The current gas-fired direct reduction plants replace existing blast furnaces that use coal as a heat source. In the long term, the plants are to run on hydrogen. This is part of the comprehensive decarbonization project at Thyssen-Krupp. According to earlier information, the company can cost the new direct reduction plant more than two billion euros.
The largest independent steel trader in Europe, Klöckner & Co., currently sees a high willingness among customers to pay a premium for green materials, despite the uncertain economic situation. According to Klöckner, the use of CO2-reduced steel is an effective and cost-efficient way for many industrial companies to reduce the CO2 footprint of their products.
A new study by the Boston Consulting Group (BCG), which is available to the Handelsblatt, comes to the same conclusion. The experts at the consulting company predict a shortage because the supply of CO2-reduced materials such as steel and aluminum cannot keep up with the rapidly increasing demand.
Customers like Miele are already working in a climate-neutral manner
This excess demand could persist into the coming decade, explains Nicole Voigt, a partner at BCG. This applies above all to the greenest variants, i.e. the products for which comparatively very little CO2 was emitted during production.
The reason for the high demand is the ambitious climate targets that the customers of the steel manufacturers have set themselves. The household appliance manufacturer Miele, for example, is already climate-neutral in its own production and when purchasing electricity. Now the company also wants to reduce the CO2 footprint of the purchased primary products.
“We are also working intensively on the decarbonisation of the supply chain for metals, especially steel and aluminium,” explains Hans Krug, Head of Purchasing at Miele. “Our aim is to get involved in key issues like this at an early stage in order to actively help shape the relevant developments.”
Steel trader Klöckner & Co. has set itself the goal of being able to offer more than 30 percent of its steel from the green steel categories with the lowest CO2 emissions by 2025 and more than 50 percent by 2030. The company expects that this will not meet demand. “We are currently assuming that demand will exceed supply for up to 15 years,” says a Klöckner spokesman.
Supply gap of 20 million tons of green steel per year
Car manufacturer Mercedes-Benz signs long-term contracts to mitigate temporary price fluctuations. However, the purchase prices for the green steel alone are not the focus. “For us, sustainability is not initially just a cost factor,” explains the Stuttgart-based group.
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Mercedes-Benz has already reduced its CO2 footprint by using recycled steel scrap from Salzgitter AG and the US company Big River Steel. In order to obtain almost CO2-free steel, however, more is planned: Mercedes was the first car manufacturer to participate in the start-up H2 Green Steel and agreed a partnership with the Swedish steel manufacturer SSAB, according to the company.
However, despite the significant demand for green materials, many supply-side players are not responding at the required pace, which will lead to shortages. BCG expects a flat steel supply gap in Europe of up to 20 million tons per year by 2030, based on today’s forecasted demand for greener steel and steelmakers’ capacity announcements.
“We would like to buy more green steel now, but this is not possible at the moment due to limited availability,” confirms Miele Purchasing Manager Krug. As early as 2021, Miele signed letters of intent with several well-known steel suppliers to secure future needs.
For Miele, CO2 emissions from the production of purchased goods account for 14 percent of total CO2 emissions. This is the second largest share directly after consumption in the use phase of the devices. This was almost 1.74 million tons of CO2 in 2021 – steel accounts for the lion’s share.
Klöckner & Co. also reports: “The direction is clear. The interest and willingness to buy transparently is growing.” The steel trader has been offering its customers an individualized CO2 footprint for almost all of its products since January of this year – and according to the company, is meeting with great demand.
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The car manufacturer BMW also relies on green steel and green aluminum – but the group did not want to comment on whether it is willing to pay more for the low-emission products. The company wants to supply more than a third of its global production network with CO2-reduced steel from 2026 and has already made supply agreements in Europe with Salzgitter AG and H2 Green Steel.
More than a third of the aluminum required is supplied by a manufacturer in the United Arab Emirates that relies exclusively on solar power for production. The remaining two-thirds come from a recycling loop, according to a company spokesman. Aluminum products are mainly installed in the electric drive units.
Steel is still one of the biggest CO2 sinners
The BCG experts advise steel manufacturers to increase their green commitment, despite all the existing uncertainty and immense investment costs. The investments will pay off in the medium to long term because green steel is becoming more and more competitive. The reason: the conventional material, which is manufactured with high CO2 emissions, will lose its price advantage because every tonne will be made more expensive by government CO2 taxes.
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With around seven percent of global CO2 emissions, the steel industry is one of the biggest polluters of the climate. Large German steel manufacturers such as Salzgitter AG, Arcelor-Mittal and Thyssen-Krupp are primarily relying on direct reduction plants and electric arc furnaces for the conversion.
Instead of coking coal, the steelmakers will initially use natural gas, but plan to switch to hydrogen in the long term. The process of direct reduction does not require CO2-intensive coal, but it consumes a lot of electricity – and that is very expensive in the energy crisis.
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