Researchers at the London School of Economics (LSE) Green Finance unit suggest that Brazil and China will have better chances to commercialise green steel if they integrate their value chains.
The new study evaluating the prospects of low-carbon steel production in Brazil, China and Mexico finds that the three markets have specific advantages, but closing the profitability gap remains a structural problem for all of them. It identifies a gap of $95/tonne in China and a global average of $140/t, when comparing production via the traditional blast furnace-based route with the promising hydrogen-based route with electric furnaces.
“The gap between BF-BOF and H2-DRI-EAF is material, recurring, and reinforced by multiple layers of the system itself. Energy pricing, capital intensity, underdeveloped scrap systems and fragmented demand work together to sustain the cost advantage of traditional production,” the researchers say. “Even when technology improves, the economics often do not.”
Policy intervention is critical to narrowing the gap to a level that the private sector would feel comfortable to engage, “where producers can scale new technologies without absorbing all the risk themselves”, they continue. “Fiscal tools can cut capex and opex burdens; regulatory tools can reshape market incentives; market-based tools can embed climate costs into production decisions. None works in isolation.”
Highlighting the challenges in each market, the LSE study indicates that “the most plausible outcome” towards global leadership would be based on collaboration, rather than a single dominant player, Kallanish reports.
“China’s strengths, combined with Brazil’s comparative advantage centred on low-cost renewable energy and proximity to raw materials, point toward a spatial division of production,” says LSE. “A collaborative model, where Brazil develops as a major green iron production hub while China coordinates downstream processing and technological innovation, could prove more effective.”
Without such an approach, China would present the strongest case for green steel production leadership, but it would be a slow, gradual process. The country would still face a challenging environment, considering its high carbon-intensive energy mix; technology bottleneck on DRI shaft reactor, which is currently dominated by US-based Midrex and Italy-based Tenova/Danieli; limited scrap supply chain; high blast furnace capacity; and low demand prospects.
Brazil has high-quality iron ore, an abundant renewable energy supply, a highly skilled workforce and emerging supportive policies. However, the country’s steel market is still characterised by low growth, intense import competition, margin pressure and low investment commitment, which threaten industry competitiveness.
According to the study, just over half of Brazilian blast furnace capacity is due for relining by 2030, presenting a “key opportunity” for a low-carbon technology pivot.
