Decarbonisation spurs new entrants, supply chain shifts: ING

Steel decarbonisation might be driven by “Tesla-style” new entrants rather than established steel majors. The supply chain could meanwhile evolve towards global production hubs of green iron and local sites that specialise in turning this into different qualities of steel. So says ING Bank.

Many steel majors have already embarked on decarbonisation. They have billions of dollars’ worth of coal-based steel assets on their balance sheets. “On a positive note, that provides them the capital to develop CCS [carbon capture and storage] and hydrogen. On a more negative note, it could limit real change as current assets may become stranded once hydrogen technology takes over,” the bank says in a report sent to Kallanish.

Disruptive change may however come from new entrants such as Vulcan Green Steel, Blastr, GravitHy and H2 Green Steel, the report continues.

Ukraine could be a country driving the change in the sector. “As the ongoing war persists, the financial focus of politicians and financiers is on short-term funding issues. But slowly, they’re beginning to look at long-term reconstruction efforts too,” ING Bank comments.

The World Bank estimates Ukraine’s reconstruction will cost more than $400 billion. Ukraine is seeking up to $40 billion to fund the first part of a Green Marshall Plan to rebuild its economy. The main priority will be on the iron and steel industry, with a vision to build a green steel industry of 50 million tonnes/year, the bank adds.

Ironmaking could in future be relocated from regions with high energy and hydrogen costs towards those with lower costs. Australia, the Middle East and the US, for example, are likely to have a competitive advantage in hydrogen production. Ironmaking may be concentrated in these regions and then shipped to higher-cost areas such as Europe as hot-briquetted iron. Alternatively, it may be relocated within Europe to regions with low renewable electricity prices, such as Sweden or Norway.

Developed countries might prefer to invest in the hydrogen route more quickly, while developing and coal-heavy countries like India and China may choose to rely more heavily on CCS technology. “The climate benefits from both and the discussion should focus on the speed of change rather than a battle between technology. Finally, such debates shouldn’t distract us from tempering the demand for steel, as the climate benefits most from steel that isn’t produced,” the bank says.

CCS costs in steel production range from €60-100/tonne ($67-112) of carbon. This is much cheaper than technology such as electric vehicles, home renovations and hydrogen-based solutions, which cost hundreds of euros per tonne of carbon that is reduced.

“Even so, CCS has not been applied a lot in steelmaking yet as it is not mandatory, and carbon is often not priced sufficiently across the globe. The European carbon price of around €85/t CO2 starts to bite – but steel producers still enjoy a number of free allowances, and prices have seen a recent increase, while investments in CCS take years to materialise,” ING concludes.

Adam Smith Poland