Dusseldorf Martin Lindqvist is optimistic, which is unusual for a steel manager in the current situation. The energy-intensive industry is suffering from high prices for electricity and, above all, gas, as well as weak demand from the automotive industry. The CEO of the Swedish steel producer SSAB, however, sees his group well positioned well into the distant future.
“We have enough capital to finance upcoming investments,” the 60-year-old told journalists at a conference call on Tuesday when the figures for the first quarter were presented. “We also expect cash flow to continue to be strong, so we are very well positioned for the transformation.”
Lindqvist underpins his forecast with strong numbers. Between January and March, SSAB made an operating profit of the equivalent of EUR 805 million – a record despite the current turbulent environment. The analysis house Refinitiv had expected a result of around 635 million euros due to the situation.
The fact that the group has come through the gas crisis so well so far is also due to the fact that SSAB is less dependent on Russian gas supplies than many of its competitors, for example from Germany. Although the Swedes obtain liquefied natural gas (LNG) from Russia, they do not use a direct pipeline connection, but instead use LNG terminals. These can also be used by alternative suppliers.
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In Germany, on the other hand, the industry is worried about the prospect of having to do without Russian natural gas in the future. The planned LNG terminals in Brunsbüttel, Wilhelmshaven and Stade should only be completed in a few years. In addition, the capacity of the plants is unlikely to be sufficient to compensate for the loss of Russian supplies.
Decarbonization in two steps
This not only jeopardizes ongoing operations, but also the long-term survival of the German steel industry. Industry must reduce its CO2 emissions by 30 percent by 2030, and by 100 percent by 2045. This requires a billion-euro conversion of the entire production network, which many manufacturers in this country wanted to tackle in two steps.
Two of the largest German manufacturers, Thyssen-Krupp and Salzgitter, are currently planning to switch from coal-based blast furnace production to natural gas-based production in electric arc furnaces. As a result, the CO2 emissions in the production process can already be reduced by around a third. From 2030, production is to be gradually switched to climate-neutral hydrogen, which can also be used in the new plants.
The supply of climate-neutral steel is of the utmost importance for German industry. The automotive industry in particular not only wants to decarbonize vehicles and their exhaust gases, but also the entire production chain. But the war in Ukraine puts this plan in jeopardy.
“The conflict with Russia means that natural gas is becoming scarce,” says Nicole Voigt, steel expert and partner at the Boston Consulting Group (BCG). Many manufacturers are already affected by this. “Due to decarbonization, however, the demand will increase significantly.” This could lead to many manufacturers putting their decarbonization strategies to the test again.
decoupling from Russia
The amounts of natural gas that the industry needs to significantly reduce CO2 emissions are immense: From 2026, the industry in Germany wants to produce between five and six million tons of climate-neutral steel – but according to BCG estimates, around two percent of the current German total consumption additionally required. This runs counter to the German government’s goal of reducing German consumption as quickly as possible given the country’s economic decoupling from Russia.
A direct switch to hydrogen also seems unrealistic in view of the scarce supply situation. The German steel industry alone would need four to five percent of the amount of green hydrogen that the European Union had planned as a production target for 2030 (ten million tons).
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Thyssen-Krupp alone, for example, estimates that more than 40 terawatt hours of additional electricity will be needed to decarbonize its entire production. That is around four times as much as the city of Hamburg consumes in a year.
Access to cheap energy sources is therefore rapidly gaining in importance for the steel industry. “Manufacturers who produce in locations where a lot of climate-neutral energy is available, such as Scandinavia or southern Europe, have an advantage,” explains steel expert Voigt.
question of competitiveness
Their prognosis: Many companies that do not have high-energy sites like SSAB do might now consider splitting up their production regionally. It is therefore conceivable that the German steel industry will in future produce its sponge iron in energy-rich regions outside of Europe, such as in the Middle East or in Australia, says Voigt.
Steel production, which takes place in an electric arc furnace, and further processing could remain in Europe. “The war will accelerate this development – because with the current energy prices, it will be difficult for the European steel industry to remain internationally competitive.”
For SSAB, however, the question does not arise. The group wants to produce in a climate-neutral manner as early as 2030 and is relying directly on hydrogen, without natural gas as a bridging technology. “We decided to build a completely climate-neutral value chain right away, starting with iron ore mining,” said CEO Lindqvist. That’s what the customers want in the end. “We will not be dependent on natural gas.”
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