Coking coal remains amid hydrogen transition: Wood Mackenzie

The onset of hydrogen-based steelmaking will increase scrap use in steelmaking, thereby reducing overall iron ore demand, although the pellet market will expand rapidly, says Wood Mackenzie. Coking coal will meanwhile remain an indispensable feedstock for steelmakers in India as the country’s steel demand outpaces its ability to decarbonise, Kallanish notes.

Carbon emissions in the steel sector must fall by 75% from today’s levels to limit global warming to within 2C, says the research company. This means reducing global steel emissions from over 3,000 million tonnes of carbon dioxide equivalent in 2020 to just 780mt CO2 by 2050. This will pose a major challenge, especially to rapidly growing developing economies, as the steel industry will need to balance managing rising demand and pressure to decarbonise.

Wood Mackenzie says five things need to happen for the steel sector to achieve a 2C warming pathway. These include doubling scrap use in steelmaking, trebling direct reduced iron production and use, reducing global average electric arc furnace emissions intensity by 70%, and reducing blast furnace-basic oxygen furnace emissions intensity by 30%. Lastly, 45% of residual carbon emissions (around 500m t/year) must be captured and stored.

This presents a huge opportunity for DRI. “Although the rise in scrap consumption would lead to total iron ore demand falling by 24% below our base case, the market for pellet products would expand by 35%,” says Rohan Kendall, head of iron ore research. This would boost DRI trade. Australia and Brazil could be well positioned to produce H-DRI for export. China and Europe would be key DRI importers.

To achieve scrap use growth, scrap recycling rates would have to increase from 80-85% to 95%. India and China scrap supply chains would require substantial development which would contribute to displacement of iron ore demand, notably taking effect post 2030.

Annual metallurgical coal demand is seen halving from Wood Mackenzie’s base case scenario to 622mt by 2050. Seaborne metallurgical coal trade would fall, although domestic coal in China would bear the brunt of declines.

“Seaborne imports would be all but eliminated during the 2040s in China, leaving only a nominal volume of the highest-quality coking coals imported to coastal mills,” says metallurgical coal principal analyst Anthony Knutson. India, on the other hand, would double its import requirement to 123m t/y.

“PCI demand comes under great pressure in a 2C scenario falling by 50% or 37mt as hydrogen injection rates increase,” Knutson adds.

A successful rollout of carbon capture and storage would provide an opportunity for continued use of metallurgical coal in steelmaking as emissions captured via this pathway are from BF/BOF steelmaking, Wood Mackenzie concludes.

Adam Smith Germany