Green steel demand rising, premium remains challenge: UK Metals Expo
The steel sector is seeing rising customer demand for green steel but achieving a premium for the material remains challenging until market strength returns, Kallanish heard from panellists at the UK Metals Expo in Birmingham last week.
“[Demand] is coming from large end users, but in longs, they aren’t willing to pay the difference yet; it’s tough out there. For the time being, people are just looking to survive. It will come but it’s going to take some time and require a stronger market to fully accept green steel and the cost for it,” said Tom McDougall, commercial director at All Steels Trading.
Customers were keen to know emissions data, but this did not extend to a premium being achieved yet.
“Most people now ask what are the emissions levels of the various mills we are buying from,” said Godfrey Watt, president of the International Steel Trade Association (ISTA). “I don’t think anybody is prepared to pay more for anything at the moment in this market, but maybe it’ll happen – not yet.”
Meanwhile, Christiane Taylor, pricing manager at Tata Steel UK, did see a premium achievable, noting customers asking for the material was one reason the company is switching to an EAF, as part of its £1.25 billion transformation. This would give its customers access to green steel domestically, a move which could make the sector more competitive.
“I think there is definitely a green steel premium, definitely in the first few years until maybe it normalises, and then green steel becomes the norm,” she noted.
The company already offers a reduced CO2 product offering, under the names of Zeremis in the Netherlands and Optemis in the UK.
“Our customers want green steel, particularly in automotive, and construction. In construction, for many customers the low carbon targets are not just nice to have but essential, and a prerequisite for the future. I think there is also appetite in what we’ve seen elsewhere in Europe as well,” she added.
“We’ve definitely seen an increase in inquiries for green steel,” said Mike Nielsen, commercial manager at Salzgitter Mannesmann UK. He noted there was a variety of low-emission brands being offered in the market, with no single definition of green steel. “Many people want to see an environmental product declaration [EPD] when you deliver the order,” he added.
Nielsen also noted that regulation such as CBAM could be the catalyst to making a real step change in the market.
“Regulation is important but we do also see some of that demand coming from companies with corporate social responsibility aims to reduce carbon, also in the finance sector there’s an increase in the amount of ESG investment – some of that is tying people to have lower carbon content in projects,” he said.
“There’s going to be a gradual step over and there’s a tipping point somewhere, where no stockholder wants two piles of steel; one pile of green steel and one pile of non-green steel. At some point there has to be a choice to convert over towards green steel and hold that because that’s what customers demand. Regulation is important but I don’t think it’s the only thing in this mix,” he added.
“We’ve already got strong sustainability controls in construction which are already in place,” said Watt. He noted that when certification authority CARES was first introduced for rebar, there was still a market for non-CARES material which gradually faded away, and now expects to see a similar gradual transition to green steel.
Carrie Bone UK
European green steel premiums slide amid general downturn in steel sector
“This year started on a positive note, but demand is deteriorating, the steel market is weak in general and the willingness to pay a premium [for green steel] is not there,” a mill source told Fastmarkets.
Market participants said there was a lack of projects across Europe requiring green steel and demand from the key consumer – the automotive industry – had also been slow lately.
European suppliers have, therefore, started to be more flexible with their green steel sales and have started offering discounts on bigger lots.
Notably, recent trades for steel with Scope 1, 2 and upstream Scope 3 emissions below 0.8 tonnes of CO2 per tonne of steel, were reported at €100-150 ($111-166) per tonne.
And one transaction was said to have been completed with a premium below €100 per tonne – although that was for for steel with CO2 content below 0.3 tonnes per tonne of steel and could not be widely confirmed, sources told Fastmarkets.
Most buyers estimated the achievable premiums for green steel with Scope 1, 2 and upstream Scope 3 emissions below 0.8 tonnes of CO2 per tonne of steel at €100-200 per tonne.
In stark contrast, however, offers for the same material were reported at €200-300 per tonne during the assessment week.
Fastmarkets’ weekly assessment of the green steel domestic, flat-rolled, differential to HRC index, exw Northern Europe was €100-200 per tonne on Thursday, widening downward from €150-200 per tonne on August 29.
The corresponding green steel base price, HRC exw Northern Europe, daily inferred was €737.60 per tonne at the midpoint on September 5.
Despite the weak market and slow consumption, sources told Fastmarkets they remain optimistic regarding the take-off of green steel in Europe in the coming years.
“The transition to green steel is still on the cards – it’s coming; it’s inevitable. But considering the current economic situation [in Europe], it is going to be delayed,” a large buyer in Northern Europe said.
European green steel premiums narrow downward; end-user demand slow
During the assessment week, offers for green steel with Scope 1, 2 and upstream Scope 3 carbon emissions below 0.8 tonnes per tonne of steel were reported at €200-350 ($219-329) per tonne from European suppliers, stable week on week.
Buyer sources, however, pointed out that for bigger volumes European mills could accept lower prices.
As a result, buyers’ estimations of tradeable values for such material were heard at €100-150 per tonne. The lower end, however, was deemed unworkable by sellers so far.
A distributor source reported a booking of flat steel with carbon emission content of around 0.6-0.8 tonne per tonne of steel at €170-200 per tonne in end-July-early August.
Fastmarkets’ weekly assessment of the green steel domestic, flat-rolled, differential to HRC index, exw Northern Europe was €170-200 per tonne on Thursday, narrowing from €170-250 per tonne seven days ago.
The corresponding green steel base price, HRC, exw Northern Europe, daily inferred was €780.38 per tonne on August 15.
Demand, however, remained limited. Transactions for steel with reduced carbon content in most cases were done directly between steelmakers and end users. The automotive industry remained the major buyer of green steel in Europe, market sources said.
“The market [for green steel] is sleepy, there is a seasonal slowdown, and automotive is not performing well, so overall demand [ for green steel] remains on the low side,” a buyer in Germany said.
“Green steel market is not big, but we see more interest from automakers, and the construction industry is starting to catch up in some regions,” a seller source said.
But even key consumers were seen booking mainly test batches, and green steel uptake in general has been quite low across the steel supply chain so far, Fastmarkets understands.
Per the Greenhouse Gas (GHG) Protocol Corporate Standard, Scope 1 refers to direct emissions generated by an entity or its subsidiaries. Scope 2 refers to indirect emissions from energy used by an organization. Scope 3 refers to indirect emissions – from activities of the entity – that occur from sources beyond their control.
US green steel premium faces continued inertia
US steel consumers are resisting paying a premium for green steel, Wade Wright, a steel consultant told participants at a green steel webinar held by Jefferies Equity Research on Monday August 12, highlighting the pushback from automakers.
“Auto companies are [not] willing to pay a premium for [material with] a little lower carbon footprint than what [they] had last year or the year before that,” Wright said.
Steel production via electric arc furnaces (EAFs) accounts for over 70% of production in the US, according to the American and Iron Institute, compared with a 26% global average.
EAFs have a lower carbon footprint due to its use of electricity, compared to blast furnaces (BFs), which rely on coal, leading to higher carbon dioxide and other pollutant emissions.
Since buyers in the US are already paying for relatively cleaner steel, they are simply not willing to pay more for the same steel.
“I wouldn’t pay extra for green steel. I think most of our mills have the best manufacturing processes to keep the carbon emissions at the lower levels. I have no interest in paying a premium for what a mill now claims as green steel,” a distributor, who typically purchases from an EAF mill, told Fastmarkets.
They added: “I think lot of companies are greenwashing their mill’s operations to add some kind of perceived value to the same products they’ve always produced.”
A second distributor said that no one is talking about green steel.
“I think what is hindering it is the same reason that I have for not promoting it — until the rest of the world matches our level of carbon reduction, what is the use? Does the world get to pollute and only the US has to conform?” the second distributor said.
Due to the large aversion to paying a premium for green steel, it’s probable that the US market is not going to see acceptance for “a while,” Wright said on Monday, with the only thing likely to spur any acceptance is “federal intervention.”
In March, the Department of Energy’s (DOE) invested $6 billion in decarbonization projects to reduce industrial greenhouse gas emissions, which was funded by President Biden’s Bipartisan Infrastructure Law (BIL) and Inflation Reduction Act (IRA).
Integrated steelmaker Cleveland-Cliffs was awarded $500 million to replace its blast furnace (BF) at its Middletown Works facility in Ohio with a hydrogen-ready direct reduced-iron (DRI) plant and two electric-melting furnaces.
SSAB Americas has also been selected for award negotiations for the potential construction of a HYBRIT manufacturing facility, which can produce fossil-free iron by using green hydrogen instead of fossil fuels.
Fastmarkets’ weekly green steel domestic, differential to US HRC, fob mill was flat at $0 per short ton on August 14.
Fastmarkets’ domestic green steel base price, hot-rolled coil fob US mill stands at $678.30 per ton. The price is the average of the most recent US Midwest and South HRC prices plus the US green steel differential.
Fastmarkets defines US green hot-rolled as having emitted carbon at or below 0.7 tonnes CO2e per 1 tonne of steel. This can be reached via native production, mass balancing, or renewable energy credits. Carbon offset credits are explicitly barred. The full methodology can be found here.
Fastmarkets’ domestic green steel, flat-rolled, differential to HRC index, exw Northern Europe was unchanged at €170-250 per tonne on August 8.
Meanwhile, Fastmarkets’ green steel import, differential to HRC index, cfr Vietnam was also unchanged at $150-200 per tonne on August 8.
Clean, lean US steel sector hunts for green steel premium
By global standards, US steel is already pretty green — and pretty pricey.
The American Iron and Steel Institute credits EAFs in its most recent industry profile with about 71% of US domestic steel production, compared with a 26% global average.
A round-up of estimated greenhouse gas emissions from the top four US steelmakers — Cleveland-Cliffs, Nucor, Steel Dynamics Inc and US Steel — from each company’s most recent sustainability report show a range of about 1.98 tonnes of carbon dioxide equivalent (CO2e) per 1 tonne of steel down to as low as 0.39 tonnes C02e per 1 tonne of steel, covering Scope 1 and 2 emissions, which are direct emissions generated by an entity or its subsidiaries and indirect emissions from energy used by an organization.
Scope 3 emissions are a little harder to pin down due varying definitions – most producers lump them in with raw material costs rather than assume the carbon emissions of heavy end-use emitters like automobiles.
Even there, however, at least one major producer – Steel Dynamics Inc – puts its Scope 1, 2 and 3 average emissions as low as 0.78 tonnes CO2e per 1 tonne of steel. The same sustainability report puts the global average around 1.91 tonnes CO2e per 1 tonne of steel, with the global blast furnace average at 2.33 C02e per 1 tonne of steel.
That cleanliness comes at a cost. Though environmental concerns are just one piece of the US price puzzle, they are partially reflected in the disparity between US, European and Asian prices.
Fastmarkets’ daily steel hot-rolled coil index, fob mill US Midwest was last calculated at $38.97 per cwt ($779.40 per short ton) on Wednesday May 15. This is against a backdrop of sideways-to-stagnant prices.
In contrast, Fastmarkets calculated its daily steel hot-rolled coil index, domestic, exw Northern Europe at €641.83 per tonne ($632.91 per short ton) on Thursday May 16.
Likewise, Fastmarkets’ weekly price assessment for steel HRC import, cfr Vietnam was $550-555 per tonne ($498.95-508.02 per short ton) on May 10.
Fastmarkets currently publishes green steel differentials for these European and Asian HRC assessments. The European green differential works out to $147.92-246.53 per short ton, while the Asian differential works out to $185.07-308.44 per short ton.
In a simplistic and possibly coincidental view, the European HRC price subtracted from the US HRC price is roughly the value of the European green steel differential.
When all steel is green, none is
It’s tempting to say that buying US HRC in general is buying green steel, but the industry can’t be complacent if it wants to retain or grow that premium, according to Greenway Steel founder Randy Charles.
“US-produced steel does represent global leading low emissions — for now,” he told Fastmarkets. “That will change rapidly in the EU given the incentive behind the ETS [Emissions Trading System] and carbon liability, as well as investments being made in new H2 technology.”
Earlier this year, one steel mill executive told Fastmarkets that they wouldn’t be surprised if carbon emissions ultimately become another tool in the US’ protectionist toolbox, similar to the Carbon Border Adjustment Mechanism in place in the EU.
Such a move would have bipartisan appeal, regardless of the victor in the US presidential election in November, the executive said. It would echo the 232 national security restrictions originally put in place by President Donald Trump — and maintained by President Joe Biden — and it would mollify environmental advocates and industrial concerns alike, as the US already has a leg-up on the green steel front.
In that scenario, a prospective US green steel differential may actually go negative, as the carbon costs for higher-emission steel add up; it may be cheaper to buy green.
A second executive likened the push for green steel to the bounty some states place on mercury switches, a once-common and toxic component of older cars being sent to the scrapyard.
Some states paid a bounty per switch, incentivizing their removal. Some states still do. And some moved to a voluntary system that did away with bounties entirely, putting the cost of removal and reporting on the scrapyard.
A carbon tax on steel would harm incentives to go green in search of higher profit and make it just another cost of doing business — a boon to a burden in just a few years, he said.
Ultimately, green steel will come in two primary shades, worldwide, Charles said — relative and absolute.
“The absolute basis, and lowest footprint, will carry the highest premiums for end users wanting, or even needing, to decarbonize supply chains.”
Published by: Dan Hilliard