certain percentage of green energy produced in Europe – I think it will take longer,” the third source added.

Alternatively, a trader from Germany said the energy crisis is making the topic of green steel and low-carbon more attractive. He added that while the crisis can change “within minutes,” the costs of gas and energy are not as high as expected some weeks ago.

For their part, European flat steelmakers have no plans to postpone the implementation of green steel projects – a number of agreements have been signed between the steelmakers and automotive companies for the supply of green steel.

Flat steelmakers highlighted that their DRI plants will use hydrogen, not fossil-fuel natural gas, and so the only hurdle from the current energy crisis is the cost of electricity, which they viewed as a temporary obstacle to the long-term green steel target.

“We will not use fossil gas for our hydrogen production [even on an interim basis]. And yes, we feel confident that we will have enough for our production. We have already secured the base of our portfolio and will continue to work on it up until start of production. The current planned build-out of energy production in northern Sweden will cover the needs of the industrial ramp up,” a spokesperson for H2 Green Steel said.

“We haven’t seen any direct effect from the energy crisis [on our green steel plans] other than delays in negotiations due to uncertainty in the market. And actually, an increase in focus on renewable energy,” the spokesperson added.

With regard to Hybrit’s plans, a spokesperson for Vattenfall said, “Today’s energy crisis shows additional risks with fossil fuels, which rather strengthens our belief that fossil-free energy and fossil-free industrial processes are the right way to go.”

The spokesperson explained that Vattenfall will produce fossil-free hydrogen with electricity directly on its planned green steel production site, so there was no direct connection to the high price of fossil natural gas. In Northern Sweden there is already a stable supply of fossil-free electricity, they added.

Published by: Julia Bolotova, Ross Yeo, Holly Chant