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“Currently, 55% of the world population lives in metropolitan areas, and it is forecast that the number will increase to 68% by 2050,” Sangkaeng said.
For instance, one of Indonesia’s biggest future projects is its new capital city in Kalimantan, which is designed to be a green and smart city. This could be one of the drivers for a steel market participant such as GRP to supply green steel to be part of its development, he said.
“We expect the demand from export markets to rise by 20-30% by the end of 2022 as more countries continue to urbanize. As urban areas and corresponding infrastructure increase, governments’ environmental awareness continues to show through their considerations and policies,” he added.
Sangkaeng believes the attitudes of consumers are evolving, with more people supporting sustainable alternatives, especially when coupled with the heightened concerns about climate change.
The quality and cost of steel products are no longer the main point of consideration when purchasing steel. Customers are now invested in buying greener products
While Indonesia’s domestic awareness of green steel is still low, GRP is proactively exploring other markets, especially since the nascent renewable energy trend is starting to pick up across different markets.
Europe has been taking the lead in the imposition of carbon taxes, but Australia is also slowly implementing such measures, so there might be a shift in regulations in times to come, Sangkaeng said.
GRP is engaging closely with organizations such as the Green Building Council and working on obtaining certifications that will allow it to be able to show transparently that its supply chain is sustainable and supports decarbonization.
As the global landscape shifts toward sustainability, many governments have started encouraging the production and import of more sustainable products through their trade policies.
GRP has become one of the first regional mills to achieve Environmental Product Declaration (EPD) certification, which is an independently verified and registered document that communicates transparent and comparable information about the life-cycle environmental impact of products.
With the EPD, GRP can provide transparency on the environmental performance or impact of its steel products or material over its lifetime, adding credibility to its sustainability claims.
“By using our steel that has certifications for its sustainable production, our downstream consumers can also export to more environmentally conscious markets,” Sangkaeng said.
Thus, this incentivizes the end users to use and accept green premiums for GRP’s steel products, which are produced in environmentally friendly mills and other green technologies and facilities.
“As of now, our direct customers still need to increase their awareness toward the need for sustainable products before accepting the green premiums. We will continue to monitor the situation and see how the industry is evolving when it comes to implementing green premiums,” Sangkaeng said.
As for how to price the green steel premiums, Sangkaeng said GRP was still monitoring premium pricing in the market since there were multiple factors for consideration, such as energy costs and carbon taxes.
Also considered are technology investment costs that one steel producer would need to make to derive the final pricing that is considered fair and affordable for the market.
GRP is investing in carbon reduction units, such as Light Section Mill (LSM) and shifting from traditional steelmaking operations to one based on an electric-arc furnace.
Sangkaeng expects the supply of the main green steel raw material – steel scrap – to increase in both Indonesia’s domestic market and those from which it sources it. This trend will be conducive to the production of green steel, Sangkaeng.
“Scrap output will increase together with the steel consumption projection in Indonesia because the national government has budgeted its highest infrastructure spending,” he said.
Steel scrap imports are expected to rise to around 5 million tonnes per year following the Indonesian government’s easing of import rules for scrap metal in 2020. Indonesia imported 1.46 million tonnes of steel scrap in 2021, up by 3% from 2020, according to the Bureau of International Recycling.
“More recently, with lower costs and expectations due to a weaker market environment in China, we noted that there is a chance for steelmakers like ourselves in Indonesia to step in,” Sangkaeng said.
Previously, Indonesia’s steel industry was only utilizing approximately 40% of its capacity due to insufficient of raw materials.
With the relaxation of restrictions on scrap metal imports and the country’s growing construction sector, Sangkaeng believes that more Indonesian steel companies, including GRP, will be able to produce more steel products.
In China, the movement for green steel and green steel premiums has been largely influenced by the nation’s lofty ambitions of having carbon emissions peak by 2030 and of achieving carbon neutrality by 2060, which push steelmaking giants toward developing greener technologies.
Interest in the development of direct-reduced iron plants that use hydrogen and natural gas has grown, with many steelmakers taking the time to take another look at their plants and moving toward adapting to technologies that move away from blast furnaces.
“At present, with China producing more than half of all global steel and contributing to 60% of carbon emissions from steel, developments in the country will motivate other markets to follow suit,” Sangkaeng said.