Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

The global steel industry is challenged with meeting climate change requirements while maintaining robust operating plans in light of increasing demand that is slated to grow an additional one-third by 2050.


The sector may accrue $47-70bn in write-down assets in the years ahead considering the new blast furnaces (BF) paired with basic oxygen furnaces (BOF) that continue to be brought online, according to a recent Global Energy Monitor (GEM) report. 


Emissions will need to arrive at net zero between 2050-2070, per the Paris climate agreement. Meanwhile, existing capacity and estimated expansion plans in the global industry are not on track to cut emissions considerably.


BF steelmaking, which uses coal, accounts for approximately 61.3pc or about 1.33bn mt of yearly global capacity. More than 75pc of steel capacity in the works, mostly in China, will use the BF-BOF route, GEM indicated. 


Steel mills in China comprise 51pc or 1.02bn mt of yearly steel production capacity, followed by Japan at 117mn mt and India at 90mn mt per year, according to GEM data.


The BF-BOF steel-producing method largely contributes to carbon dioxide emissions while it entails few arduous and expensive routes to decarbonization. This system is at risk of becoming inoperable or obsolete especially as electric arc furnace (EAF) steelmaking is on the rise.


Global steelmakers have been focusing on the development of EAFs which account for about 20.2pc or 438mn mt of yearly global crude steel capacity while progress is also being made with hydrogen and carbon capture tools for emission reduction.


In the US, steel mills are set to add roughly 7.5mn nt of EAF capacity over the next two years. Globally, steelmaking capacity was 25pc higher than output volumes in 2019, per GEM. 


With overcapacity, a present, rising concern, more pressure will be placed on BF-BOFs as EAFs provide a more effective solution in decarbonization requirements. It is possible that BFs will be forced to drastically revamp or shut down by 2030-2040 based on the trajectory of the industry regarding strict carbon controls and taxes.


For reference, the highest levels of overcapacity come from the 27 European Union countries along with the UK at 26.6pc, Japan at 23.7pc, the US at 20pc, and China at 13.5-20pc based on total production in 2020.


GEM pulls data from a global tracking system that measures all steel mills operating at 1mn mt of capacity or more per annum.

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