Bearish trends in the steel markets, combined with the difficulty and cost of developing sustainable technologies, presented significant challenges to the European steelmaking sector, an industry conference has heard.
Professor Carlo Mapelli, of the mechanical engineering department at Milan Polytechnic in Italy, was speaking at the conference held in Milan, on September 14-15, by regional steel industry association EUROMETAL. He discussed the significant obstacles faced by European steelmakers in their attempts to make their businesses more sustainable.
In view of the steel industry’s carbon dioxide reduction goals for 2030 and 2050, many mills were planning to implement more sustainable practices and processes. The goal by 2030 was to reduce carbon emissions by 50%, while by 2050 the target was to become completely carbon-neutral.
The steelmaking industry emits 2.8 billion tonnes of CO2 every year, approximately 5-6% of global emissions, Prof Mapelli said. There is thus significant pressure on the industry to become more sustainable.
Green hydrogen, for example, can be used as a reductant substitute in the production of direct-reduced iron, and is often cited as an effective, low-carbon alternative.
SSAB, LKAB and Vattenfall joint venture Hybrit started the first pilot plant for the production of fossil-free sponge iron inaugurated on August 30, 2020.
But Prof Mapelli said that using hydrogen as a reductant is inefficient in terms of sustainability because of the large amount of water it uses to produce the hydrogen. He also highlighted other concerns with the process, including the risks involved in the safe transport of hydrogen, its storage, and the extent of land use involved.
Mapelli discussed other alternatives, including exploitation of biomass as a more renewable option, and electro-splitting of iron ore, although he thought that this was less realistic as a long-term solution.
And while developing technologies which are genuinely sustainable appeared to be complex, expecting buyers to pay high premiums for green steel was a separate problem.
Some downstream industry sectors, such as the automotive industry, could pay these high premiums and pass costs on to consumers, especially during times of high demand and economic growth, Fastmarkets heard. But many industries may not see enough value in paying the premiums.
Furthermore, investing in such technologies represented a sizable financial risk for companies. Prof Mapelli said that the cost of constructing a photovoltaic power station was around €8 billion ($7.99 billion).
With interest rates rising and potential stagflation on the horizon, it was less likely that companies would have the extensive capital required to invest in untested technologies and expensive processes when returns were by no means guaranteed – at least, in the short term.
Furthermore, considering forecasts for a further downtrend in end-user consumption and a possible worsening recession, it was unlikely that buyers would pay huge premiums for steel when there was so little demand.
The bearish nature of the forecast was discussed at great length during the EUROMETAL conference.
The consequences of Russia’s invasion of Ukraine demonstrated the vulnerability of Europe’s over-reliance on Russia for energy. Some countries have had to step back from their sustainability goals to prioritize the constricted supplies of electricity and gas.
Despite plans to phase out coal-fired power generation by 2038, for example, Germany has reopened two such power stations throughout August to save gas.
Given the poor outlook, sustainability and green steel may have to take a back seat until economic forecasts become more optimistic and the energy situation stabilizes.
And it may be some time before alternatives emerge which are cost-efficient as well as genuinely sustainable on all major fronts.
Published by: India-Inés Levy