Paying the ‘green steel’ premium in US auto industry
Will US automakers pay the price for green steel?
Steel producers and automakers in the United States are increasingly focused on tackling climate change challenges and reducing greenhouse gas (GHG) emissions, but it is not clear yet if automakers will shell out a premium for low-carbon steel.
Consumers “have to accept a green premium” for the steel sector to achieve net-zero emissions targets, Steel Dynamics Inc president and chief executive officer Mark Millett said during a keynote address on Monday June 21 at Fastmarkets’ 2021 Steel Success Strategies Industry Briefing.
However, it will be a few years before a green auto premium can be marketed as a meaningful product, according to Fastmarkets analyst Alistair Ramsay.
“Green steel, or what the World Steel Association now refers to as ‘low-carbon steel,’ is at this stage a concept and won’t start to become a meaningful ‘product’ for at least five years as different solutions to the problem are developed,” Ramsay said.
It is not clear if or how much of a premium US automakers would be willing to pay to ensure a lower carbon footprint, according to a steel producer who wished to remain anonymous. Such a push may become a consequence of government regulations and legislation “forcing the auto market to become ‘green’ at a cost,” the producer said.
“It is not just about an ‘X’ amount of premium for ‘clean’ steel - the question is how clean?” the producer said. “Newer original equipment manufacturers (OEMs) raise the question of decarbonized steel with their suppliers, but the steel industry in the US is already very green.”
The auto industry in general expects steel suppliers to take steps to reduce GHG emissions, with the impression that those who don’t may get de-sourced, the source said. However, auto customers who prefer electric-arc furnace (EAF) or mini-mills will not cut integrated mills out of the supply chain if they’re making the effort, the producer added.
US business magnate and philanthropist Bill Gates wants to eliminate green premiums entirely. For electric vehicles, Gates believes this will happen in the next 10-15 years; but for steel, the technology is still too nascent to be able to forecast.
Low-carbon steel vs alternatives
Ultimately, “automakers will be forced to pay for higher production costs as new investments are made to automotive steel, unless they can successfully remove steel and replace with an alternative material such as plastic, though presumably that is more exposed to fossil fuel,” Ramsay said.
But for now, the US auto industry “seems to be evolving on its own without a push from politicians or others,” Phil Gibbs, equity research analyst at KeyBanc Capital Markets, told Fastmarkets.
“It’s doing its own thing, finding consumer preferences,” he said.
Gibbs cited Ford Motor’s F-150 pickup truck switching from a steel to aluminium body for light-weighting purposes in 2015 as an example of auto producers making self-directed pivots.
Critics from within the steel industry say that aluminium production is heavily energy-intensive and are pressing the United States Environmental Protection Agency to assess the total lifecycle carbon emissions of vehicles rather than just tailpipe emissions.
Currently, the aluminium industry is responsible for 1.1 billion tonnes per year of carbon dioxide emissions, equivalent to around 2% of all global anthropogenic emissions, making the sector one of the United Nation’s most challenging or “hard to abate” industries.
On the other hand, among heavy industries, the iron and steel sector ranks first when it comes to CO2 emissions, and second when it comes to energy consumption, according to a 2020 report by the Paris-based International Energy Agency.
Fastmarkets launched a new low-carbon aluminium differential for primary aluminium (P1020A) and value-added products in Europe on Friday March 5.