Traditional blast furnace-based steelmakers need to adapt to remain relevant – Gunung Capital

Steelmakers will need to adapt quickly to the burgeoning decarbonization movement in Asia to remain relevant, Gunung Capital managing partner Kelvin Fu told Fastmarkets in an interview

The Singapore-based asset manager spoke with Fastmarkets about how the steel industry should move forward with the decarbonization movement.

What do steelmakers need to do?

Fu believes that the fastest way to reduce emissions levels for most steel mills is to convert from traditional blast furnaces (BFs) to electric-arc furnaces (EAFs) in order to work toward decarbonization in the steel industry.

The costs to steel mills for such a conversion, however, will be high, and that will prove to be a major obstacle for most steelmakers in completely making the switch to EAFs.

Achieving the full switch to EAFs by 2030 is not entirely possible for Chinese mills, Fu said.

Steelmakers with traditional BFs, however, can still play a role, he said. They should adapt by using high-grade iron ore, by shifting to consuming green iron ore, or by introducing hydrogen in their processes.

Iron ore demand will shift toward high-grade segment

Fu believes that the consumption of iron ore fines – which typically causes higher emissions levels – will continue to decrease along with the decarbonization movement in the steel industry. With that, steel mills will need to explore alternative sources of feedstock.

This will be especially apparent for low- or mid-grade iron ore fines, he said, and the market will need to consume more high-grade iron ore as part of steelmakers’ efforts to reduce emissions levels.

“There is still a role to play for steelmakers using BFs. We can’t transition the whole world to EAFs, but it would be important to source more sustainable feedstocks,” Fu said.

Steelmakers are already exploring the use of hydrogen, he said, as part of their initiatives to lower emissions levels from traditional BFs.

Fortescue Metals Group (FMG), for example, has invested heavily in researching the process of making green iron ore, and Fu believes there is a lot of potential there.

“It is important to distinguish how the hydrogen is made. Using renewable energy to produce the hydrogen, like how Fortescue Metals Group is researching into, is more viable,” Fu said.

Buying carbon credits to offset carbon footprint

Fu has overseen change management at various companies, including Gunung Raja Paksi, Indonesia’s largest privately owned steel company, where he started a carbon credits trading desk in late 2021.

He recognizes that it is impossible to achieve decarbonization overnight, but steelmakers must strive to create processes that are greener. The final stage would be to offset their carbon footprints by trading carbon credits.

“The carbon credit market will require dedicated attention, because it will be one of the largest asset classes, and it is important for steel mills to understand how carbon trading works and use the carbon markets to incentivize it and to further go green,” Fu said.

The green steel movement

With China curbing steel production and Chinese exporters losing their export subsidies, this has opened export opportunities for mills in southeast Asia, Fu said.

But with buyers in the United States and Europe looking seriously at the carbon footprint of imported steel, Asian steelmakers need to achieve “green labels,” he added.

“If we are not serious on the decarbonization front, we cannot attain this ‘green label.’ Now we must produce a declaration of our environmental attributes to prove that we are using either recycled metal or greener feedstock,” he said. “We will combine and bundle that with carbon offsets so that when [the product] reaches the customers, it will be carbon neutral steel.”

There are no set premium levels on green steel, Fu said, and he believes that such premiums will most likely be driven by the various countries’ import policies.

“America and Europe will likely lead the way for importing green steel, and eventually the rest of the world will have to catch up.”

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