Research Report
Optimizing steel operations for an electric future
5-MINUTE READ
October 15, 2024
In brief
- As clients in the energy, construction, automotive industries and beyond commit to net zero, demand for green steel is rising fast.
- To compete in the global market, companies in Europe and North America must start producing large quantities of green steel at much lower cost.
- Making green steel cost-effective requires transformation of data, technology, ways of working, supply chains and energy sources, plus fitting EAFs.
Soaring demand for green steel
The steel industry is shifting from gray to green. With clients in the energy, construction, automotive industries and beyond committing to net zero, demand for green steel is rising fast.
In response, steel manufacturers are investing billions to replace their decades-old blast furnaces (also known as basic oxygen furnaces or “BOFs”) with direct reduction of iron (DRI) using hydrogen and electric arc furnaces (EAFs). EAF steel production is already soaring, and it’s expected to increase by a further 80-100% by 2050.1
Regulations like the European Green Deal and the EU’s Carbon Border Adjustment Mechanism (CBAM) could further accelerate this shift.
80-100%
increase in EAF steel production expected by 2050.2
Figure 1: Projected growth of EAF Steelmaking, 2019-2050
Sources: World Steel Dynamics “Strategic Insights from World Steel Dynamics” February 2021; Global Energy Monitor “2022 Pedal to the Metal” June 2022; Wood Mackenzie, Q3 2022; IEA Iron and Steel Analysis 2022
So far, most EAF projects are concentrated in Europe and North America. This poses a tough question for steel manufacturers in these markets: How can they compete against rivals in places like India and China, where BOF steelmaking remains prevalent?
EAF: Not as easy as ABC
The transformation to EAFs brings a series of challenges, including:
Integrating the new batch-based EAFs with legacy downstream steel-making assets that follow continuous manufacturing processes
Moving to scrap metal as a feedstock, and managing huge variance in quality, supply and cost
Securing renewable electricity and green hydrogen in sufficient quantities and at competitive prices
Ramping up new assets and accelerating the learning curve so that mills can produce the same steel qualities using an entirely new feedstock and very different production processes
Transforming the cost structure to achieve a step change in global competitiveness.
15-20%
of the total cost of steel production in an EAF is from electricity.3
Transforming competitiveness
Companies must overcome these challenges and design for the future by:
Unless steel manufacturers upgrade their broader technology in parallel with implementing EAFs, there’s a risk that they’ll invest billions in new furnaces, only to find that the plant is obsolete by the time it’s up and running.
EAFs require steelmakers to depart from the processes they’ve honed over decades of using BOFs. Instead, they must reimagine their approaches to planning, logistics, quality management, maintenance, safety and more.
This includes managing variable quality, supply and price in the highly fragmented scrap metal market, and seeking greater engagement with the energy ecosystem.
Green steel presents a unique opportunity
The shift to green steel is a game-changing opportunity for steel manufacturers to transform competitiveness. Since DRI technologies and EAFs are sourced from a handful of suppliers, their implementation provides limited scope to gain competitive advantage. Instead, differentiation will come from mills’ success in wider use of technology, transforming ways of working to optimize for EAF and DRI, and sourcing reliable, cost-effective supplies of the necessary feedstocks.
In other words, steel manufacturers need to look beyond the decision of which furnace to buy, and instead contemplate how they will use technology more broadly to drive competitive differentiation in this exciting new chapter for the steel industry.
