Transforming the Steel Supply Chain: The Impact of Green Steel Transition

Green steel transition could trigger changes in the supply chain

As companies begin to drive change, they are likely to change the business models in the steel industry too. Currently, most steel plants take care of the entire steelmaking process. Iron ore is turned into iron and steel at almost every production site.

The first step of turning iron ore into iron is by far the most energy and carbon-intensive step, accounting for around 80% of emissions in coal-based steelmaking. In future, this process may be relocated from regions with high energy and hydrogen costs towards those with lower costs. Australia, the Middle East and the US, for example, are likely to have a competitive advantage in the production of hydrogen. Production of iron may be concentrated in these regions and then shipped to higher-cost regions such as Europe as Hot Briquetted Iron (HBI). Alternatively, it may be relocated within Europe to regions with low electricity prices from green sources such as the northern parts of Norway and Sweden, which have ample space available and a large supply of hydropower that can act as a baseload for green steel production. In that respect, it isn't surprising that the most advanced plans for a green steel mill are in the city of Boden in Sweden.

HBI is a compact form of Direct Reduced Iron (directly turning iron ore into iron with hydrogen instead of coal). The briquettes are made to be shipped over long distances and in such a way that they can be melted and turned into steel easily. This second step can be done in electric arc furnaces, which electrifies and greens the process of steelmaking further – provided that the furnace is powered with low-carbon power sources such as solar panels, wind turbines, hydropower plants or nuclear power plants.

While steelmaking is for the most part an integrated business, the supply chain might evolve towards more global production hubs of pure forms of iron and local sites that specialise in the last step of turning iron into different qualities of steel.

 

Slow progress but more opportunities ahead

The steel sector is widely regarded as a conservative sector that is characterised by large incumbents that rely on coal-based technology. Entry barriers are high and hence change has been slow.

Technology now provides important opportunities for greening the industry, either by applying CCS to the current coal-based technology or by redesigning the process of turning iron ore into iron with hydrogen instead of coal. That may sound radical, but is in fact a form of evolution rather than revolution. The technology of direct reduced iron is already applied in gas-based steelmaking. Green and blue hydrogen can take over once they are abundantly available. Electrification could further green both routes by replacing basic oxygen furnaces with electric ones.