MethodologyContact usLogin
The global steel industry has been getting greener for decades – and producers are now asking to be reimbursed for their tech and process investments.
The US steel industry – already one of the world’s cleanest – is ironically behind Europe and Asia in convincing buyers to accept a price premium for the premium product they’re already buying.
Ahead of LME Week 2024, Fastmarkets has compiled five factors that could accelerate or decelerate the push for green steel premiums.
A green steel premium is the price difference between steel produced via traditional emission-intensive methods, and steel made with lower carbon emissions.
The global steel market has yet to agree on a standard definition of the term green steel. In our conversations with market participants, it has been characterized as everything from hot-rolled coil produced in an electric-arc furnace (EAF) to true zero-carbon steel produced without fossil fuels.
The carbon threshold for Fastmarkets’ Asian green steel price is 1.3 tonnes of carbon dioxide (CO2) emitted per 1 tonne of steel produced (tonne CO2/1 tonne steel), while Europe’s threshold is 0.8 tonnes CO2/1 tonne steel. For the US, it’s 0.7 tonnes CO2/1 tonne steel. All thresholds encompass Scope 1, 2 and 3 emissions. Today, the green steel premium is highest in Europe, followed by Asia and finally, the US, where it’s currently $0.
1. ACCELERANT: If the Democrats win big in November
If current US Vice President Kamala Harris wins the US presidency this November and the Democrats take control of US Congress, then we expect the regulatory environment to become more stringent. Despite the continued reluctance among steel buyers for a green steel premium, the Buy Clean initiative for federal purchase and contracts could be the spark that strengthens demand for lower carbon emissions.
It’s unlikely the Democrats would want to be seen to be conforming to externally imposed global or European standards for green steel. To meet market and political sentiment, a Democratic government is more likely to set its own standards, which would coincidentally align with global standards.
Because only approximately 10% of US-produced steel is exported, US steelmakers don’t feel the same pressure to conform to global standards as in other global commodity markets such as fossil fuels. However, automakers, responsible for the US’s second biggest export after fossil fuels, pay close attention to sustainability standards in the markets they serve, exposing steelmakers to those standards indirectly. Auto has been recognized as ground-zero for green steel acceptance, due to the relative ease in passing a green steel premium for auto sheet on to auto buyers – an extra $150 per $45,000 vehicle means little to the buyer, but a whole lot to the steel producer supplying the ton or so of steel per vehicle sold.
The success of a policy that imposes higher standards on producers, which will inevitably lead to higher costs, will hinge on the Democrats’ ability to persuade consumers of the benefits of green steel. In short, a green steel premium will become viable if or when American car owners demand it.
2. ACCELERANT: If the global steel market agrees to a shared definition of green steel
The emissions profile of EAF-produced steel ranges between 0.39 and 1.91 tonnes of carbon dioxide per tonne of steel produced. If the definition of green steel were to change, for instance to a lower level of emissions, or to steel produced using electricity from sources other than coal, this could increase US producers’ costs and likely change their sentiment in favour of a premium. However, there are no indications that the industry is likely to reach a consensus in the near future, given the stark variations that persist between regions and producers.
“Steel producers in the US are asking first if there is a demand for green steel, and the answer is yes. But then the second question is, do people want to pay a premium for it? The answer very clearly is no, because standard EAF-produced steel in the US often already meets the buyers’ standards for emissions levels. Steel producers have spent decades investing in EAFs. From the mills’ point of view, they believe they have already crossed the finish line.”
Alesha Alkaff, senior steel price reporter, Fastmarkets
3. ACCELERANT: If a carbon border tariff is imposed on imports
There is also the possibility of a carbon border tariff, similar to the EU’s Carbon Border Adjustment Mechanism. Enabling bills like the PROVE IT Act are already moving through Congress to direct federal carbon monitoring of domestic and imported products, including steel.
A carbon border tariff could drive the technological innovations necessary to reduce emissions further in a race to stay ahead of green steel standards in Europe and Asia.
More than half the respondents to our survey were in favor of a carbon tax on imports to the US. Because US steel is already the cleanest in the world, having a carbon border tax would only benefit the US.
Some of those surveyed were less in favor of a carbon tax, as they import steelmaking raw materials cheaply for end use, and it would increase the cost of production.
4. DECELERANT: If Donald Trump becomes US president
Few in the US steel industry are willing to commit fully to one track or another while the regulatory environment is uncertain.
It’s likely that a second Trump presidency would pay little regard to pledges from the World Economic Forum regarding the US steel industry, just as Trump pulled out of the Paris Climate Accords in 2017 shortly after taking office.
“In a Republican administration, you could pretty much count on those agreements going away, so there wouldn’t be a big incentive, one way or another, to start making cleaner steel,” Daniel Hilliard, US steel and ferro-alloys editor, told us.
A Trump victory could hinder progress to reduce emissions from the steel industry with innovative technology. Trump said in January that he would “instantaneously block” the proposed $14 billion takeover of the Pittsburgh-based U.S. Steel by the Japanese company Nippon Steel, which has decarbonizing steel at the heart of its plans.
5. DECELERANT: If green steel continues to be perceived as not adding value
Resistance to green steel premiums in the US is strong due to high prices and a lack of perceived added value. We reported in August 2024 that no domestic US mills currently were collecting a premium on green steel using Fastmarkets’ spec (0.7 tonnes CO2 equivalent per 1 tonne of steel).
Fastmarkets conducted a survey in September asking when green steel premiums would be collected in the US. Almost half (48%) of respondents said it would take longer than 18 months, compared with around a third (35%) that expected it would take a year or less – which suggests that market sentiment is unlikely to change significantly soon.
The American Iron and Steel Institute captures US market sentiment well: “The American steel industry is the cleanest and most energy-efficient of the seven largest steel-producing countries.” US steel producers are 75-320% more carbon efficient than global markets, Brandon Farris, vice president of government affairs at the Steel Manufacturers Association (SMA), said in July.
In the US, the green steel debate is less about clean versus dirty, and more about green versus greener.
“It is not surprising that the US market is resisting the idea of a green steel premium. The feeling is that ‘the steel hasn’t changed – it’s the same EAF steel I bought yesterday – why should I have to pay a premium for it?’ Whereas in Europe and Asia, markets can attach a premium and justify it by saying it is funding their ongoing efforts to decarbonize.”
Daniel Hilliard, US steel and ferro-alloys editor, Fastmarkets
If a value-add is to appear, it will likely be in the form of market differentiation, a means for producers and large-scale consumers of green steel such as automakers and airlines to showcase their commitment to sustainability to their customers. Because brand perception is consumer-led, the push may come upstream from steel buyers to producers, rather than from producers themselves.
Fastmarkets continues to launch new green steel premiums to give regional and global visibility into supply, demand and price for green steel. Our team of price reporters monitors evolving liquidity and standards in the green steel space and may adjust the carbon threshold or introduce new prices as demand dictates.
To provide feedback on the above prices or to become a data submitter, please contact pricing@fastmarkets.com.