Europe’s decarbonization focus sets region’s steel sector in motion

Sir Isaac Newton famously theorized in his laws of motion that objects react when force is applied.

And just as an inert object remains at rest if not acted upon, the European steel industry – without government regulation and end-user demand – might not have acted to reduce carbon emissions as quickly as it had in recent years.

Against the backdrop of the European Union’s impending Carbon Border Adjustment Mechanism scheme and decarbonization efforts accelerating around the globe, many steelmakers in the region have invested in new equipment and less carbon-intensive production routes to cut emissions. Now, many are looking for a return on their investments in the form of premiums for certified carbon-accounted steel over standard material.

Low volumes ‘will change soon’

The CO2 emissions reduction targets set by the European Union triggered a massive change in the region’s steel industry. Legacy producers have increased their use of low-carbon steelmaking raw materials and metallics, and new hydrogen-based producers, such as H2 Green Steel in Sweden, have emerged to begin production in the coming years.

In addition to regulation like CBAM, which will require steel importers to declare – and pay for – CO2 emissions from 2026, large end-users, such as automotive and white goods manufacturers, have increasingly demanded low-CO2 steel as their customers seek out cars, washing machines and refrigerators made with more sustainable materials. In 2023, low-CO2 steel demand has extended to service centers and distributors, as well.

As the market develops, demand is expected to rise faster than supply, boosting premiums for carbon-accounted steel, market sources contend.

“Right now, the volumes of low-CO2 coil traded are low, but this will change soon,” a source from a German service center said. “End-users and distributors will need material soon, and the mills would not finalize their upgrades fast enough.”

As interest has increased in carbon-accounted steel, the need for clarity regarding how it is defined has increased as well, particularly around maximum CO2 emissions and the routes various European mills are taking to reduce them.

The European Commission has been developing unified standards around certification for carbon-accounted steel, market sources said, but until the EU adopts firm regulations, some buyers will remain reluctant to take full part in the sector.

“We are all waiting for the Commission to make an announcement that would, hopefully, clarify requirements and standards for green steel,” a source from another service center said. “Until it would be adopted, buyers would not rush to book volumes, as there is no clarity what standards for emissions and other restrictions could be included.”

Looking for a ‘permanent solution’

European steelmakers offering carbon-accounted hot-rolled coils have mainly pursued routes that include electric-arc furnace production, hydrogen and fossil-free fuel production, mass balance calculations or the application of voluntary carbon credits and offsets.

“Some mills use carbon credits to reduce emissions on paper, but this is not a permanent solution to the problem,” a Northwest European steelmaker said. “A buyer can get such products with shorter lead time as it does not require actual technological changes, but a lot of buyers are not ready to pay extra for the material that does not actually have lower emissions. And such material does not have certifications.”

Some steelmakers have been seeking carbon-accounted HRC premiums in the range of Eur100-300/mt for material with CO2 emissions below 2.1 mt per metric ton of steel produced.

“Mills say that currently a premium of Eur200/mt would cover the additional costs,” a source from an Italian service center said. “But it seems that mills are ready to accept [a] really low premium, in some cases close to zero, from new buyers just to get more people involved in the new products.”

Many buyers have been holding back from such purchases until the European Commission provides firm guidance. Those that have already booked carbon-accounted HRC deals have paid premiums in the range of Eur50-100/mt, sources said.

Steelmakers including Arvedi in Italy and ArcelorMittal Spain have been actively offering certified carbon-accounted HRC via the EAF route. SSAB in Sweden as well as Salzgitter in Germany have been offering limited volumes from their fossil-free pilot projects.

Platts, part of S&P Global Commodity Insights, launched new daily carbon-accounted hot-rolled coil steel assessments in early May, including a European HRC Carbon-Accounted Steel Premium, or CASP, and a Northwest Europe HRC Carbon-Accounted Steel Price to provide relevant price assessments and data to help bring transparency to the process.

Based on industry feedback, the CASP reflects any differential or premium achieved for the spot sale of HRC on an ex-works basis, with total accounted carbon emissions of 2.1 mt of CO2 or less for every metric ton of steel produced.

The assessments reflect trade in HRC with carbon emissions certified by an internationally accepted, independent organization, and exclude material that has had offsets or voluntary carbon credits applied to lower overall emissions profiles.

The CASP total includes emissions from direct, indirect and associated upstream and downstream activities such as mining and processing of steelmaking raw materials, hot metal production, steel rolling and associated transportation and logistics, so-called Scopes 1, 2 and 3.

The Northwest Europe HRC CASP assessment represents an all-in price for carbon-accounted steel in that region.

While different production routes generate a wide range of CO2 emissions, the majority of European market participants agree that the 2.1 mt of CO2 per mt of HRC that’s reflected in the new Platts assessments is reflective of the current “low-carbon” threshold for blast furnace production in the region. That number will only decrease as EAF production increases and hydrogen and fossil-free production scales up, they said.

Author Christopher Davis, Maria Tanatar