Policymakers in Europe need to follow a “steel action plan” to a avert a crisis in steelmaking, the European steel industry association Eurofer said this week.
Ahead of Commissioner-Designate Séjourné’s hearing in the European Parliament, Eurofer and European trade union IndustriAll have developed and published a set of demands for European Commission and the EU member states to consider, aimed at ensuring the EU has “an internationally competitive and climate-neutral steel [sector], with quality jobs in Europe for today and [for] years to come.”
Entitled A European Steel Action Plan, the demands cover seven topics: EU trade policy; the Carbon Border Adjustment Mechanism (CBAM); EU energy policy; green steel markets; investment in transformation; access to critical raw materials; and the EU social policy.
According to the plan: “Ever-increasing steel excess capacities in third countries and unfair trade practices threaten the viability of the European steel sector and hinder further investment in [European] green steel. [And] high energy costs and growing carbon costs have eroded Europe’s industrial competitiveness.”
With steel consumption steadily deteriorating so far in 2024 and with Eurofer downgrading its outlook for the sector several times already this year, in its latest outlook, published on October 29, Eurofer said it expects apparent demand to shrink by 1.8% year on year to 127 million tonnes in 2024 — a significant downward revision from its previous forecast at the end of July, which was for a slight recovery of 1.4%.
At the beginning of 2024, Eurofer predicted that apparent steel consumption in the EU would rise by 5.6%, to 137 million tonnes through the year. The downward revision is the third time Eurofer has downgraded its forecast, with steel prices under pressure for the most of the year.
In October, Fastmarkets’ steel hot-rolled coil index domestic, exw Northern Europe averaged €549.25 ($) per tonne ex-works, sharply down from the average of €616.63 per tonne in October 2023.
In January 2024, monthly average was €731.73 per tonne.
“All recent attempts [by] European mills to increase [HRC] prices [have] stumbled over a lack of demand,” a stockholder in Germany said.
Stronger trade policies
The plan blames the EU steel sector’s woes on “worsening global steel excess capacity” becoming an “existential threat to the sustainability of the European steel industry,” citing figures from the Organization for Economic Co-operation & Development (OECD) which put the excess at “more than 550 million tonnes – four times more than annual EU steel production.”
Sources told Fastmarkets that Europe’s nominal crude steelmaking capacity was well above 200 million tonnes, but said that actual output volumes have been lagging far behind that total in recent years.
In 2023, steel output among the EU’s 27 members fell to 126.30 million tonnes, down from 136.30 million tonnes in 2022 and down from 152.60 million tonnes in 2021, according to data from the World Steel Association (worldsteel).
“This overcapacity is undermining the viability of the EU steel sector in two ways. First, China is massively exporting steel worldwide at prices below the cost of production, which is severely depressing prices. Second, these exports are forcing other regions to divert steel to the EU market,” the Eurofer/IndustriAll plan says.
In the first two quarters of 2024, carbon steel imports to the EU amounted to 13.5 million tonnes. For the whole of 2023, steel imports were 24.8 million tonnes.
Sources said that imports account for up to 30% of EU steel consumption.
To address the issue of imports the Eurofer/IndustriAll plan suggests:
- Enforcing EU Trade Defense Instruments, such as anti-dumping, anti-subsidy and safeguards tools
- Replacing the current steel safeguards, which end in 2026, with a more robust tariffication regime
- Concluding an international agreement for sustainable steel, in line with CBAM and in full compliance with WTO rules
In October 2024, the Commission took the first steps in strengthening trade barriers by implementing registration for all imports of products under anti-dumping or anti-subsidy investigations, including ongoing investigations where provisional determinations have not yet been made.
CBAM in the spotlight
EU’s CBAM, a carbon leakage protection measure, is expected to fully come into force in 2026, but Eurofer and IndustriALL have warned against CBAM circumvention, resource shuffling and delocalization of downstream sectors.
“It is critical that the effectiveness of CBAM is properly monitored and secured within the entire-value-chain, including downstream sectors,” the plan says,
Market participants have brought up the fact that CBAM does not take into account steel exports, thereby compromising European steelmaker competitiveness in global markets.
“Export-oriented companies bear additional carbon costs, which undermines their competitiveness in global markets,” a trading source said.
European steel export volumes have been declining in the past years: from 22.6 million tonnes in 2019 to 15.2 million tonnes in 2023, according to Eurofer data.
The introduction of CBAM could also result in “lost added value” for the European manufacturing industry, sources said, and importers might start avoiding importing goods covered by CBAM and instead buy “items with higher customs classification” instead of semi-finished products.
The European Commission is investigating the potential extension of CBAM to products downstream of the goods subject to the current regulations, such as iron and steel, but a final decision has yet to be made.
Green transformation requires support
To comply with the European Union’s ambitious target to become a net zero-emitter by 2050, the steelmaking industry needs to transform quickly. but it will need support, according to the Eurofer/IndustriAll plan.
“The financial needs until 2030 are estimated today at around €30 billion for capital expenditure (Capex) and €55 billion for operating expenditures (Opex), totalling more than €85 billion,” the plan says.
In the report, Eurofer and IndustriAll stress the fact that stimulus packages at member state level and at EU level are essential to support developments in steelmaking, including creating and promoting the key markets that will drive demand for green steel made in Europe.
“The demand for Low-CO2 steel should be stimulated through public procurement and in public auctions… A well-recognized labelling system for green steel should be developed by the industry and stakeholders, to be used as a benchmark and reference,” the plan says.
Notably, the plan calls for:
- An EU labelling system for green steel
- A review of relevant EU legislation to promote green steel made in the EU in public procurement and public auctions
- The introduction of incentives to use green steel in key downstream sectors, such as automotive and construction.
That echoes the key concerns of the industry regarding the green steel transition.
Market participants said there was a lack of projects across Europe requiring green steel and that demand from the key consumer – the automotive industry – has recently been slowing, in line with the general downturn in steel sales.
“Our customers say they love green steel, but they can’t pay more because they are fighting for their survival,” a distributor in Germany said.
“We can’t reverse the decarbonization and reduced-CO2 steel is coming – it’s just the matter of time. But in a recession, it just becomes a secondary [issue] for a buyer,” the distributor added.
And a buyer in Germany said: “For infrastructure projects – publicly funded [projects] in particular – it is possible for mills to sell green steel at higher premiums. But the spot market is just not there yet. There is no willingness [among buyers] to pay a premium.”
Major flat steel suppliers are already offering their own green steel brands with lower-carbon footprints – including XCarb, Arvzero, SSAB Zero, Bluemint, Greentec — but there is currently no common standard for the industry.
“We need a coordinated approach from the entire sector – a simple approach that is applicable to all members,” a trading source in Switzerland said.
Fastmarkets’ methodology defines European green steel as “steel produced with Scope 1,2 & 3 emissions at a maximum of 0.8 tonne CO2 per tonne of steel.” And Fastmarkets’ weekly assessment of the green steel domestic, flat-rolled, differential to HRC index, exw Northern Europe was €100-200 per tonne on November 7, stable week on week.
Clean, affordable energy to power the transition
“The EU steel industry is at a competitive disadvantage to other producing regions with regard to energy costs,” the Eurofer/IndustriAll plan says.
The energy-intensive nature of steel production leads to high electricity consumption, and these costs can represent as much as 180% of steel producers’ gross value added (GVA) in the UK. With the switch to electric-arc furnaces (EAFs), it would be expected that the sector’s electricity consumption would roughly double, industry body UK Steel said.
Currently, EU steelmaking is mainly blast furnace-basic oxygen furnace (BF-BOF) production, which is less energy-intensive than using the EAF-route, and electricity costs account for less than 4% of the costs in the BF-BOF production route. For EAF mills, electricity can be around 20% of the total.
According to worldsteel, about 89% of a BF-BOF’s energy input comes from coal, 7% from electricity, 3% from natural gas and 1% from other gases and sources. In EAF steelmaking, the energy input from coal accounts for 11%, electricity 50%, natural gas 38% and 1% from other sources.
New green steel capacities in Europe will be mostly represented by EAFs and direct-reduced iron (DRI) modules, with more than 50 million tonnes of new steelmaking capacity expected to come online in 2025-2027, according to Fastmarkets estimates.
And the issue of developing green hydrogen to power new DRI modules is already a key topic of conversation among European steelmakers.
Using hydrogen with existing DRI modules in Europe is currently quite expensive, Fastmarkets understands, with hydrogen prices currently around €5-8 per kg. And it needs to be closer to “€2.5-3.0 per kg to be commercially viable for steelmaking,” a steel producer in Northern Europe said.
To produce 1 tonne of liquid metal in a DRI module, around 60 kg of hydrogen is required, according to industry estimates.
“Europe needs to build out its production of fossil-free electricity. However, the volumes needed for large-scale electrolysis to produce the green hydrogen are significant. Therefore, it makes sense to place the most energy-intensive operations close to where the electricity is available [so it] can be built out,” a steel mill source in Europe said.
And the Eurofer/IndustriAll plan says: “Hydrogen has a key role to play, and we are concerned that the policy framework governing hydrogen adopted so far will not deliver affordable hydrogen at scale [the steel] industry needs. Urgent measures are needed to reduce energy costs [if] the green transition is to become a reality.”
But, according to market participant estimates, around 140,000 tonnes of hydrogen per year would be required to fuel one 2 million tpy DRI module.