Premiums constrain green steel’s wider adoption
The acceptance of green steel so far has been limited by competitive market forces, but it is likely to remain a fundamental focus in the industry, according to market participants
There are some steelmakers who offer green steel versions of their entire product line at a premium price, and other producers have developed specific green steel products that also sell at a premium.
While making a zero-premium green steel is currently elusive, there is a race on among entrepreneurs, metallurgists and engineers to accomplish that goal through new steelmaking technologies.
It remains to be seen if any of those new technologies can both achieve decarbonization and be priced competitively enough to gain market share.
At present and for the immediate future, selling green steel at a premium price is a challenge, according to market participants.
“Steel is largely a commodity. It’s refined products from rocks or scrap. The buyer is looking for this commodity to be priced at a level that can make money,” KeyBanc Capital Markets’ Phil Gibbs said.
Any conversation about turning the steel industry green must start with the disparity between the high profile that green steel has achieved in the industry and the relatively small amount of green steel that is actually produced every year, according to Gibbs.
Green steel’s share of overall steel production “is an extremely limited amount, probably less than one half a percent,” Gibbs said, if green steel is defined as being carbon neutral, with net-zero carbon emissions.
Gibbs clarified that there has been an increase in market share for what he calls “greener steel,” which he described as steel produced with lower carbon emissions, rather than zero carbon emissions.
“I think [green steel] is realistically being discussed as more of an avenue to have a conversation with a customer, in terms of wanting to do business with certain companies going forward,” he said, referring to efforts by steel consumers to use green steel to lower their own carbon footprints and achieve sustainability goals.
“The potential of green steel, no matter how [the premium] is priced, really seems limited in the next several decades. Realistically, it’s tough to say if green steel is going to be viable on a larger scale,” Gibbs said.
The positive public relations effect that steelmakers gain for supporting green steel is a key reason they offer products with lower emissions and publicize them in ribbon cutting ceremonies and other events, a mill source told Fastmarkets.
“While there is interest [in his company’s green steel products] from the OEM [original equipment manufacturer] customers, I’ve not had discussions wherein an OEM is truly willing to pay for green steel,” the mill source said.
An expected “mild recession” in 2023 will make it even more difficult to sell green steel at a price premium, according to the mill source. “In the end, I don’t think OEMs are willing to pay for this. Steel mills will promote it for marketing purposes and the betterment of our environment.”
A steel products distributor whose firm sells to end markets that would potentially buy green steel had a similarly skeptical view of those who claim that green steel can become a significant factor in the market. “I wouldn’t be surprised if it’s almost infinitesimal.”
Specialty green steel products targeted at specific applications, however, may potentially have more success, according to the distributor.
“With such products, such as extra low-corrosion steel for certain agricultural applications, I would think this is where green steel could get some traction,” he said.
Premium-priced specialty steel could be chosen for “high profile, high margin projects, such as skyscrapers and bridges that have a lot of premium [pricing] built into them,” the distributor said.
If the specialized corrosion resistant flat-rolled steel is made as green, then contractors might include that green steel in the project, if it is something that can then be touted as a green construction project, he explained.
For product pricing to work, it will require that the premium cost over competing products be significantly reduced, according to the distributor.
The current price premium for green steel is significant, no matter how it is priced, the distributor said. “I wouldn’t be surprised if it is 10% higher than standard steel products, and it could be even higher, depending on what you’re comparing it to.”
To have any chance of being considered by potential buyers, the premium on green steel has to be reduced to 2-5% above conventional steel, the distributor explained.
“Even a premium of 2-3% can wreck the margins on a project, because it could represent the entire margin for most projects,” he said.
Relying on renewable energy to make a project green can similarly add to the costs, according to the distributor.
In some cases, the distributor said, a given project might be able to generate enough power to sell some of it back to the cities sponsoring the project, “creating goodwill for the customer and a good ESG score.” An ESG rating measures the exposure of a company, fund or security to environmental, social and governance risks.
“I don’t know that it’s enough to make up for having to pay 5% or more for green steel for the project,” he said. “That’s going to be a difficult barrier of entry for a commodity.”
Electric-arc furnace [EAF] steelmakers rely on recycled steel as their raw material, starting out with lower emissions and positioning them to achieve even lower emissions, according to market participants.
Nucor Corp, for example, has reported early success with selling its green steel products.
Nucor introduced Econiq, a green steel version of its product line, in October 2021. The company described it as “the world’s first net-zero carbon steel at scale, introduced to offer steel consumers emissions-free steel products to help meet their sustainability goals.”
The company provided an update on the success of the product line in an email sent to Fastmarkets on November 4.
“Since shipping our first net-zero Econiq coil to General Motors in January 2022, we have seen increased demand not only from other auto original equipment manufacturers, but also on a broader scale from some of our largest, most influential customers who are seeking to meet sustainability goals and achieve a long-term reduction in their carbon footprint,” Katherine Miller, Nucor director of public affairs and corporate communications, said.
“Nucor is in a position of strength to set the bar for the rest of the world. While others are spending billions to convert to electric-arc furnace technology, we are already there, offering the cleanest and most diverse steel products anywhere in the western hemisphere,” Miller said.
“Our modern, green economy is being built with steel, and the steel that it gets built with matters. That is why the move to cleaner and net-zero steels is a trend that will continue to grow in the coming years and beyond,” Miller said.
Even so, Nucor’s green steel sales are just beginning to be a factor in current steel consumption, according to Gibbs. “Econiq is very nascent, in terms of how many tons of steel it represents in the market.”
While EAFs start with an advantage over traditional steelmaking in terms of lower carbon emissions, integrated steel companies that rely on coke for steelmaking are positioned to achieve greater overall reductions in carbon emissions, according to market participants.
A case in point is Cleveland-Cliffs, a vertically integrated steel company with its own source of iron ore.
The company made significant strides in reducing carbon emissions after investing $1 billion in a new direct-reduction iron (DRI) plant in Toledo, Ohio, and “hundreds of millions” in the company’s iron ore range in Minnesota “to make DR grade pellets,” according to Traci Forrester, Cleveland-Cliffs executive vice president, environmental and sustainability.
Cleveland-Cliffs’ DRI plant became operational last year and was a key factor in a 21.45% reduction in the company’s greenhouse gas emissions in 2021 compared those in 2017, according to the company’s sustainability report for 2021.
Forrester said the company expects its emissions reduction for 2022 to be 22-25% lower than 2017.
“That was a risky investment for us, at the time we made the decision to build the plant, and we’re very pleased with performance of the plant. We were able to get that plant up to capacity almost immediately, within the first 4-6 months of operating,” she said.
The company soon discovered, however, that other steelmakers were unwilling to pay a premium for green steel, according to Forrester.
“We built it with a third-party customer base in mind. But by the time it came online, it was perfectly aligned with the consumption that we needed, and now use, in our own blast furnaces and basic oxygen furnaces and electric-arc furnaces. So, we consume a majority of the hot briquetted iron that we produce out of that plant in Toledo,” she said.
Cleveland-Cliffs has been successful in producing green steel “just by better practices — finding energy and material efficiencies,” Forrester explained.
“The breakthrough technologies that are needed to really drive [steelmaking] to net zero, they just don’t exist today at a commercial scale,” she said.
Some pilot projects relying on alternative fuels have produced small amounts of net-zero steel on a pilot scale, Forrester said.
While noting that this a “fantastic” development, Forrester added that while the resulting steel may have been sold, she’s “not sure if it’s enough to produce anything of significance, to really know what the premium demand would be.”
The steel being used in some pilot projects is also not comparable to the strengthened steels produced by Cleveland-Cliffs, Forrester said. “It’s not a quality or grade of steel that Cliffs would produce. We are known for tough, technically hard to make, high quality, advanced high-strength steels that are used by the automotive manufacturers,” Forrester said.
“There is a high cost to doing things greener. And I’m not sure that customers are willing to pay the premium yet. I don’t think we’re there yet,” Forrester said.
Several new green steelmaking ventures are seeking to develop, demonstrate and commercialize new processes that result in net-zero carbon emissions.
One of those is Electra, a Boulder, Colorado-based company started in 2020.
Decarbonizing steelmaking essentially equals decarbonizing ironmaking, given that 98% of global steel is iron, and 90% of steelmaking emissions come from refining iron ore to iron
“Decarbonizing steelmaking essentially equals decarbonizing ironmaking, given that 98% of global steel is iron, and 90% of steelmaking emissions come from refining iron ore to iron,” Sandeep Nijhawan, Electra’s co-founder and chief executive officer, said.
Electra’s oxygen-decoupled electrolysis process releases only pure oxygen into the atmosphere and can refine iron ores into a product that can substitute for prime scrap as a feedstock in EAF steelmaking, according to Nijhawan.
“Electra plans to build out a pilot [manufacturing] plant at Boulder headquarters in 2023,” according to a company spokesperson.
Boston Metal, a company based in Woburn, Massachusetts, has developed a molten oxide electrolysis process that eliminates the need for coal.
A wide grade of iron ores can be used in the process, Adam Rauwerdink, senior vice president, business development at Boston Metal, told Fastmarkets. “It can be very flexible in terms of fine or lumps or pellets or sinter.”
The company has developed cells of various sizes, including smaller laboratory-size cells, that it has been testing over the last three months to demonstrate and perfect its technology, and evaluate “the scale-up performance” of the process, according to the senior executive.
The company’s largest cell is capable of producing “just under” half a ton of liquid iron per day, Rauwerdink said.
Boston Metal’s next step is building a pilot plant by the middle of this decade, to demonstrate it can make steel for demanding applications such as those in the automotive industry, according to Rauwerdink.
Despite limited acceptance by steel buyers so far green steel could eventually break out of its niche market role, provided breakthroughs in technology lead to further significant reductions of — or the elimination of — the “green premium,” according to market participants.
Steelmakers’ strong and public commitment to green steel suggests that efforts to achieve lower carbon emissions are likely to remain a fundamental focus of the industry.
To keep up with the green steel discussion, visit our Green Steel Spotlight page.