Under the European Green Deal, the European Commission has proposed a new EU goal to become a net-zero emitter by 2050.
The steel industry was responsible for around 5% of the CO2 emissions in the EU and 7% globally, according to Commission data.
Alongside the challenges this created, there were opportunities for steelmakers to charge premiums for steel with a lower carbon footprint. The uptake of green steel premiums, however, has been different in the flat and long steel sectors in Europe.
Fastmarkets has taken a closer look into the matter, investigating green steel premiums and the new landscape in the region.
Conventional steelmaking in Europe
Around 55% of the steel produced in Europe is created through the integrated blast furnace/basic oxygen furnace (BF-BOF) route. Carbon emissions from this production method amount to around 2.0-2.2 tonnes of CO2 (direct and indirect emissions) per tonne of steel, according to the Commission.
Approximately 45% of the steel produced in Europe is made using the electric-arc furnace (EAF) route. However, this share was expected to rise to around 57% when the EU shifts toward clean technologies on the way to net-zero emissions by 2050.
In Europe, 79% of carbon steel long products are produced via the EAF route, while 96% of flat products are produced using the BF-BOF route.
The EU’s ambitious goals and the growing cost of carbon emissions under the Emission Trading System (ETS) mean European steelmakers are investing in decarbonization. This would mean using steelmaking methods that reduce carbon dioxide emissions.
Major suppliers were offering their own steel brands with lower carbon footprints – XCarb, Arvzero, SSAB Zero, Bluemint, Greentec, PureSteel+, Calibria, etc – but there was no common standard for green steel in the industry yet.
Most flat-steel makers use the same approach, intending to replace BF-BOF capacity with EAFs and hydrogen-fuelled direct-reduction iron (DRI) modules.
Consequently, the transition from traditional blast furnace-based steelmaking, widely used for flat steel manufacturing, to so-called “green” and less polluting routes of production has become an integral element in major European steel companies’ strategies.
Using coal-based DRI reduces CO2 emissions by 38% compared with the traditional BF-BOF route. Using a combination of natural gas and hydrogen and carbon monoxide in DRI reduces CO2 emissions by 61% compared with BF-BOF. And using only hydrogen can allow CO2 emissions to be reduced by as much as 97%.
The evolving green flat steel market
Demand for low-emission steels has been growing slowly due to the notably high premiums for such materials and the lack of regulation in the industry, which would stimulate buyers to “go green.”
Fastmarkets’ methodology defines European green flat steel as “steel produced with Scope 1, 2 & 3 emissions at a maximum of 0.8 tonne of CO2 per tonne of steel.” Under that methodology, in June 2023, Fastmarkets launched its inaugural green flat steel assessment.
Fastmarkets’ most recent weekly assessment of the green steel, domestic, flat-rolled, differential to HRC index, exw Northern Europe, was €150-200 ($166-221) per tonne on April 3, unchanged week on week.
European steelmakers have maintained their offer prices for green flat steel at €200-300 per tonne.
But despite slow demand, the room for discounts was quite limited due to the high costs of green steel production, market sources said.
“To produce green steel, we have to buy green energy, and pay for environmental declarations,” a mill source said. “What’s the point of selling [green steel] below cost?”
Balancing traditional steel with reduced carbon solutions
At the same time, the majority of flat steel production in Europe was still achieved using traditional BF-BOF methods. Major European mills were also offering reduced carbon emission solutions for flat steel products produced via the BF-BOF route with more “digestible premiums” as opposed to “fossil-free” steel produced via the EAF route.
“There are different shades of green in the market,” a mill source said . “Not everyone needs 80-90% decarbonized steel, and not everyone can afford it. For many buyers, a 30-50% reduction in emissions is enough to meet their needs.”
In January 2024, Fastmarkets launched an assessment for a reduced carbon emissions differential paid for flat steel produced in European blast furnaces, with carbon emissions of 1.4-1.8 tonnes of CO2 per tonne of steel.
Fastmarkets’ most recent assessment of the flat steel reduced carbon emissions differential, exw Northern Europe, was €40-60 per tonne on April 3, also stable week on week.
For steel produced in blast furnaces, with reduced carbon emissions of 1.4-1.8 tonnes of CO2 per tonne of steel, offers of premiums were reported at €60-70 per tonne in April, with some limited room for discounts.
Long steel customers battle to accept green premiums
In the long steel sector, which mainly uses the EAF route of steel production, the acceptance of premium charges by customers was comparatively more difficult because this method of production was already considered more ecologically sound.
Traditionally, steel produced in EAFs using scrap feedstock produces no more than 0.8 tonne of carbon per tonne of steel.
“Being an EAF producer is both an advantage and a disadvantage,” a producer from Southern Europe told Fastmarkets. “On one hand, we are already green, but on the other, customers do not see why they have to pay a premium for what they had previously been buying without it.”
As a result, the demand for green long steel in the region remained limited and was mainly concentrated in Northern Europe, where the culture of care about the environment is at a high level.
“If you sell green longs in Scandinavia, that is more in their culture,” a producer with mills across Europe said. “Southern Europe is different, [and] most customers are not ready to pay for low carbon emissions.”
Another producer with assets across Europe confirmed that the construction and automotive industries in Northern Europe were the key consumers of green steel in Europe at the moment.
Government push drives green steel demand
A push from governments was another reason for better demand for green steel in Northern Europe.
“Demand for green [steel] should be stimulated through public procurement, the way it is in Nordic countries. Otherwise, it’s difficult to motivate buyers to pay a higher price,” a buyer in Germany said.
“In Scandinavia, there are many public projects requiring green steel procurement. There is an actual market for green steel,” a mill source in Europe said. “So distributors and trading companies there are more keen to buy green. They know that they can pass the costs [of green steel] down to the end-user.”
To track the development and prices of this emerging market, Fastmarkets has launched two new weekly assessments for green long steel prices, domestic, delivered Northern Europe.
Fastmarkets’ inaugural weekly price assessment for green steel, differential to steel reinforcing bar (rebar), domestic, delivered Northern Europe, was €20-30 per tonne on April 9.
And the first assessment of the green steel base price, reinforcing bar (rebar), domestic, delivered Northern Europe, inferred, was €660-710 per tonne on the same date.
The latter price was calculated by adding the weekly value for the green steel differential to steel reinforcing bar (rebar), domestic, delivered Northern Europe, to the weekly assessment of the price for steel reinforcing bar (rebar), domestic, delivered Northern Europe.
Stricter green criteria
At the same time, the criteria for green steel produced in EAFs have become stricter. According to market sources, 0.5 tonne of CO2 per tonne of steel is the new maximum level for EAF mills, but this is beyond the capabilities of many producers.
“In Poland, emissions are around 0.75-0.8 tonnes of CO2 per tonne of steel because their electricity is generated using coal,” the producer from Southern Europe said.
One of the main ways to cut emissions for EAF-based producers was to use renewable energy such as solar and wind power, or clean energy from nuclear plants or hydrogen.
During discussions with producers across Europe, Fastmarkets learned that, with the help of clean energy, EAF mills can reduce emissions to 0.2-0.4 tonnes of CO2 per tonne of steel. They can ask for a $20-50 per tonne premium for that, while some mills did not charge green steel premiums at all.
Nevertheless, if paid at all, the green steel premiums accepted by customers were normally at the lower end of the offer range, while according to some producers, they did not compensate for the investments and costs put into the production of such materials.
“Customers are not ready to pay for low emissions while investments are huge. So they are important, but not the priority. There will be demand later, but as of now the market is not ready,” a source with a group that owns production units across Europe said.
For this reason, market sources said, investment in emissions reductions by long steel producers will be realized at a much slower pace than in the flat steel sector.
Stay ahead of evolving steel markets with Fastmarkets’ green steel and ferro-alloys price reporting methodology. See the latest industry updates.
