A new report claims demand for less carbon-intensive steel paired with new, low-carbon steel-producing technologies and evolving carbon policies will dramatically reshape steel supply chains by 2050.
The report by Wood Mackenzie, called Metamorphoses: How Decarbonization is Transforming the Iron and Steel Industry, attributes much of this change to the rise of the electric arc furnace (EAF). EAF steel production currently stands at about 28% of overall global steel output, and the report estimates that EAF production will rise to about 50% by 2050.
Electric arc furnaces may be used instead of emissions-heavy blast furnaces, and they have the potential to be run on 100% renewable energy. According to the report, $130 billion will be required to achieve the goal of 50% EAF production, with the prediction of 550 million tons of additional net capacity by 2050.
“Iron and steel production accounts for approximately 8% of the world's carbon emissions and is a hard-to-abate industry," said Isha Chaudhary, global head of steel and raw material markets at Wood Mackenzie and co-author of the report. "With the right levels of investment and policy support, decarbonizing the industry is a realizable goal, bringing with it the potential to transform the industry outlook. As this transformation takes hold, the impact on trade patterns and the steel value chain will be substantial. The decarbonization of iron and steel is already underway, and few industry players will be left untouched.”
According to the report, increased use of scrap and green feedstocks, such as direct reduced iron (DRI), will be a key factor in decarbonizing steel production.
The share of DRI and scrap in the global market, now 36%, is expected to rise to 54% by 2050, with a projected need for $80 billion in DRI investment within the next 30 years. DRI, made from high-grade iron ore pellets, significantly reduces emissions caused by steel production, especially when processed using EAFs powered by renewable energy sources. The report predicts a rise in scrap and DRI imports will also shift supply chains away from importing already completed steel products.
“In markets with high and mature carbon prices, we expect to see a shift towards importing green DRI to manufacture low-carbon steel using EAFs, instead of importing finished steel from more emissions-intensive producers like China and India,” said Malan Wu, global head of assets for metals and mining research at Wood Mackenzie and lead author of the report.
Additionally, recycling scrap steel has the potential to reduce steel mills’ carbon footprints by 60% while also saving on purchases of new materials, such as iron ore and metallurgical coal.
Wood Mackenzie expects the emergence of new, green steel and DRI hubs for producing, processing, and trading DRI and scrap, and the report claims they will likely be built in close proximity to clean energy sources, especially low-carbon hydrogen.
The report said that the Middle East and Australia are best positioned to capitalize on creating green DRI hubs, while the EU is expected to become the biggest global importer of DRI. Meanwhile, China, the world’s biggest steel producer, is expected to use a mix of imported and locally produced DRI, investing at home more than in imports.
Policies such as the EU’s Carbon Border Adjustment Mechanism (CBAM), which places a price on carbon emitted during production of carbon-intensive products entering the EU, will also reportedly contribute to the creation of more green steel hubs.
“The EU's CBAM will significantly rebalance the steel trade," said Chaudhary. "By increasing the cost of imported finished steel by 20-25%, the CBAM will notably impact EU steel imports and domestic production. European countries now must weigh the options between importing finished steel, green DRI for steel production, or additional scrap.”
