While the global steel industry is on the way a greener future through decarbonization, environmental, social and governance issues, could be as important as regulatory changes, Lilholm said at the launch of DNV’s report entitled Shaping the future of sustainable steel: Lessons from Europe’s steel Industry, on the challenges and opportunities arising from the decarbonization of the steel industry.
Lilholm said that while the report draws on insights and experiences from the European steel industry, Asia – and China, in particular – will have a crucial role to play in the decarbonization process as the “home of the world’s largest steel producers.”
Crude steel production in Asia and Oceania‘s reached 1.37 billion tonnes in 2023 and accounted for about 70% of global crude steel production, according to the World Steel Association (Worldsteel). And China alone produced just over 1 billion tonnes of that total.
“[China’s] actions and policies will have a profound impact on the global steel sector’s sustainability efforts,” he added.
Green premiums and the role of PRAs
The transition to green steel will require substantial capital investment in green technologies and it take several years to achieve significant capacity, according to Lilholm.
The primary sources of funding will come from “government support, private capital and institutional investors, through innovative financing mechanisms, such as green bonds and loans linked to sustainability,” he said, but added that, in the long run, green practices will not be able to rely solely on grants and subsidies and steel producers will need to be able to generate profits for their investors.
Lilholm said the key questions were therefore whether a “green steel premium” actually exists, what level it should be set at and whether market participants will be willing to accept it.
Some buyers are less willing to pay a premium than others, he said, and those actively seeking out greener steel and willing to pay a premium for it, currently cannot yet find sufficient supplies.
“It seems more demand-and-supply matching is required between those providing [the greener steel], and those looking for it,” he said.
Lilholm said the report highlights that, beyond cost and technology, one of the most critical challenges in the green steel transition is the “lack of clarity over the regulatory landscape.”
That uncertainty stems from the absence of uniform green steel standards, according to the report.
But Lilholm also said that price reporting agencies (PRAs), such as Fastmarkets, will have an important role in establishing uniform standards for assessing emissions reductions within steelmaking and processing; in measuring and verifying low-emissions steel; in developing transparent price data, benchmarks and methodologies; and in reporting on those developments, what steel is being made and what buyers are purchasing in terms of carbon-accounted steel to “help ensure the transition to green steel is credible and trustworthy.”
Green metallics, such as hydrogen-based direct-reduced iron (DRI), steel scrap and low-carbon iron ore will become increasingly important on the path to net-zero emissions, Lilholm said.
Their widespread adoption will depend on a combination of factors over the coming decades, including “technological innovation, market forces and policy incentives,” he said.
But the road ahead remains long, especially with China continuing to struggle with low steelmaking margins. And market participants have told Fastmarkets that Chinese steelmakers currently show little interest in purchasing higher-priced greener raw materials.
Fastmarkets’ assessed its iron ore DR-grade pellet premium, quarterly contract at $48 per tonne on October 1, but Chinese market participants said that steelmakers were only able to pay much lower rates for pellets to stay profitable, hence, cheaper, locally produced and Indian pellets are mainly being used in the steel production process at the moment.
Lilholm said that iron ore miners and steelmakers must adopt robust assurance mechanisms such as carbon accounting, adhering to international standards, third-party verification and transparent reporting, to ensure the credibility of their emissions reduction claims.
“Customers buying carbon-accounted steel will want to be reassured that the premiums [they have to pay] are funding carbon reductions beyond the business-as-usual improvements that would have happened anyway,” he said.
And in a demand-led global steel market driven as much by ESG considerations as by regulatory requirements, China’s role will be crucial, Lilholm added.
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