How green energy could fundamentally alter Chinese steelmaking

Hydrogen energy, gas tanks

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China aims to raise the share of non-fossil fuels in total energy consumption to about 20% and 25% by 2025 and 2030 respectively, according to an action plan formulated by the Central Committee of the Communist Party of China and the State Council to peak carbon dioxide emissions by 2030 and achieve carbon neutrality by 2060.

That suggests an increasing importance and usage of green energy - energy that is produced with little-to-no environmental impact - amid the country’s decarbonization push. “The change to the energy structure does not only facilitate the steel sector’s transition to low carbon, but also brings profound changes to the demand structure for steel,” Wang Guoqing, research director at the Beijing Lange Steel Information Research Center, told Beijing-based securities newspaper Securities Daily in December.

Steelmakers bet on hydrogen power

“The application of hydrogen energy in steel production is an effective way to transform and upgrade the steel industry to a low-carbon and green industry,” Jin Qinxian, deputy secretary-general of Tsinghua University and dean of the Beijing Tsinghua Industrial Development Research Institute, said at an industry forum in November.

Hydrogen metallurgy is a technology that applies hydrogen instead of carbon as a reduction agent in ironmaking processes; it is zero emission, and the process is very fast. The technology is one of the most promising ways to help the steel industry achieve “zero carbon,” Ma Guangyu, the director of the environment and resource unit under the Iron and Steel Research Institute of Ansteel Group, told Fastmarkets.

The action plan for a 2030 carbon peak also encourages steel mills to facilitate “the substitution of clean energy” and venture into “integrated trials on hydrogen metallurgy and integrated capture and utilization of carbon dioxide.”

Wei Wei, president of the clean energy unit at Baowu Steel Group, identified three ultimate directions for decarbonization in steelmaking: 1) electrification, such as shifting to electric-arc furnaces, 2) carbon capture and utilization, and 3) hydrogen energy, which will be “disruptive” to the industry.

Given the significant potential of hydrogen power, Chinese steelmakers have stepped up their efforts in the development of hydrogen metallurgy.

HBIS Xuansteel started the construction of its hydrogen energy application pilot project in northern China in May last year, marking the launch of the world’s first hydrogen metallurgy demonstration project.

The project will use wind and solar power to produce hydrogen and employ new hydrogen reduction technologies, including Tenova Energiron-ZR technology, to replace the traditional blast furnace hot metal procedures, according to HBIS Xuansteel.

Baowu Steel is now working on a hydrogen-enriched carbon recycling blast furnace project in the Xinjiang Uyghur Autonomous Region in northwest China. Baowu’s 1 million-tonne capacity, zero-carbon plant with hydrogen-based shaft furnaces and electric-arc furnaces in Zhanjiang, southern China is also in the pipeline and is expected to start operation in September 2023.

Ansteel Group released its roadmap for low-carbon metallurgical pathway development at the end of 2021, in which it identified three key technologies for carbon reduction: hydrogen-rich oxygen-rich ironmaking technologies in blast furnaces, carbon dioxide capture and utilization, and hydrogen metallurgy.

The steelmaker is working on the project of “green power, green hydrogen and green steel” - using green energy-produced hydrogen to produce steel, and facilities for the project are expected to be completed by the end of 2022, according to Ansteel Group’s Ma.

But Ma also pointed out that technologies for the production, storage, transportation and utilization of hydrogen are still “immature” and require vast investment. Ansteel expects to the mass adoption of hydrogen metallurgy to be realized after 2035, according to its roadmap.

Energy transition to boost steel demand

The clean energy transition to ease the impact of climate change could “unleash unprecedented metals demand in the coming decades,” the International Monetary Fund (IMF) said in a blog post in December.

The IMF expects the energy transition, including the shift to electric vehicles, greater electrification and use of renewable energies, to require “as much as 3 billion tons in metals.”

For China’s pathway to green and low-carbon energy transition, the country plans to continue its development of energy resources such as hydro, wind and solar power, speed up its development of new electric power systems, and actively develop nuclear power in a safe and orderly way. At the same time, it will promote the substitution, transformation and upgrading of coal and regulating oil and gas consumption, according to its 2030 carbon peak action plan.

China aims to bring its installed generation capacity of wind and solar power to beyond 1,200 gigawatts by 2030.

Data from the National Energy Administration (NEA) shows that China’s installed wind power capacity soared by 29% year on year to 300 million kilowatts in the first eleven months of 2021, and solar power capacity reached 290 million kilowatts, up by 24.1% from a year earlier.

Steel mills are also investing in green energy to make their production process greener. For instance, Baowu’s operations in Zhanjiang are making progress with a solar power project. Phase 1 of its rooftop solar photovoltaic systems, with capacity of 48.2 megawatts, was connected to the grid on December 15, 2021. Ansteel said it is developing solar energy, wind energy and nuclear power projects to generate electricity.

Construction of these green energy projects looks to set to give a boost to steel demand, with wind farms requiring heavy plates and photovoltaic (PV) power generation requiring high-strength, lightweight, corrosion-resistant, and fatigue-resistant steel structures.

China also identified promoting green and low-carbon transportation as a key focus on its way to carbon peak and neutrality.

The application of new and clean energy, such as electricity, hydrogen power, natural gas, and advanced liquid biofuels, will be increasingly used in transportation. China aims for new energy and clean energy-powered vehicles to make up 40% of total vehicles in the country by 2030.

Automobiles are a major steel consumer. China wants about 20% of new cars sold by 2025 to be electrified, while also aiming for new energy vehicles (NEV) to be the dominant type of vehicle sold in the country by 2035, according to the development plan for the NEV sector (2021-35), issued by the State Council in November 2020.

The China Association of Automobile Manufacturers (CAAM) made a forecast on December 14 that domestic NEV sales will hit 5 million units in 2022, up by 47% year on year. CAAM data shows that for the first 11 months of 2021, China’s NEV output and sales amounted to 3.02 million and 2.99 million units respectively, both up by about 167% from the same period last year.

Robust growth in the NEV sector, coupled with the construction of charging facilities, will offer strong support to steel consumption, a Shanghai-based industry analyst said. A number of mills told Fastmarkets they are developing steel products used in NEVs.

Some steelmakers have stepped up their deployment of high-end auto sheets for NEVs. For instance, a groundbreaking ceremony for an auto sheet plant, which is jointly owned by HBIS Group and South Korean steel producer Posco was held on January 7. The plant, located in Tangshan in North China’s Hebei Province, coupled with an existing production line in Guangdong in South China, will make the joint venture to be the biggest high-end auto sheet supplier in China and the venture will focus on sales of high-end, NEV sheets and aim to provide low-carbon, green and lightweight materials for high-end car brands.

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