Gunnar Groebler leaves no doubt that he is serious. “We are already in the process of preparing the construction site for the new plants,” says the CEO of Salzgitter AG in an interview with the Handelsblatt. It is about completely converting the main production processes in the integrated steel works without interrupting operations. “It is a mammoth task. But we want to prove that it’s possible,” he says.
You are facing a fundamental change of direction, he explains. Salzgitter AG wants to transfer the process for the production of green steel from the level of a pilot project to the industrial scale.
The corresponding investment decision should be available to the Supervisory Board in the summer. The first step is about one billion euros. We’re talking about the largest investment since our IPO in 1998,” explains Groebler, who has headed Germany’s second largest steel manufacturer since July of last year.
His company represents the entire industry. Whether Thyssen-Krupp Steel or Arcelor-Mittal – they all have to master a demanding and expensive transformation process within a few years in order to meet the climate targets and become completely climate-neutral by 2045 at the latest. After all, the steel industry accounts for 30 percent of industrial emissions in Germany.
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The industry calculates with investments of around 30 billion euros. Of this, ten billion euros alone will be due by 2030.
The problem: green steel initially has no chance on the world market
The focus is on two challenges: The classic blast furnace route, which is based on the use of coal, has to be replaced by the so-called direct reduction process because of its CO2 intensity.
If green hydrogen is used in the direct reduction process, climate-neutral steel is produced. In addition, steelmakers need to optimize their processes so that more steel can be recycled. This, too, can significantly reduce CO2 emissions.
The problem: The green steel is more expensive than conventionally produced steel. As long as manufacturers in other regions of the world continue to operate classic blast furnaces, green steel has no chance on the world market. Politicians must help close the gap.
The old federal government had already recognized the problem and, together with the industry, developed a “steel action concept”, which was presented in July 2020. Not much has happened since then, public funding is essentially limited to pilot projects.
The companies are waiting for the go-ahead for large-scale funding. “We can set up the entire process chain. We want to have completely replaced steel production via the blast furnace route by 2033, not 2045,” says Groebler. This significantly tightened the schedule. “What we need now are quick political decisions for the right framework conditions.” In 2025, the first direct reduction plant could be put into operation on an industrial scale.
The ball is thus in the playing field of Federal Minister of Economics Robert Habeck (Greens). Two weeks ago, Habeck made it clear that he wanted to accept the challenge. The coalition partners had agreed “that what is needed will also be financed,” the minister said at the Handelsblatt energy summit.
“There should be no lack of government support,” he added. “As long as hydrogen-based production is still more expensive than the market can absorb, we will pay the difference in costs,” said Habeck. This means investment costs and also the additional costs of ongoing operations, the minister confirmed when asked.
Salzgitter needs a “significant three-digit million amount” from the state
The topic also plays a role in the immediate climate protection program that Habeck presented in the second week of January. “We will create the legal and financial conditions for the provision of climate protection differential agreements as a central tool to support the transformation in the industry,” it says. According to Habeck, the immediate climate protection program should be “completed by the end of 2022, so that all measures can take effect from 2023”.
Time is of the essence in the steel industry. Investments cannot be postponed at will. Some blast furnaces have reached the end of their service lives. It has to be decided whether to go back to the conventional production method or switch to direct reduction.
“We now need a clear and reliable answer from politicians as quickly as possible,” says Salzgitter boss Groebler. His company needs “a clear three-digit million amount” as investment support. “And that alone is not enough,” says Groebler. Fortunately, Minister Habeck confirmed that he also wanted to subsidize the initially higher operating costs of climate-friendly processes.
>> Why climate protection agreements could be the last chance for industry
Groebler is convinced that the contracts for difference mentioned by Habeck are the appropriate instrument to compensate for the higher costs. The public sector has made a commitment to companies that, when investing in new, climate-neutral processes, they will bear the additional costs compared to investments in conventional technology and the additional costs of ongoing operation.
The decisive factor for the Salzgitter boss is that the contracts for difference are also used: “Theoretically, the way it works is known and has been described many times, now it is important to actually use the instrument.”
Cooperations with BMW and Örsted
Parallel to the development of the new production process, Salzgitter AG, like the other steel manufacturers, is working on firmly integrating the principles of the circular economy into the company’s processes. “It’s about developing closed cycles from linear process chains,” says Groebler, pointing to two examples: Just last Monday of this week, Salzgitter AG and the BMW Group announced an agreement aimed at using steel scrap from the BMW plants, that is produced in the press shops when the doors are punched out, and to use it directly again for the production of new steel.
“Steel is infinitely recyclable. We will make even greater use of this potential,” says Groebler. The increased use of steel scrap helps to reduce CO2 emissions. The BMW Group plans to increase the proportion of recycled steel from up to a quarter today to “up to 50 percent” by 2030. From 2026, Salzgitter will also be supplying green steel to all BMW Group plants in Europe.
Salzgitter recently entered into a strategic partnership with the Danish wind farm operator Örsted. “In principle, it should work like this: Örsted supplies us with offshore wind power and sustainably produced hydrogen. We need both for the production of green steel. This green steel is then used in the components for Örsted’s offshore wind farms. And finally, we return steel scrap from decommissioned offshore wind farms to steel production,” explains Groebler.
Both concepts – the switch to the direct reduction process and closed material cycles – should make Salzgitter climate-neutral by 2033. A big goal. But Groebler is optimistic: “We have enormous respect for the challenge. But we see this transformation as an opportunity. Everyone here in the company is on board, and the employees also see this as the right way,” he said – and adds: “If we didn’t believe that it would work, we could give up right away.”
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