Green steel end-user demand surges; transition hampered by slow regulation
Buying for green steel in the spot market across Europe was rather low, with small and medium-sized distributors and steel service centers not willing to pay high premiums at the moment.
“For example, in Norway the awareness of green steel is quite high but the willingness to pay [for it] is really low,” Helge Runer, chief executive officer of Norsk Stal, said during the panel discussion at the event.
Sources pointed out that for steel service centers, steel products represent nearly 100% of cost, and paying any premium is a challenge, while for automotive the price of steel is relatively low; it’s “a fraction of their costs.”
Market participants agreed that major producers in the automotive and construction industries were ready to book green steel and pay premiums, focusing on the value of green steel rather than cost.
Green steel is very clearly on the agenda of big automotive companies; it’s been adopted in their supply chain, but it’s a hell of a job.
“Green steel is very clearly on the agenda of big automotive companies; it’s been adopted in their supply chain, but it’s a hell of a job,” a producer source said.
“Familiarizing supply chains with [low carbon emission] steel takes time,” Jaap Jan Aardenburg, distribution marketing manager and business consultant for Tata Steel in Europe, said.
Fastmarkets’ weekly assessment of the green steel domestic, flat-rolled, differential to HRC index, exw Northern Europe was unchanged at €100-250 ($105-264) per tonne on Thursday.
Despite quite a high level of premium, steelmakers who were able to supply fossil free or green steel to the market were reluctant to cut it.
“Steel prices will be trending higher due to CBAM [the Carbon Border Adjustment Mechanism] phasing in; Besides, European steelmakers invest billions of euros [in decarbonizing their operations] and need to see the return of those investments,” a distributor from Denmark said.
Additionally, green steel was expected to remain short in supply in the next several years, before all electric-arc furnace (EAF) capacities come online and while buying interest was expected to grow.
Buyers will see the need to go green, via banks, which will prioritize financing deals using green steel,
“Buyers will see the need to go green, via banks, which will prioritize financing deals using green steel, and via regulations obliging buyers to use green steel in projects,” a mill source in Europe said.
The lack of common standards and even the very definition for “green steel” were factors slowing the green steel uptake in the market, sources said.
“There is lack of awareness [of green steel] from buyers in some regions; sometimes we get ridiculous requests, it is clear they have no idea of what they need,” a mill source in the Nordics region said.
“We need support from the European Commission – we don’t even have the right wording in place, and lack understanding among us [on what exactly the green steel is],” another market source said.
Some sources disagreed, pointing out that putting out strict regulations would jeopardize the market.
“Having an overregulated market was inefficient. Guidelines could be more relatable,” a mill in Europe said.
Will new green capacity lead to oversupply in the European steel market?
Most European blast furnace-based steelmakers have been investing in green steel projects in the past years, cutting emissions to comply with strict EU regulations.
Under the European Green Deal, the European Commission proposed a new EU target to reduce greenhouse gas emissions by at least 55% by 2030, compared with the levels emitted in 1990. The target for 2050 is net zero emissions.
Some market sources were concerned that bringing new capacities would negatively affect the already-oversupplied steel market in Europe, but steelmakers had different view on it.
“Interest for fossil free steel will be bigger than supply, so in the short-term there definitely will be room for new capacities,” Jan Meier, managing director and sales director for SSAB Europe, said,
“We are heading towards a post-industrial society, with less steel needed in the upcoming years. [The steel] industry is clever enough not to create overcapacity,” Aardenburg said.
“Steel production in Europe would be no more than 120 million tonnes [per year] by 2030,” another source told Fastmarkets on the sidelines of the event.
In 2022, crude steel production across Europe amounted to 136.3 million tonnes, down from 152.6 million tonnes in the previous year. The decline was due to massive output cuts implemented by Europen mills in the third and fourth quarters of 2022, facing deteriorating demand and falling steel prices.
CBAM to stimulate buyers to book more EU-origin steel
The transitional phase of CBAM began on October 1, 2023, with the first CBAM declarations to be submitted to European Commission institutions by the end of January 2024.
Sources suggested that the complexity of CBAM, along with the high and unpredictable costs of carbon permits, would significantly limit the number of overseas steel buyers.
“That’s not even clear how many CBAM certificates exactly will be needed for each importer to covered the purchased goods,” a market source said.
“Smaller distributors, steel service centers simply wouldn’t be able to afford importing steel. So they will need to switch to the domestic suppliers entirely, and purchase import steel at big companies who are able to hedge risks,” a second trading source in Europe said.
Another source that spoke to Fastmarkets on the sidelines of the event expressed concerns that CBAM would lead to an “oligopoly for imports,” with only a few large market participants potentially able to provide all the necessary documentation and purchase CBAM certificates to cover emissions.
“It is very likely that smaller buyers would have no other option but to buy European steel,” the same source said. “European distributors need to rely on imports to diversify supply sources in order to secure an uninterrupted supply of steel products for their customers. Nobody should buy 100% [of steel] from imports and nobody should buy 100% domestic material.”
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