The text below is an edited, shorter version of content from CRU’s webinar, Climate change and decarbonisation – scenarios for the steel sector. Access the full webinar here or speak to a CRU expert about market intelligence and analysis relevant to your organisation.
Steel decarbonisation could increase demand for metallics such as steel scrap, DRI/HBI and pig iron as steel production shifts towards electric arc furnaces (EAFs) and lower-carbon primary ironmaking routes.
Key Takeaways
- A faster shift towards EAFs and ore-based low-carbon ironmaking could increase metallics demand, although the effect will vary by route and region.
- Steel scrap can reduce reliance on primary ironmaking, but availability is constrained by historic steel consumption and product lifetimes.
- DRI/HBI and other primary iron units could play a greater role in EAF production as decarbonisation progresses.
- Stronger decarbonisation could put upward pressure on metallics prices where demand grows faster than supply.
- Electric smelting is a separate primary ironmaking pathway that may use iron ore or partially reduced iron as feed.
How Could Steel Decarbonisation Increase Demand for Steel Scrap and DRI?
Steel decarbonisation could increase demand for steel scrap and DRI/HBI as EAF and DRI-based steelmaking expands. EAFs require suitable metallic charge materials, including scrap, DRI/HBI and pig iron, to maintain steel quality and productivity.
Scrap is central to reducing reliance on primary ironmaking, but its availability is constrained by historic steel consumption and product lifetimes. It cannot be scaled at will, particularly in the 2020s. Primary steelmaking will therefore remain necessary. The strategic question is which primary ironmaking routes can scale under regional policy, energy and cost conditions.
Potential routes include natural gas-based direct reduced iron (NG DRI), hydrogen-based direct reduced iron (H₂ DRI), blast furnace–basic oxygen furnace (BF–BOF) production with carbon capture, utilisation and storage (CCUS), and emerging options such as electric smelting.
Electric smelting should be distinguished from EAF steelmaking. EAFs melt metallic charge materials, while electric smelting is primarily an ironmaking route that may use iron ore or partially reduced iron as feed.
Why Could Steel Decarbonisation Create Challenges for Metallics Supply?
In deeper-decarbonisation scenarios, metallics demand could grow faster than steel demand as the production mix shifts towards EAFs and DRI-based steelmaking. This could create challenges for metallics supply, including scrap collection, processing capacity and new DRI development.
Scrap availability and quality remain important constraints, while DRI/HBI can provide an alternative source of iron units for EAF production. The balance between scrap, DRI/HBI and other metallics will depend on regional production routes, scrap availability, ore quality, energy costs and the development of low-carbon electricity and hydrogen.
Metallics availability and quality could therefore become binding constraints on decarbonisation, rather than steelmaking capacity alone.
How Could Steel Decarbonisation Affect Steel Scrap and DRI Prices?
Stronger steel decarbonisation could put upward pressure on metallics prices, particularly scrap and DRI/HBI, where demand grows faster than supply. The price impact will depend on scrap availability and quality, DRI project delivery, energy and hydrogen costs, regional trade flows and producers’ ability to pass higher costs through to steel prices.
Higher metallics demand could require investment in DRI capacity, scrap collection and processing, and quality improvements. However, prices will remain scenario-dependent and could also be affected by steel demand, regional surpluses or deficits, and substitution between scrap, DRI/HBI and pig iron.
Higher operating costs from electricity, hydrogen and carbon could also put upward pressure on steel prices. Cost pass-through will depend on market conditions, regional competition and policy measures such as carbon pricing, carbon border measures and product standards.
What Could Determine the Pace of Steel Decarbonisation?
The pace of steel decarbonisation will depend on policy, technology, energy costs and metallics supply. Policy affects the economics of decarbonisation through regulation, incentives, carbon pricing, carbon border measures and procurement standards. Technology determines the feasibility, cost and infrastructure requirements of different production routes.
CRU’s central case sees annual steel emissions declining through 2050, driven by a gradual shift from BF–BOF towards EAF and, over time, H₂ DRI, alongside higher scrap use reducing primary steel requirements. Higher scrap use will not eliminate the need for primary ironmaking.
The future production mix is likely to include greater scrap use, NG DRI, H₂ DRI, BF–BOF with CCUS and emerging electric smelting technologies. Regional conditions will be decisive. For example, the emissions and cost advantage of NG DRI can be reduced where upstream natural gas emissions, particularly methane leakage, are significant.
The pace of capital allocation, technology adoption, infrastructure development, energy and hydrogen costs, carbon costs and metallics availability will shape these decarbonisation pathways.
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