The discussions would include discouraging trade in high-carbon steel and aluminum that contributes to global excess capacity from other countries and ensure that domestic policies support lowering the carbon intensity of these industries.

The US suspended import tariffs on EU steel and aluminium imposed by then-President Donald Trump in 2018, on the condition that the pair agree by the end of October on measures to address overcapacity in non-market economies, such as China, and promote more environmentally friendly steel production.

“The effective collapse of the talks was surprising,” Dr. Todd Tucker, a director of industrial policy and trade at the Roosevelt Institute, told Fastmarkets on Monday October 23.

Tucker noted that the US had moved steadily towards the EU’s position over the course of the two years of negotiations, pointing to reports that the US had revised its proposal that would complement, and not replace, Europe’s carbon border tariff system, the Carbon Border Adjustment Mechanism (CBAM).

“Given the political mandate, policy feasibility and EU accommodations, a deal could have certainly been landed,” Tucker said.

Lewis Leibowitz, an international trade law attorney, told Fastmarkets, “I think both sides wanted to resolve their differences and failed to do so. Each side has its own reasons—but the inability of the US and EU to compromise on their differences in the middle of global crises is an unfortunate message.”

Negotiations targeting carbon intensity of imported steel can be challenging, sources said, with some noting that the negotiations will likely be stalled for at least the next two years.

“The US and EU are much more closely aligned at their core than the rhetoric would indicate. They both want to ensure that their economies can thrive under climate-safe trade policies like GASSA, but the reality is the details are quite challenging to get right and policymakers taking more time to get it right is a good sign,” Margaret Hansbrough, a campaign lead at SteelWatch, told Fastmarkets on Monday.

Hansbrough highlighted the importance that the pair collaborate on trade policies like these that “send demand signals for green steel” and pave the way for other countries to “benefit from trade if they are also decarbonizing their heavy industry in an aggressive enough manner.”

Tariff rate quota system needs to stay in place

A vital element of the negotiations between the EU and the US is the tariff rate quota system, under which, historically-based volumes of EU steel products can enter the US market without the imposition of a 25% tariff on EU steel products under Section 232.

“It is important to the domestic steel industry that the tariff rate quota (TRQ) system implemented in 2021 remains in place [while] negotiations continue,” Philip Bell, president of the Steel Manufacturers Association said in a release on Friday October 20.

The TRQ system is a necessary measure and needs to stay in place to combat excess capacity, source familiar with the matter told Fastmarkets on Monday.

“There’s a fear that the EU will ship products into the US far above historical norms,” the source said.

Hansbrough added, “The TRQ can indirectly have a benefit for the climate, but its needs to be coupled with strong progress on green primary steel production in the US.”

Now that both parties have decided to continue negotiations through the end of the year, the following steps in the GASSA negotiations between the pair over the next two months are uncertain.

Path forward is ‘unclear’

“It is unclear what the path forward is. The EU has been demanding deeper coordination with the US across a range of green transition questions. A deal around green steel would have been a down payment on further cooperation,” Tucker said. “That they were not able to land it on a ‘low-hanging fruit’ industry makes it less likely they will do so for industries that involve more complicated questions.”

Hansbrough added, “Product- and facility-level environmental product declarations (EPDs) are a good place to start. Steel emissions intensity targets for both primary and secondary steel would be wise too, to ensure both types of production are making progress needed and to make sure primary steel production cannot hide behind industry averages that benefit from a natural increase in scrap-based steel over time.”

The source familiar with the matter said that while there are strong incentives for both parties to reach some agreement by end of year, he expects the agreement to be a partial one and relating mostly to the TRQ system.

“Whatever agreement we see at the end of the year is going to be limited and not going to include the carbon piece,” the source said.

To keep up with the green steel discussion and to follow the critical developments in green steel pricing and low carbon steel production, visit our Green Steel Spotlight page. 

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The target, set under the Paris Agreement, is to limit global warming to 1.5°C by the end of this century. To achieve that goal, greenhouse gas emissions must peak before 2025 at the latest and decline 43% by 2030, according to the United Nations Framework Convention on Climate Change (UNFCC).

Steelmakers around the world, including the US’ Cleveland-Cliffs, South Korea’s POSCO, Europe’s Tata and Australia’s BlueScope, have made plans to invest in the relining of coal-based blast furnaces (BFs), which may lead to more than half a billion tonnes of additional CO2 emissions, the organization said.

“We are calling out the real-time decisions that these steel companies are making to bring the planet that much closer to total climate catastrophe,” Caroline Ashley, Director of SteelWatch, said.

Steelmakers should phase out BFs, instead of relining them, to slash carbon emissions and decrease global excess steel capacity, Phil Bell, president of the Steel Manufacturers Association (SMA), told Fastmarkets.

“Relining blast furnaces locks in another 20 years of high-emission steel production. Where new furnaces are required, electric-arc furnaces and exploration of other, new cutting-edge steelmaking technologies are the sensible choice,” Bell added.

US firms opting to reline coal-based BFs may struggle to meet carbon dioxide targets established by the Biden Administration, according to Samir Kapadia, principal and head of trade at The Vogel Group, a bipartisan government affairs and consulting firm based in Washington DC.

In 2021, President Joe Biden set a target for the US to achieve a 50-52% reduction in economy-wide net greenhouse gas pollution from 2005’s levels in 2030, according to a White House statement.

However, the Environmental Protection Agency (EPA) and Department of Energy are offering hundreds of millions of dollars for steel mills to find alternative ways to lower their carbon footprint, Kapadia added.

For example, the Inflation Reduction Act (IRA) is said to be positive for the steel industry, partially due to the $370 billion in funding given in the form of tax incentives. The IRA establishes “Make it in America” provisions for the use of American-made equipment for clean energy production. The law provides expanded clean energy tax credits for wind, solar, nuclear, clean hydrogen, clean fuels and carbon capture.

“Legacy mills have to work out that calculus, leveraging both government funding and new technology, to align with new global expectations and standards around green steel. The money and support are there from Washington, it just has to be sought out and captured,” Kapadia said.

“Every dollar, euro, Won invested into coal-based steel makes future climate mitigation and community remediation that much more expensive,” Julia Hovenier, the steel lead of BankTrack, said. “It’s time for steelmakers in OECD [Organisation for Economic Co-operation and Development] countries to cut ties with coal and go all-in on fossil-free steelmaking, or risk financial credibility.”

Integrated producer Cleveland-Cliffs announced in July that it will postpone the relining of one of its BFs in Indiana.

The steelmaker said it is imposing a $40 per short ton surcharge — called the “Cliffs H surcharge” — on steel products produced using hot-briquetted iron (HBI), a low-carbon iron feedstock used in BFs, basic oxygen furnaces (BOFs) and electric-arc furnaces (EAFs).

With Lourenco Goncalves, Cleveland-Cliffs’ chief executive officer, dubbing hydrogen as the “true game changer” for the decarbonization of steel, the company announced on Friday October 13 that it had joined the Midwest Alliance for Clean Hydrogen (MachH2), a multistate alliance of public and private entities that has been awarded up to $1 billion in funding from the Energy Department under the Bipartisan Infrastructure Law to develop a regional clean-hydrogen hub in the Midwest.

South Korea’s POSCO is currently relining one of their Pohang BFs and may undertake a similar project at the Gwangyang steelworks.

In the Netherlands, Tata Steel battled hundreds of activists in June, who were protesting over air and soil pollution in the surrounding area. In Australia, BlueScope’s board reportedly approved the relining of BF No. 6 in Port Kembla.

The four companies did not respond to Fastmarkets’ requests for comment.

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The clean energy non-profit has launched a request for information (RFI) process open to all steelmakers to deliver sustainable steel to North America, which will take place throughout the remainder of this year, followed by a request for proposal (RFP) planned for first quarter next year.

“We have already had initial discussions with the major incumbent steelmakers in the US,” Chathu Gamage, principal at RMI, told Fastmarkets.

Gamage added: “We will start with gathering information from steel producers on potential projects, delivery timelines, transaction structures and emissions performance through the RFI process.”

Subsequently, the information would be used to develop the RFP to understand the premium that is associated with the steps needed to produce near-zero emissions steel. Moving forward, buyers will use that green premium as a basis for negotiating agreements with steel producers, Gamage said.

Major corporations – including tech mammoth Microsoft, solar-hardware producer Nextracker and real estate developer Trammell Crow Company – are teaming up to collectively purchase 2 million tons of near-zero emissions steel via RMI’s platform.

Near-zero emissions steel refers to steel produced using renewable electricity, clean hydrogen or potentially with carbon-capture technology, RMI said.

Decarbonization efforts in the US steel industry have been an ongoing focus among industry participants, with green steel demand expected to increase to 6.7 million tons annually by the end of this decade, RMI said.

“This is in part why we think now is the right time to launch this type of demand aggregation process that looks to provide a way for the companies to deliver on their commitments,” Gamage said.

However, with the push for decarbonization comes a myriad of standards and methodologies in the space, materializing the need for an alignment.

“During the SSBP RFP process, buyers will come together on a common definition of near-zero emissions steel that we hope can help to clarify some of the various standards and methodologies in the space,” Gamage said.

She added: “Buyers who want to make a material impact to their own Scope 3 emissions and use their purchasing power to drive the supply of near-zero emissions steel and the technology change this requires, can look to align purchases which have been or can be certified with a transparent and credible standard system, which is critically important to ensure true emissions reductions are being made in the sector.”

Alongside an increase in demand for green steel, there is a notable increase in demand for information on carbon intensity in steel products among buyers, which companies are starting to provide, Kevin Dempsey, American Iron and Steel Institute (AISI) president and chief executive officer, told Fastmarkets at the sidelines of the AISTech conference in May.
“Decarbonization is indeed achievable. Society’s already demanding decarbonization. Our customers are demanding clean and sustainably produced steels because their customers are demanding sustainably produced products,” Keith Howell, ArcelorMittal North America chief operating officer said at the conference.

To keep up with the green steel discussion and to follow the critical developments in green steel pricing and low carbon steel production, visit our Green Steel Spotlight page.

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The attention of the US flat-rolled market is focused on the possibility of a strike by the United Automotive Workers (UAW) union at one or more of the Big Three automakers – General Motors, Ford and Stellantis.

“If a strike is called for all three, it would be devastating for the US industry,” a Midwest distributor told Fastmarkets in August.

Most recently, the UAW threatened to strike at any of the three companies that fails to reach an agreement by 11:59 pm Eastern Time on Thursday September 14, when the labor contracts expire.

“I do not see anyone seriously trying to book tons right now as I believe the negativity around the UAW issue is so pervasive that folks are in the wait-and-see mode,” a producer said.

Market participants appeared less worried about the outage season, which is already under way and is likely to last through November. Sources told Fastmarkets that the shutdowns were unlikely to have a significant impact on HRC prices in the Midwest and South because they were planned, enabling market participants to prepare and purchase enough material ahead of time.

“Outages are going to be a blip on my radar because they’re planned. Eight planned outages are better than one unplanned [outage],” another distributor said.

An estimated 830,000 short tons of flat-rolled steel production will be taken out in September-November at US mills run by Cleveland-Cliffs, Nucor, US Steel and Steel Dynamics.

Utilization rates among US steel mills have hovered around 76% since May, according to data from the American Iron and Steel Institute (AISI). The average capacity utilization rate was most recently reported at 75.7% in the week ended Saturday September 9, signaling decreasing hot band supply in the spot market.

In that same week, estimated raw steel production – including flat, long, plate and other steel mills – decreased by 2.60% to 1.68 million net tons from 1.73 million tons in the previous week, according to AISI data.

Although prices for hot-rolled steel may be only slightly impacted by the outages, the reduced supply could slow down the fall in prices, with some sources citing lean inventory levels.

“The outages won’t affect prices that much, [they] will slow down the pace of the price drop,” a trader told Fastmarkets.

“Inventories are lean, and maintenance outages might stem the decline,” a second trader said.

Hot band prices in the Midwest have been steadily declining since reaching $59.48 per hundredweight ($1,186.60 per short ton) on March 23. Fastmarkets’ daily steel hot-rolled coil index, fob mill US Midwest has fallen by 43.16% from that peak to $33.81 per cwt on September 6, the lowest level in 2023.

Similarly, market sources based in the US South are also not expecting much of an impact from the outages.

“The South mills are all talking about the outages, but we haven’t seen any changes because of the upcoming outages – the lead times at South mills are at four to six weeks,” a southern distributor said.

Mirroring the price trajectory of the Midwest HRC, Fastmarkets’ weekly steel hot-rolled coil index, fob mill US South peaked at $58.94 per cwt ($1,178.80 per short ton) on March 22, and has since fallen by 41.65% to its lowest level this year at $34.39 per cwt on September 6.

Sources from the region said that although there was a buzz around the mills’ outages, they were also closely watching the possibility of a UAW strike.

“The mills are telling us about the outages, but they all work around the outage schedule – it doesn’t affect small spot buyers like us, maybe if I was a big contract buyer, I would be nervous. People are more nervous about the impact of an auto strike – even if it is only for two weeks, it will affect the markets,” a second southern distributor said.

A strike at the Big Three could have a big impact on the cost of scrap and production levels at steel companies, a third southern distributor told Fastmarkets.

Outages’ impact on lead times

Mills’ lead times are also difficult to gauge due to the slew of outages, with lead times extending from four weeks to six weeks, sources said.

“We have several outages upcoming at plants, so being able to label an HRC lead time is a bit challenging,” a producer said.

“We are seeing some mill lead times move out a bit because of the outage,” a buyer said.

“[Mini-mills] do not seem as concerned with their outages, and we are seeing lead times more in the six-week range for HRC, compared to the three- to four-week range they had been at,” he added.

Rijuta Dey Bera in New York contributed to this report.

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“USS must immediately either a provide Cliffs and the USW with the required notice of all proposals that have already been received or… if USS has not in fact received any proposals, correct its prior public statements and acknowledge that no such proposals have in fact been received,” Goncalves wrote.

Also copied on the letter were Duane Holloway, who serves as senior vice president, general counsel, and chief ethics and compliance officer at US Steel, and Thomas Conway, international president of the United Steelworkers union (USW).

Mixed industry sentiment

Industry participants had mixed views about the impact of Cleveland-Cliffs buying out US Steel, either in parts or as a whole.

“Will the government allow only three steel companies?” a producer asked, noting that “it is very difficult to buy a publicly traded company if they do not want to be bought.”

The producer source also noted that the legacy of US Steel stretches back into the nation’s steelmaking history.

“US Steel is not just Big River Steel – it has Mon Valley, Gary Works, etc – these are huge legacy sites,” the producer said.

“There will be antitrust issues if Cliffs buys US Steel because the new entity would control 80% of the auto steel supply,” a steel distributor said, echoing fears about a super-concentration of automotive-grade steel supply and whether auto original equipment manufacturers would allow that to happen.

The potential deal has “too many monopolistic factors… I have a feeling the regulatory hurdles are going to be a lot more complex and time-consuming than Goncalves said in his release,” a second distributor said, adding: “I would imagine [Goncalves] would indeed drive the [flat-rolled steel] pricing up.”

Others in the industry cheered the potential for greater synergies and efficiency between the last two integrated behemoths.

“There are idled capacities under both Cliffs and US Steel; after the acquisition, they may shut down some of the old mills,” a trader said. “There will be more consolidation in the flat-rolled side.”

The deal could result in “more discipline; it will stabilize the prices, and then it will go up,” the trader continued. “The United States has a capacity-utilization problem; they are running inefficient mills. Demand is good, so when they streamline the mills, it will be good for the industry overall.”

And according to Cleveland-Cliffs, the acquisition of US Steel would create $500 million in operating synergies.

A second trader said that “Cliffs makes the most sense, as it has the most synergies to offer.”

Sources also indicated that ArcelorMittal might be interested in re-entering the US steel market after selling the bulk of its assets in the country to Cliffs in 2020.

“ArcelorMittal will want to get back into the US market because they had sold off their assets and now their presence is only in Calvert,” the second trader said, referring to AM/NS Calvert, an Alabama-based flat-roll mill and processing plant jointly owned with Nippon Steel.

ArcelorMittal’s “return to the Midwest would make the most sense for the industry,” the second distributor said.

The second trader said he hoped that “US Steel is sold as a whole, though, not for parts,” adding: “I cannot imagine someone bidding for the smaller assets; Big River Steel is the prized possession; ArcelorMittal will want that technology, so will Cliffs.”

Potential antitrust hurdles

This potential acquisition – which would create the largest steelmaker in the country and catapult Cleveland-Cliffs to become the 10th largest in the world – will likely stoke antitrust concerns that generally involve the interest of two US agencies: the Federal Trade Commission (FTC) and the Department of Justice (DOJ).

“There are two organizations in the US that would potentially be concerned about some kind of monopoly power in an industry: the FTC and the DOJ,” Tom Dunlap, managing partner at Dunlap, Bennett & Ludwig, told Fastmarkets on August 22. Both agencies are likely to play a big role in the negotiations if discussions move forward, sources said.

“There’s no way DOJ sleeps on this,” Christopher Macchiaroli, partner at Silverman Thomspon, told Fastmarkets on August 22. “The DOJ is going to be involved and will try to stop the merger if there’s any agreement. There is no doubt in my mind that that will happen. This is on their radar now, and they’re just waiting to see if there’s any kind of agreement to be had, but there’s no way that DOJ does not intervene and try to stop it.”

“The FTC is going to weigh in; and if it moves forward, it’s going to be a negotiated resolution,” Reuben Guttman, partner at Guttman, Buschner & Brooks PLLC, told Fastmarkets on Monday August 21. “The union is going to be significant in addressing any antitrust issues that the FTC may have.”

To circumvent US antitrust regulations, it is possible that US Steel’s business segments would be broken up and sold in parts, the sources said.

“It’s possible that the regulators are going to require that certain components of [US Steel] be spun off,” Guttman said.

Dunlap echoed this sentiment, saying “it is absolutely possible” for Cleveland-Cliffs to circumvent antitrust regulations by splitting US Steel up.

“It’s also possible that they do it in conjunction after talking to the government, or they’re already planning to do it just to avoid any antitrust questions; that could all be happening in the background,” he said.

“The union is going to weigh in on that,” Guttman said, citing concerns about whether “they are spun off to entities that are not going to honor the union agreements or it’s going to impact the union agreement adversely… It’s going to require bargaining over whether the union agreement still exists.”

Macchiaroli, however, said that he does not see this merger being approved even if US Steel was split up.

“I see this more as the regulator not approving the merger, even under breaking it [USS] up,” Macchiaroli said. “I also don’t see [US Steel] wanting to break it up to go forward with it either.”

A ‘three-way negotiation’ with USS, Cliffs and USW

The fact that Goncalves has the support of the US Steel’s labor union might tip the odds in his favor, several market watchers said.

“For whatever reason, the United Steelworkers believes that a Cleveland-Cliffs suitor is a more union-friendly suitor, and that makes that makes all the difference in the world,” Guttman said.

On August 3, the union affirmed in a letter – that was later shared by Cleveland-Cliffs –that it supported the proposed acquisition, would not exercise its right of a counteroffer and would not endorse anyone other than Cleveland-Cliffs for such a transaction. Highlighting the importance of the union in the negotiations between US Steel and Cliffs, Guttman – who specializes in labor issues – said that he anticipates a “three-way negotiation” with regards to antitrust implications.

“[The workers] have the ability to say: ‘We like this management, we like this deal, we’ll go along with it,’” Macchiaroli said.

But Cliffs’ letter to US Steel, which was included in an 8-K filing with the SEC on August 22, came after USS published a letter earlier on Tuesday noting that its existing basic labor agreement “does not grant the USW, or any party it assigns its rights to, the right to prevent a potential transaction – with any party – that our board decides is in the best interest of our stockholders.”

That letter, which was addressed “Dear Colleague,” concluded by saying: “Please continue to focus on what you can control. Together, we are building our Best for All future.”

Macchiaroli agreed that “technically, the union can’t legally have rights and block something, but they can all be 100% involved in the acquisition.”

“The union are still the people that actually vote; they still ultimately have the power because they’re showing up for jobs,” he said. “They are making sure things are productive. If you keep them happy, business runs and you’re not going to have any interruptions.”

The fact that the union’s preference regarding a once-in-a-lifetime deal has received so much consideration exemplifies the “resurgence of labor” in the United States, Guttman said, noting: “This is a very good situation for the steelworkers union.”

Reported offers

Cleveland-Cliffs had made a $7.3-billion cash-and-stock offer for US Steel on July 28, but it was rejected after the two companies could not agree on the terms of a mutual nondisclosure agreement.

In rejecting the offer, US Steel said it had also received “multiple other offers,” prompting the company to commence “a comprehensive and thorough review of alternatives,” ranging from a complete buyout to the acquisition of certain production assets, the legacy steelmaker’s CEO announced on August 13.

Pennsylvania-based industrial conglomerate Esmark announced an all-cash bid for US Steel on August 14; that news was followed by anonymous reports on August 16 that Luxembourg-based ArcelorMittal SA was also considering a bid.

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The US International Trade Commission (ITC) will also impose preliminary duties of 7.02% on tin mill imports from German producers, including Thyssenkrupp, and 5.29% on imports from Canadian producers, including ArcelorMittal Dofasco.

Meanwhile, Commerce preliminarily determined that tin mill products from South Korea, the Netherlands, Taiwan, Turkey and the UK would not be subjected to anti-dumping duties.

“Commerce’s preliminary findings investigate the behavior of, and seek to hold foreign producers accountable for, their unfair trade practices,” the department said in a release.

The move is a “major win” for the steel industry and will help level the playing field for US firms, sources told Fastmarkets.

“For the large, domestically integrated steel manufacturers, this is a major win in expanding the waterfront of tariffs on steel imports. These anti-dumping duties re-align the US government toward the inequities many feel have been overlooked,” Samir Kapadia, principal and head of trade at The Vogel Group, told Fastmarkets.

The Vogel Group is a bipartisan government affairs and consulting firm based in Washington DC.

“This will certainly level the playing field for US companies that have wanted to capture more market share with food can manufacturers. It won’t completely make things at par, given some countries were spared the newly imposed duties, but it opens up some pathways for growth,” Kapadia added.

“The preliminary anti-dumping duties Commerce announced today are a step in the right direction toward stabilizing our market, restoring fair prices and protecting US workers,” Tom Conway, international president of the United Steelworkers (USW) union, said.

Conway added: “If we don’t curtail this dumping now, it will eventually choke out our domestic industry, leaving us with no alternative but to rely on foreign goods.”

“Trade cheating is a threat to workers, the economy, and supply chain security…Anti-dumping and countervailing duties play a vital role in promoting free and fair trade by enforcing the ground rules for international commerce,” Scott Paul, president of the Alliance for American Manufacturing, said.

Tin-plated steel is widely used in cans for food, paint, aerosol products and other containers.

A final ruling, which will include a detailed verification process for all countries listed in the petition, is scheduled for January 2024.

Separately, Commerce is conducting a countervailing duty (CVD) investigation on imports of tin mill products from China.

The department’s findings come after steel producer Cleveland-Cliffs partnered with the USW to file anti-dumping and countervailing duty petitions against the eight countries with regard to unfairly traded tin mill products in January.

Cleveland-Cliffs produces tin mill products at its Weirton, West Virginia, operating facility and sells approximately 300,000 net tons per year, approximately 2% of total company steel sales volume, according to the firm.

The petition also alleged that foreign countries have been dumping tin-plated steel in the US, where multiple factories producing the metal have shuttered.

In February, US Steel cited rising tin mill imports and low demand when laying off employees at its idled Gary Works tin division in Indiana.

Fastmarkets most recently assessed tin 99.85% ingot premium, in-whs Baltimore at $1,450-1,750 per tonne on August 8.

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The IRA establishes “Make it in America” provisions for the use of American-made equipment for clean energy production. The law provides expanded clean energy tax credits for wind, solar, nuclear, clean hydrogen, clean fuels and carbon capture.

Similarly, Scott Paul, president of the Alliance for American Manufacturing, said that the combined force of the CHIPS Act, the IRA and the bipartisan infrastructure law will boost steel demand in the US.

“The infrastructure [bill] will certainly help with structural steel and steel that goes into highways and bridges. There’s a sizable investment there. For the market for some wind components and solar that fabricate steel for solar panels and solar farms, that’s going to be quite important, and from the CHIPS and Science Act and the building construction to the extent that the companies are sourcing their structural steel from the United States for construction, that’s going to help that segment of the market,” Paul said.

On top of increasing domestic steel demand, the IRA and CHIPS Act will also support the steel industry’s decarbonization drive, Phil Bell, president of the Steel Manufacturers Association, told Fastmarkets.

“You have two pieces of legislation that are not only going to make our environment better but are also going to increase the demand for steel. All of those solutions for decarbonization and having a greener environment, steel is the solution for the solution providers because steel will go into wind, solar, electric vehicles, renewable energy projects, hydrogen hubs, pipelines,” Bell said.

The AISI estimates that each $1 billion invested in infrastructure spending requires about 50,000 net tons of steel.

Demand can be met by steel industry

Even though the US steel industry is not currently operating at full capacity the sources said, there is enough capacity to meet the rise in steel demand expected to be generated from the policies without the need to look overseas for material, according to the sources.

“We’re nowhere near running at full capacity today, so there’s certainly more steel that can be produced today from existing facilities and then we have millions of tons of new capacity coming online over the next couple of years. There’s going to be plenty of steel production available in the US. We’re seeing a lot of new demand, but it definitely can be met by the domestic industry,” Dempsey said.

Mill capability utilization rate was 75.9% in the week ended on August 5, according to AISI’s latest report, down slightly from a capability utilization of 78% in the week ended August 5 last year.

“In general, US mills are operating on any given month at about 76-77% of capacity. So there’s certainly room for growth to meet that demand. That’s entirely possible without having to depend on imports to fill the gap,” Paul said.

“Domestic steelmakers can step up and fill the need here. I’m confident that… steel companies will be looking for demand signals to scale up growth in those as well,” Paul added.

IRA promotes clean energy supply chain

The IRA promotes “Build American” clean energy supply chains, by incentivizing domestic production in clean energy technologies like solar, wind, carbon capture and clean hydrogen.

“When you look at where that money is going, it’s going in all aspects of the steel supply chain. There are new projects that are investing in DRI [direct-reduced iron]. There are new projects that are investing in hydrogen hubs, carbon capture, and even the use of nuclear energy to power steel plants,” Bell said.

“All indications are we’re seeing a real boom in development of new clean energy, in wind and solar, and we’re going to see more in nuclear as well, and that is being driven and will continue to be driven by the incentives and the Inflation Reduction Act,” Dempsey said.

He added: “The CHIPS and Science Act has money focused on a particular semiconductor industry, but that’s leading to this build out of new [fabrication facilities] that we think are going to be very steel intensive. We expect a lot of a lot of new demand coming from that as well. Probably not quite in the same order as the Inflation Reduction Act, but also positive.”

The CHIPS and Science Act – aimed at boosting domestic manufacturing – provides $52.7 billion for American semiconductor research, development and manufacturing, according to the White House.

Market demand for lowering GHG emissions

The investments going into the production of clean energy in the steel supply chain come amid a larger push in the industry to lower greenhouse gas emissions in the steelmaking process.

“What the market is demanding is steel products with a lower greenhouse gas emissions density. We are seeing every steelmaker across the board in the US continuing to invest and make innovations to further reduce their carbon emissions profile. We’re going to see more and more lower emitting steel products coming online,” Dempsey said.

He noted strong demand among customers in the construction and automotive market, who want their entire supply chains to emit as low carbon as possible.

Dempsey also said that steelmakers are responding to the demand by producing low carbon-emitting products.

SSAB Americas’ zero-carbon emissions steel plate, SSAB Zero, uses recycled steel and renewable wind energy supplied by MidAmerican Energy in Muscatine, Iowa.
Cleveland-Cliffs has also announced it will implement hydrogen throughout its footprint while it becomes increasingly economical after successfully conducting a hydrogen injection trial at its Middletown Works blast furnace (BF) in May.

Nucor entered into a power purchase agreement in August for 250 megawatts of renewable energy from Sebree Solar, a subsidiary of NextEra Energy Resources, for a solar project in Henderson County, Kentucky.

Nucor also signed with ExxonMobil in June for a carbon capture and storage (CCS) project at the steelmaker’s Louisiana DRI plant, which will capture, transport and store up to 800,000 metric tons per year of carbon dioxide from Nucor’s manufacturing site.

“This new plan demonstrates the expected long-term positive impact of the Inflation Reduction Act that is driving the transition to clean energy and job creation. When completed, the plan will produce wind towers to meet the growing demand for renewable energy in the Southwest region,” Antonio Carrillo, president and chief executive officer of Arcosa Wind Towers said in an event on August 9, where President Joe Biden toured the firm’s new manufacturing site in Belen, New Mexico.

Carrillo added that Arcosa Wind Towers and the North American wind tower industry were facing significant challenges and uncertainty this time last year.

“We have received over $1.1 billion in orders for wind towers. This is a great example of how policy has a direct impact on business,” Carrillo said.

“We decided we’re going to invest in America, and [Arcosa] is a great example. They’re now poised to be the leader in the wind industry. Not only does this move us away from fossil fuels to cleaner technologies like wind, but it means we’re going to make things and new technologies here in America. There’s no reason why we can’t do it,” President Biden said at the event.

What’s next for the steel industry?

Looking ahead, the steel industry will see further investments in the production of clean energy through wind turbines, solar panels and hydrogen hubs, which will, in turn, benefit the steel industry.

“We’ll continue to see more investment in the industry in a range of areas. There is demand for steel for wind [turbines], both onshore and offshore, there are a lot of players involved in that. They’ve got solar panels that have a lot of steel, especially in the structure to hold up the solar panels and the parts for the tracking system, the torque tubes that are steel, so that generates lots of additional demand and we’re supposed to continue to see investment in a lot of flat roll products coming over the next several years,” Dempsey said.

“You’re going to see more investments and improving new ways of making steel,” Bell said.

The Infrastructure Act provides $8 billion in funding for regional hub development, according to the Department of Energy, including projects for the production, processing, delivery, storage and end-use of hydrogen.

“You’re going to see the electric grid getting greener each year and with the growth of EAF [electric-arc furnace] steelmaking, you’re going to see more demands on that electric grid. You’re going to see us looking at using more different types of power sources,” Bell added.

“There’s about $18 billion of investment that is taking place between 2022 and 2025 to modernize, decarbonize and electrify the American steel industry, and it ranges in product categories from sheet to slab to plate to rail, to even electrical steel, which will be very important in the development of electric vehicles and also our power grid. The recent investment announcements and all of these projects are full steam ahead. There’s going to be plenty of capacity to meet that demand,” Bell said.

There will also be a larger domestic market share for US steel producers in solar and wind segments, Paul said.

“There is a residual impact for steel in all of that since there’s a lot of metal involved [in solar panels and wind turbines], so that will have a positive impact from now to the next four or five years [and beyond] as more of that manufacturing is scaled up in the United States,” Paul said.

He added: “There is a clear policy intent to try to grow specific types of manufacturing in the United States and to ensure that we have a lot of policy levers that are going to move us in that direction. That’s one clear takeaway from all of this, we’re going to see a lot of ribbon cuttings for factory openings over the next three or four years as a result of the last year.”

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“The demand for that type of steel is going to far outpace the supply of that material,” he added.

The supply constraint is due to insufficient domestic production of electrical steels to meet future demand, according to Ganem. He said:

In North America, Cleveland-Cliffs is the only supplier of automotive-quality electrical steels. The company invested $30 million in its Zanesville, Ohio plant to contribute 70,000 short tons to the steelmaker’s non-oriented electrical steels (NOES) capacity by the end of 2023. Each EV motor requires around 150 lbs of NOES, according to Cliffs.

Another major steelmaker, US Steel, is set to be the second US supplier of NOES. The company’s upcoming NOES line, branded “InduX,” at Big River Steel in Osceola, Arkansas, is scheduled to achieve full production of 200,000 short tons per year in 2024.

Rise in EV demand means the same for electrical steel

The rise in demand for electrical steel is driven by an uptick in demand for EVs, Ganem said.

“We clearly see a significant shift in automotive production and in consumer demand towards EVs, in the electrification of transportation in general. The amount of investment happening in EVs is massive and there’s no question that there’s going to be exponential growth in the demand for EVs and in the production of EVs for the foreseeable future,” he said.

While Gahem expressed that it is difficult to forecast the exact rate of the increase in demand, he noted it will be a “long-term shift.”

“We’ve seen positive reactions and significant interest not just from automakers, it’s across the board, from all OEMs [original equipment manufacturers]. Anybody whose product requires a motor requires electrical steel,” Ganem said.

Since electrical steels are going to be “highly valued” in a tight supply environment, the material will trade at a premium and consumers would have to pay it if they wanted access to it, according to the CEO.

The size of the premium and how long it will remain in place depends on “the development of demand growth and how quickly domestic industries can add additional capacities,” he added.

To address some of the supply constraints of electrical steel, the domestic steel industry should make investments in the production of material, according to him.

“There needs to be further investment in these products…to produce [them] in North America. This is a product line that’s going to be highly valued, where supply is somewhat constrained compared to demand. It’s going to trade at a premium and there’s a significant opportunity for growth,” Ganem said.

KMC acquires NMM in ‘higher value-added play’

Klöckner & Co acquired National Material of Mexico (NMM), a service center and materials supplier serving automotive end markets in North America, on August 1, a move Ganem described as a “higher value-added play.”

“They [NMM] are a big participant in the automotive sector, which requires a high level of technical expertise and quality. [NMM has] more of a service center model, as opposed to a purely distribution [model] where you’re not adding much value, you’re just buying and selling, as opposed to servicing in managing complex supply chains,” Ganem told Fastmarkets.

The acquisition allows KMC to enter the electrical steel market, a key component of the engines in EVs and transformers, according to the company said.

“In addition to that service center component, specific to the automotive sector, there’s a lot of high value-added manufacturing associated with this, specific to the electrical steel business model that NMM has in which they’re actually manufacturing cores that are used in transformers,” Ganem said.

Another factor that led to the acquisition was NMM’s geographical presence in North America, the CEO said.

“The great thing about National Materials is that their business is in Mexico, the US and Canada, so they have a full North American solution that we can be part of. It’s a platform for growth where we make further investments and, based on how the market develops and how the mills develop, we’ll position ourselves accordingly as one of the leaders in that product line and help build those supply chains for OEMs, which are going to have increasing demand for those products,” Ganem said.

Collectively, KMC and NMM will have a presence in the US and Mexico spanning 56 sites. Ganem added:

Rise of reshoring to boost North American manufacturing

The insufficient number of domestic producers of electrical steel has diverted the production of the material to Mexico, which has been a “big beneficiary in the electrical steel marketplace,” Ganem said.

Ganem also highlighted the rise of reshoring in the US and Mexico, which will boost manufacturing in North America.

“There’s reshoring, we see a lot of this, where production is being shifted from Asia, typically back to Mexico and to the US, depending on the type of product or manufacturing. We’re seeing a lot of European companies looking to relocate to Mexico because they see the opportunity,” Ganem said.

He added: “Every one of our larger OEM customers have a strategy to be in Mexico, to shift production from other parts of the world back to North America. It’s happening every single day. There’s no question that manufacturing in North America is going to grow because of it.”

“To be a key supplier, you’re going to have to have production capabilities closer to the end-use markets,” Ganem said.

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“The tipping point is the recognition in the steel industry that there’s a huge economic opportunity in the solution,” Greg Bertelsen, chief executive officer of the Climate Leadership Council said.

The move to lower carbon emissions was not due to government regulation but because it made “business sense”, the panelists said.

Katie McCall Larson, vice president of government affairs and sustainability at SSAB Americas told conference attendees:

“This massive growth in sustainable steel in the United States did not happen as a result of any government regulation, but by simply letting the market work,” Dan Needham, executive vice president of commercial at Nucor said.

The panelists also noted that increasing demand for decarbonization was contributing to the steel industry’s push to reduce carbon emissions.

“People are demanding [it] and society is demanding it, and the industry recognized that opportunity to meet the [demands]. I think that’s the big change,” Larson added.

Needham echoed the sentiment: “Customers want to know the actions we’re taking to become more efficient in our production process to lower scope one emissions.”

The Nucor executive said the steel industry is on track to be 80% electric-arc furnace (EAF) production within the next three years.

“We know that the circular process of making steel and electric-arc furnace with low-embodied carbon inputs is more environmentally friendly than extractive steelmaking using iron ore. But the market didn’t recognize that and demand that until now,” Needham said.

“Energy will be the foundation of a cleaner world that will power the cars we use, the homes we live in. The greenhouse gas content of the energy we consume is absolutely critical to a more sustainable future. The industrial base load energy of the future can’t be supplied by solar and wind alone. The only existing technology today to fulfill this clean industrial base load gap is nuclear,” the Nucor executive added.

ESG metrics alignment among service centers “not there yet”: MSCI

Achieving coalescence on ESG metrics among service centers has yet to be achieved, top executives from the MSCI said in a press conference on June 21 zooming in on data aggregation in the industry.

“Clearly, service centers are different than mills. It’s important that we come up with a common metric. We’re not there yet. But we’re working to get alignment within the service center sector, on metrics where we can aggregate industry data, so that individual companies can look at their individual performance,” MSCI president and chief executive officer Bob Weidner said, adding that focusing on ESG was the “right thing to do as a trade association”.

“There will come a point in time, probably in Scope 3, where major original equipment manufacturers will start to ask questions about carbon footprint across the entire supply chain and so we need to get ahead of this curve, but there’s a lot of heavy lifting of work that still has to be done,” Weidner added.

Gathering service center data is a key element in the drive towards ESG-centric philosophy, Richard Marabito, MSCI’s chairman and Olympic Steel’s chief executive officer said.

“It’s important for service centers to be able to benchmark our data for service centers. Obviously, we don’t make steel, so the data comparisons to mills are very different. That initiative to gather the data benchmark is going to be helpful,” Marabito said.

“For publicly traded companies, there’s a spotlight on sustainability. Anyone who’s financing their working capital, like commercial banks, are becoming more interested in a company’s ESG metrics,” Weidner said.

He added: “The Generation Z and Millennial generation are very interested in what a company’s philosophy is on ESG.”

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Need for policy to recognize decarbonization efforts

“I hope the government pursues policies that support domestic steelmakers and give recognition and credit to companies that are doing their electric-arc furnace [EAF] conversion on their own time. We have seen about $22 billion of investment to modernize, electrify, and decarbonize the domestic steel industry and that was done with private money,” Steel Manufacturers Association president Phil Bell said in a press conference on Tuesday May 9. “There are moves around the world, particularly in Europe, to subsidize the transition. In America, we’re letting market forces do that.”

Leon Topalian, Nucor’s president and chief executive officer, echoed the sentiment in a speech at the conference: “We need to make sure regulatory programs recognize the emission reductions already achieved through the circular model of steelmaking.”

Kevin Dempsey, American Iron and Steel Institute (AISI) president and CEO, said: “The role of the government is to provide the types of incentives to help the entire economy to decarbonize, like developing incentives for developing green energy. The tax incentives to promote further investments across this whole range of decarbonization technologies is an appropriate role of the government.”

Specifically, the steel leaders highlighted the Inflation Reduction Act enacted in 2022, which could reportedly reduce US carbon emissions by roughly 40% by 2030.

“The Biden Administration’s Inflation Reduction Act, as well as the Department of Energy’s decarbonization roadmap, has created programs and funds that helped these initiatives,” Bell said.

ArcelorMittal North America CEO John Brett said: “The production tax credits that are contained in the Inflation Reduction Act really provide a viable path to address the remaining CO2 emissions. First, they can be captured and stored. Second, they can be eliminated by replacing the natural gas with hydrogen.”

Progress in emissions alignment takes time

The decarbonization theme at the conference came against the backdrop of ongoing efforts to align emissions standards within the steel industry, which leaders say have made progress but will take time to fully achieve.

“You’re seeing signs of alignment. When you look at global organizations like the Organization for Economic Co-operation and Development [OECD], World Trade Organization [WTO], International Energy Agency [IEA], there’s a robust discussion taking place,” Bell said.

“There’s been a great deal of progress in terms of the amount of understanding globally on how to measure carbon emissions,” Dempsey said. “There isn’t a complete consensus but the amount of attention being given to it is positive. It’s a process toward building a consensus, and that takes some time.”

Increasing demand for carbon intensity information

Steel leaders also highlighted the increasing demand for information on carbon intensity in steel products among buyers, which companies are starting to provide, according to Dempsey.

“Steel companies are going to be providing more and more information. The data is going to be important,” Dempsey told Fastmarkets on the sidelines of AISTech.

“Decarbonization is indeed achievable. Decarbonization is the moonshot of our time,” Keith Howell, ArcelorMittal North America chief operating officer, said at the conference. “Society’s already demanding decarbonization. Our customers are demanding clean and sustainably produced steels because their customers are demanding sustainably produced products.”

“Customers are demanding more information about the carbon footprint of different steel products. There’s going to be an emphasis on providing environmental product declarations – they are going to be product-specific and vary product to product. There will be a clear emphasis on more information on carbon intensity,” Dempsey said.

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