Recent policy changes are improving sentiment in Europe, but lack of competitively-priced energy remains a fundamental issue, with utilisation of domestic natural gas resources a potential solution. Europe is meanwhile likely to import the majority of its low-emission iron requirement in future, while upscaling limitations could constrain the buildout of electric smelters.
These were the conclusions of Primetals Technologies head of iron – steelmaking and environmental solutions Jan Friedemann Plaul in an exclusive interview with Kallanish at the technology supplier’s flagship location in Linz.
Policy boosts EU sentiment, potentially investment
The uncertainty surrounding the final cost per tonne of imports under CBAM means the new measure’s impact on pricing is unclear, but the EU’s new trade regime due to come into force from July should boost prices. Policy measures have noticeably improved sentiment in Europe, which is reflected in the share prices of listed steelmakers, which have risen in the last six months.
“The stock market normally predicts quite well if something positive is happening. I think the shareholders see it positively. We expect higher earnings, and then I think also the climate for investing is getting better,” Plaul told Kallanish.
Low-cost, predictable energy supply remains critical
The policy measures are however just “protecting the uncompetitive situation in Europe”, he added, while low-cost electricity supply remains the fundamental problem. In the long term on this issue, “I cannot really see an improvement in Europe”, Plaul noted. Despite the significant buildout of renewable energy capacity, Europe remains dependent on imported fossil fuels and energy prices are elevated.
Steelmakers are also sourcing a large portion of their electricity requirement from the spot market – unlike the long-term contracts of the past – making them more susceptible to volatile pricing and thereby hampering investment confidence.
Energy taxes and network charges are also making electricity more expensive and therefore need to be addressed by EU member states’ governments.
With electricity, “predicting on a ten-year horizon what you need to make an investment decision, it’s very difficult – and I think this is a big uncertainty … These are the main driving factors: good visibility on the electricity price and availability, and long-term contracts. If this is more visible, then it’s easier to invest,” Plaul observed.
Domestic natural gas should be utilised
A locally available solution to energy import dependence would be to use the EU’s own reserves of natural gas. However, politics may get in the way.
“For example, Germany has a lot of natural gas reserves in the earth, but doesn’t extract them. Why import from the US? Fracking is similar whether done in the US, Germany, or the Netherlands. It’s a political issue, of course, but to get more stable or stable prices on energy, it would be better to also have safe, sufficient supply of fossil fuels,” Plaul pointed out.
Since natural gas is prone to distribution losses at multiple points during its transport, it would be environmentally friendlier to access and utilise EU resources at source, he added.
Europe likely to import iron requirement
As for the future of ironmaking in Europe, many consider it a strategic imperative to have indigenous ironmaking capability, especially during times of instability. However, ore-based metallics are essentially a raw material. If you look at the major steel producing countries, such as China, Japan or Korea, these all depend on imported raw materials, Plaul said.
Most direct reduced iron is likely to be imported into Europe because of the unfavourable conditions for local production. After energy, bureaucracy is the next major factor that raises investment costs in Europe. “If you build a DR plant in Germany, it looks quite different with the DR plant you would build in the Middle East. Noise protection is a big issue in Europe. New equipment must be integrated into existing steel plants, often near residential areas,” he noted.
There are a number of steelmakers pushing ahead with direct reduction plants in Europe, but they will face costs. “They will have operational advantages, having hot DRI in their plant. But from the opex perspective, it’s most probably not the cheapest at the moment,” he added.
Importing from the Middle East, on the other hand, involves political risks. “Then it’s a question: do I pay for this additional risk or can I protect this risk in a certain way?” Plaul asked.
One way for EU mills to increase their raw material supply security will be to sign offtake agreements with overseas DR plants, or even become shareholders in them.
Europe remains decarbonisation hot spot
Despite recent uncertainty over decarbonisation, major European steelmakers are continuing to carry out transition investments and Europe remains the hot spot. However, hurdles need to be overcome.
“You can see the difficulties in executing such big projects: unstable political conditions, hydrogen is a big issue. The commitment, especially in Central Europe, on this hydrogen network, is … fading … Every investment which was also sponsored by the government was based on a certain amount of hydrogen utilisation. And these networks are not coming up as fast as projected,” Plaul observed.
The US is the number two hotspot for steel decarbonisation, given its mainly scrap-EAF-based steel mill fleet and, next to its conventional mini-mills, the larger EAF flat steel mills it is focusing on to supply the automotive industry, he added.
EAFs will produce flat steel, with compromises
In Europe, the future fleet of EAFs will produce automotive grade steel but carmakers may need to adapt their quality requirements, Plaul noted. “I think it’s a must. All these integrated steel producers have promised the companies who are buying steel from them that they will get similar products like before,” he said. Several steelmakers are simulating automotive steel production through the EAF route, in alignment with the automotive industry, he added.
“The steelmakers have to adapt their whole value chain on the changed conditions. But also the automotive industry has to adapt their expectations on certain [mechanical properties] to use green steel,” he said.
The big carmakers are demanding and have very high expectations from their suppliers but, together with steelmakers, they are working on developing products in the EAF. “The target is, for sure, to produce high-quality products on the electric arc furnace – all integrated steelmakers have this target, because this is where they earn the most money,” Plaul added.
Electric smelters needed but upscaling a challenge
If the energy transition is to happen fast, electric smelters will be needed to utilise the mainly low-grade iron ore deposits found globally, with direct reduction-grade ore availability limited. However, upscaling will be a limiting factor.
The smelter is “probably the biggest development step, which still has to be proved”, Plaul noted. Besides thyssenkrupp building large-capacity smelters, Primetals is constructing a 300,000 tonnes/year smelter jointly with Posco, and a joint smelter demonstration plant with voestalpine, which aims to de-risk the technology.
The smelter is significant as it provides competition with the blast furnace, whose economics have been difficult to beat for decades. A single BF can produce up to 5-6 million tonnes/year of hot metal. “And with the smelters, you need more aggregates to produce the same amount. The upscaling of the smelters is challenging. It might also be a limiting factor for the future,” Plaul warned. One smelter is predicted to produce 1.2-1.5m t/y of hot metal.
Ore availability will nevertheless drive their development, with the mining landscape unlikely to change significantly, as mines can take up to 30 years to develop. Although there are new high-grade ore mines coming online, “it’s basically not in the amount that you can make a whole transition of the steel industry,” Plaul pointed out. “This is the question: is the steel industry transition following the availability of iron ores … or do we develop new technologies which can take existing iron ore material?”
