OEMs start asking for low carbon steel in auto contracts: service centers

Demand for low carbon or “green” steel is growing, mainly from the automotive sector, said Cesare Vigano, managing director of ArcelorMittal CLN Distribuzione Italia, at an event Sept. 15.

Procuring low carbon steel products was a sensitive issue for some original equipment manufacturers, Vigano said at the European steel distributors’ association Eurometal Regional Meeting event held in Milan.

“Already in the 2022 negotiations for automotive, some mills have been asked to consider at the moment only some Eur20-30/mt of additional premium to the normal cost of steel if you need some special steel grades produced under the green brands,” Vigano said. “But I think that step-by-step we will see an increment in the supply chain of green steel demand,” he added.

Vigano explained that steelmakers had planned billions of Euros in capital expenditure to reach low carbon steel standards and this would be recovered gradually from mills increasing production of these products and a price premium.

Paolo Sangoi, president of Assofermet Acciai Flat, also told S&P Global Commodity Insights on the sidelines of the event that he had seen an increase in demand for low carbon steel, but not too much yet from buyers of steel commodity grades.

Steelmakers were working with local governments, as they had warned multiple times that the cost of decarbonization for the steel industry could not be borne by companies alone and governments would have to foot part of the bill.

Meanwhile, steelmakers were also closing transactions, mainly with the automakers, for offtake deals and in some cases, large steel transformers were becoming minority shareholders in low carbon steelmakers to secure their procurement, such as with Italy’s Marcegaglia buying an undisclosed stake in Sweden’s H2 Green Steel.

According to the International Energy Agency, if the international community is to meet its pledges to limit warming to near 1.5 degrees Celsius, the steel industry needs to reduce its CO2 emissions by more than 90% by 2050. According to worldsteel, 1.86 billion mt of steel was produced in 2020, with total direct emissions from the sector of about 2.6 billion mt, representing between 7% and 9% of global CO2 emissions.

Platts assessed hot-rolled coil in Northwest Europe at Eur745/mt ex-works Ruhr Sept. 15, while HRC in South Europe was assessed at Eur760/mt ex-works Italy, down 19.2% and 9.1%, respectively since the start of the year, according to S&P Global data.

— Annalisa Villa