INTERVIEW: German steel decarbonization under pressure amid weak economy: WV Stahl

The successful path to decarbonization of steel output in Europe's largest producer, Germany, is under threat amid a prolonged recession in the country, despite the imminent publication of a lower carbon emission steel definition that has the potential for international adoption, according to Martin Theuringer, managing director of German steel association WV Stahl.

In an interview with S&P Global Commodity Insights, Theuringer said that since the start of Germany's economic downturn in 2018, "we've seen a negative trend in the industry, at producers and processors. The backward movement has impacted steel demand and production."

"First and foremost, I believe that Germany is still a country that has enormous strengths and a solid industrial value chain," said Theuringer. The steel industry generated an overall turnover of Eur55.2 billion ($59.4 billion) in 2022, according to the Federal Ministry for Economic Affairs and Climate Action.

German steel mills prided themselves that they are at the forefront of the transition to lower carbon emission steel thanks to existing partnerships among the value chain, with Theuringer saying producers are seeing downstream demand for lower carbon products.

"This does not conceal the fact that Germany is under massive pressure because of high energy costs that have gained much more importance now than before. There are other factors as well such as the lack of planning security which was a previous strength of Germany," he said.

Platts, part of S&P Global Commodity Insights, assessed the European hot-rolled coil price for lower carbon emission steel at Eur765/mt ex-works Ruhr April 9, which is the sum of the conventional Platts HRC price at Eur640/mt EXW Ruhr and the Platts carbon-accounted HRC premium at Eur125/mt.

The court ruling that forced the German government to freeze 2024 spending from the Eur60 billion climate and transition fund late last year shocked(opens in a new tab) the industry as mills are dependent on government funding to make heavy investments in new technologies to produce lower carbon emission steel.

At the recent Handelsblatt conference in March, long steelmakers were particularly vocal on the difficulties of continuing to produce in Germany with steel bar maker Georgsmarienhuette warning they would need to shift sites abroad(opens in a new tab) under current circumstances.

The expected increase in lower carbon emission steel demand and climate goals set by governments is forcing steelmakers to change their technologies as quickly as possible, though Theuringer said the reality is that there will be a step-by-step change.

"We have to acknowledge that the transformation is happening in steps. An entire plant cannot be changed in one go. That is impossible logistically and because of the existing value chains," said Theuringer. "The change is also dependent on availability of energy as well as prices."

Lower CO2 steel definition

The definition of lower carbon emission steel -- and lack thereof -- has been the hot topic of the past 12 months in the industry, exacerbated by the incoming Carbon Border Adjustment Mechanism.

WV Stahl is seeing different transition steps in primary steel production which can involve: a direct reduced iron plant or a DRI plant with electric arc furnace, that may be powered by natural gas first. "And this is already a billion-Euro-worth investment," Theuringer said.

"We are going to regard this as CO2 reduced steel until 2030, 2035. If this will still be the case then remains to be seen and [is] dependent on the availability of green electricity and green hydrogen," he said.

"We have to have a definition to be able to give value to it. The challenge is to define CO2 reduced steel while the transformation process of the industry and steel is ongoing. The answer to that is a scalable approach that looks at all facets of the transition and isn't defined by one single approach to what CO2 reduced steel is."

A definition might not be too far off, according to Theuringer. Germany is the only one that has held discussions within a broad stakeholder dialogue with all partners in the value chain as well as NGOs and research institutes, he said. The dialogue has been concluded and the German Ministry for Economy will publish it soon.

"I believe the definition will come this year. The real challenge will be however to roll it out successfully on a European level because we want at least a clear European definition. We cannot waste any time," Theuringer said. The German steel federation will officially present the definition at the industrial trade fair Hannover Messe April 22.

The challenge is the current fragmentation of a definition and the adoption of a unified standard that Germany will propose. According to Theuringer, there is the chance for widespread adoption internationally.

"The big advantage Germany has is that international adoption has been part of the discussion from the start and the basis of the labeling is premised on the International Energy Agency and that has been endorsed by the G7 countries. If you look at the international debate, that is the one definition that has gained the most support in Europe as well as Asia," he said.

Theuringer said that the energy transition in steel across the EU remains at risk despite the bloc's Carbon Border Adjustment Mechanism (CBAM) tariff on high-carbon imports and import safeguard quotas.

"There are two hurdles that have not been solved yet: overcapacities -- we have currently 600 million mt, according to the OECD, and most of the increase in capacity is in conventional, grey steel," he said.

"These overcapacities are emerging, and they are coal-based, environmentally harmful -- and cheap to produce. They are built far away from any market logic -- there needs to be a protection from it," Theuringer added.

With the average blast furnace just 15 years old, according to Glencore CEO Gary Nagle, global coal-fired steel is expected to stay for some time, particularly in non-Western countries.

"The trade instruments that we have, safeguards, anti-dumping, anti-subsidy tariffs, they are only a piecemeal strategy. Safeguards, even if extended, will only be extended that one time. That's the first hurdle. The second one is that in Europe, Germany is in the unique situation that it is changing the entire industry in a short timespan which means it is making itself vulnerable," said Theuringer.

"If all CO2 reduced steel is targeted for the European market then the market will be swamped and it will not be possible to develop a truly sustainable business. We need a level playing field for green production -- labeling could play a role in that but everyone has to play by the same rules."