Prospects improving for green steel premium: distributors

Willingness to pay for steel that advances decarbonization and sustainability goals is gaining ground, suggesting that premium pricing for green steel could be implemented and marking a turnaround from views in the recent past, according to leading service center executives

“The quickest way to break up a social circle five years ago was to talk about this, [but now] more customers are talking about it [and] it’s clearly more of a top-line issue,” Edward Lehner, president and chief executive officer at industrial metals distributor and processor Ryerson, said at Fastmarkets’ Steel Success Strategies conference on Tuesday June 7.

The questions right now are the dollar value that might be set for the green steel premium and when buyers might be ready to pay the premium, Lehner said in a panel discussion on steel distribution amid supply-chain issues.

The answer? “It really depends upon the choices we make as a society,” Lehner said.

The government could adopt policies that either create incentives for buyers to pay a premium for green steel - or be punitive and impose penalties for those who do not, Lehner said. If a policy based on incentives was chosen, the government would need to decide what customers receive in return for paying a premium for green steel.

Policy makers also will need to decide on how ambitious they want to make their goals, Ryerson said.

“Do they want to get to net zero [carbon emissions]?” he asked.

Decarbonization is “really a hot topic,” panelist Todd Lebow, chief executive officer and president of distributor and metals processor Majestic Steel, agreed. “I think sustainability is not just a trend right now, but we’re trying to figure out what that means, how to manage and how to create value for your company.”

Regarding the implementation of a premium, Lebow said it depends on the specific companies and who is asking for green steel to be offered.

“Is it their investor pool? Their customer pool? Are they going to generate value for it?” Lebow asked. “If they can create value for it, then they’re going to pay for it,” Lebow said, meaning that if buyers find value in green steel, then they will be willing to pay for it.

Lebow pointed out that different options at the grocery store demonstrate how this can work, noting that shoppers can find milk and produce that are advertised as organic or produced locally and that charge a premium.

“If you care about this, then you’ll pay for it. If not, then you won’t,” he said. “Do you care more about the branding of green steel? Then you can go out to the market and say it’s green steel.”

Government policies also could successfully usher in green steel premium pricing.

“If you’re regulated to [offer, produce or purchase green steel], you’re going to do it. If not you’re not, you’re not,” he argued.

An instant poll of the audience at the conference during the panel discussion found that 31% of those present reported seeing demand for low-carbon steel products, while 69% reported seeing no demand.

The automotive industry may be a leading candidate for paying a green steel premium, according to Jörg Brinckmann, head of ironmaking and green steel at SMS Group, who participated in panel on decarbonization strategies.

The implementation of a green steel premium might have other effects on the market, according to Kerry Deal, head of business development, Freight Investor Services, who spoke in a separate panel on risk-management strategies.

“It will drive people to understand carbon offsets. The necessity of very large cash investments by many steel mills - particularly in Europe but in the US, too - to go greener will also probably make hedging on their outputs and inputs more attractive, as a necessity, as a way to remain more competitive and control costs,” Deal said.

Grace Asenov in New York contributed to this report.

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