worldsteel: Addressing the complexities of decarbonizing the steel industry

It’s clear that decarbonizing the steel industry, which is responsible for between 7% to 9% of the world’s carbon emissions, is a complex undertaking that requires significant investment, technological innovation and collaborative efforts across the value chain. Within this somewhat glum assessment, fascinating factors are at work. They include differentiated global steel demand, the application of digital technologies to rapidly reduce carbon emissions, the development of breakthrough technologies in steel production, and the growth in availability of scrap steel — one of the most important decarbonization levers for steelmaking.

Let’s consider these influences in isolation.

Predicted increase in steel demand in developing countries in the coming decades could pose a challenge to decarbonization. Image worldsteel.

worldsteel (formerly known as the World Steel Association) findings suggest a positive medium-term steel demand outlook. Continued urbanization, industrialization and motorization in developing economies, and strong global infrastructure construction activity are likely to support global steel demand in the medium term. Some segments such as electrical steel and steel products used in wind and solar energy generation projects might be expected to see particularly strong growth.

In developing countries (with the exception of China), steel demand is forecast to continue growing strongly over the next several decades, and could pose a challenge to industry decarbonization, in that steelmakers in these countries will need to simultaneously invest in capacity expansion and decarbonization of the installed capacities – a big ask.

The demand outlook for low-carbon steel is also an important factor shaping the decarbonization of steelmaking in different parts of the world.

worldsteel expects steel-using sectors – such as the automotive industry, construction and machinery manufacture – to show rapid progress in decarbonizing their operations and the use phase of their products throughout the second half of the 2020s. From the late 2020s onwards steel-using sectors will increasingly focus on reducing the embedded carbon in their products, driving a surge in demand for low-carbon steel, initially from a low base, but quickly reaching significant volumes.

The combined effect of these demand factors is that the global steel industry should focus on establishing steel as the most important material decarbonization lever for all steel using sectors. For this purpose, we will need to combine steel’s inherent superior qualities, such as durability, flexibility, recyclability, reusability, cost and volume with a sensible decarbonization pathway.

Currently, steel production from iron ore relies on fossil fuels as reducing agents, with blast furnaces being the dominant technology. While modern blast furnaces operate near their efficiency limits, achieving drastic emission reductions necessitates transformative approaches to ironmaking.

The steel industry is actively investing in innovative and breakthrough decarbonization technologies. Several initiatives under development can be categorized as follows:

• Using carbon as a reductant while employing Carbon Capture, Utilization and Storage (CCUS) and/or sustainable biomass to prevent fossil CO₂ emissions. 
• Substituting hydrogen for carbon as a reductant, producing H₂O (water) instead of CO₂.  

• Utilizing electrical energy through electrolysis-based processes.

Several challenges could hinder the development and deployment of greener steelmaking technologies:

• Financial constraints: Estimates suggest that the green transformation of the steel industry will require substantial investments, ranging from US$3.5 to 5.5 trillion across the value chain, with renewable energy and grid infrastructure accounting for the largest share (US$2-3 trillion).
• Construction and engineering constraints: Meeting ambitious decarbonization targets will require a rapid scale-up of production facilities for hydrogen-based steelmaking and CCUS. This raises concerns about technology provider and contractor capacity, potential labor shortages, and cost escalations.
• Energy constraints: Hydrogen steelmaking and electrification will demand vast amounts of green energy. Targeted and accelerated development of low-carbon energy generation capacity is crucial for the steel industry's green transition.
• Raw material constraints: The growing role of Direct Reduced Iron (DRI) in steelmaking will increase the demand for DRI-grade iron ore. Out of the 2.3 billion tons of iron ore consumption in 2024, only 150 Mt or so were DR grade material. However, according to various projections, this should grow to more than 500 million tons. This raises concerns about the availability of necessary amounts of DR grade material. There are also concerns about the availability of natural gas for natural gas-based DRI.
• Development and optimization: Breakthrough technologies like hydrogen steelmaking and CCUS involve the development and optimization of numerous processes. For instance, hydrogen steelmaking requires advancements in large-scale hydrogen transportation, storage, gas recirculation and treatment, melting and refining of carbon-free DRI, and plant design.

In 2019, as part of the steel industry’s determination to take responsibility for the impacts of its operations, worldsteel’s board of members (which represents more than 80% of global steel production) agreed to implement Step Up. This efficiency review process recommends investment in energy-saving technologies, improving energy efficiency and optimizing raw material use. It can be applied to all steel operations and is based on leading practices.

These measures yield significant CO₂ emission reductions in the short- and medium-term. Our monitoring shows that there is about 15-20% improvement potential in energy use and CO₂ emissions for many facilities around the world. This potential can be achieved by using technology already in place on most sites, if combined with best practices from the industry’s better performing steel manufacturers.

Focus on operational efficiency and alignment with sustainability goals will support further acceleration in the digital transformation of steel value chains going forward.

As digital twins of business and manufacturing processes are established, the integration of the real and virtual worlds will accelerate and bring new big data analysis, simulation, robotization and automation opportunities. Therefore, steel producers will need to devise and implement the right digital transformation strategies and progressively expand smart manufacturing capabilities.

Steel plants are inherently recycling plants, utilizing scrap to varying degrees (up to 100% in electric arc furnaces and up to 30% in blast furnaces). Scrap plays a vital role in reducing emissions and resource consumption: each ton of scrap used avoids 1.5 tons of CO₂ emissions and conserves significant amounts of iron ore, coal, and limestone.

worldsteel estimates that obsolete scrap availability will grow by about 500 million tons over the next three decades. As scrap availability is by and large a function of past consumption, the uncertainty level underlying these projections is low. We therefore predict that the steel industry will increase its use of scrap steel, and that the share of electric arc furnaces in global steelmaking will show continuous growth over coming decades.

However, the growth of scrap availability will be concentrated mainly in developing parts of the world. Hence, the timely development of recycling infrastructure and industries in these countries will be crucial in bringing the increasing availability as supply to global markets.

Moreover, steel-containing product designs are becoming more complex, more multi-material. As designs become more complex, multi-material, higher-alloy, it becomes more difficult to recycle the Fe units contained in steel-containing goods. Scrap quality is already worsening, so we’ll need better scrap sorting, beneficiation (removal of waste minerals or contaminants prior to smelting) and management of scrap going forward.

Steel production is currently a CO₂- and energy-intensive process. However, the steel industry is dedicated to reducing its environmental footprint, both in its operations and the use of its products. Addressing constraints will be crucial for enabling the transition to greener steelmaking and achieving a sustainable future for the industry.