Europe low-emission steelmaking buildout could struggle

New low-emission steel mills are more likely to be built where costs and regulation are favourable, in other words not Europe, but CBAM is likely to alleviate some overcapacity pressure in Europe’s steel market. So was the conclusion of a panel at the Kallanish Europe Steel Markets 2024 conference in Milan last week.

Green steel production growth should be catalysed by “new kids on the block” such as H2GS in Sweden and Vulcan Green Steel in Oman, input cost panel participants agreed.

Europe, where 19 mills are planning to produce 48 million tonnes/year of low-emission steel by 2030, “is on track to reinvent itself at a scale that we’ve not seen before. We built up the industry over centuries and now we’re rebuilding it over 10-20 years,” said McKinsey & Company associate partner Alexander van de Voorde. However, the region faces challenges, such as financing, manpower, metallics supply and renewables capacity.

Building green steelworks fuelled by imported hydrogen or ore-based metallics might not be cost-effective. “Green steel mills will be built where policies are more effective,” noted GMK Centre chief executive Stanislav Zinchenko. H2GS has chosen to build its second plant in North America. “Why not in Europe?” Zinchenko asked rhetorically.

On labour availability, van de Voorde added: “Can we in Europe match a project engineer salary in the Middle East? Can we attract expertise from Asia where plants have been built recently?” Given it is not just steel capacity that needs to be built but the necessary networks, pipelines and cement capacity that go with it, the labour market will only tighten further, he added.

Italian steel mills are meanwhile suffering greatly from overcapacity amid weakened demand, which is crimping their margins, said Siderweb chief analyst Stefano Ferrari. Mills’ scrap-rebar spread, traditionally at €100-200/tonne in Italy, has fallen to below €50/t. Italy possess a large number of small EAF mills between which competition is intense. Increasing exports to offset domestic weakness would be difficult to do profitably, however, Ferrari noted.

Nevertheless, the Carbon Border Adjustment Mechanism (CBAM), when it comes fully into force from 2026, will stop 3 million tonnes/year of long steel imports coming into Europe, providing a great opportunity for Italian suppliers to meet demand, Zinchenko pointed out. But it will be mills all across Europe, and not just the Italians, competing for this demand, he added.

Adam Smith Poland

kallanish.com