Listen: What it means to be green: Steel market lacks consensus on what low-carbon looks like

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Taylor Kuykendall:

Welcome to Energy Evolution, the podcast bringing you insights and analysis on the energy sector. I'm your host, Taylor Kuykendall. Today we're looking at Green Steel. As regular listeners might know we've talked about Green Steel in this podcast before, but while our last episode on this was about production methods, now we're looking at green steel standards and the future of the green steel market, especially in the EU. Our guest today is Guido Kerkhoff Management Board Chairman and CEO of the European unit of German steel service company, Klöckner & Co. Bringing us this interview is Laura Varriale managing editor of the Ferrous Metals team EMEA at S&P Global Commodity Insights. I'll hand it over to our regular correspondent Camellia Moors to introduce the conversation.

Camellia Moors:

Hi Laura, thanks so much for joining us.

Laura Varriale:

Hello.

Camellia Moors:

So for listeners who might not be familiar with your work before now, can you maybe start off by introducing yourself and telling us a little bit about what you work on?

Laura Varriale:

Of course. I'm Laura Varriale, I'm the managing editor of the Ferrous Metals team in EMEA, which includes assessing prices of steel and semi-finished products. So we sit in London and we talk to the market on a daily basis.

Camellia Moors:

I know you've recently spoke with Guido Kerkhoff, but before we dive into that conversation, I do want to do a little bit of ground setting. So first of all, what does Klöckner do? Within that I mean what are its primary products and markets overall?

Laura Varriale:

So Klöckner are a steel and other metal stockholder with presence across Europe and the US. They buy steel, they keep it in stock and then they sell it on. They have a pretty wide range of ferrous and non-ferrous products, but flat steel products make up for the biggest share in their sales.

Camellia Moors:

Got it. And in this conversation that we'll hear in a second, you both talked about the lack of a single universal or widely accepted definition for green steel, although I know you get into the idea that Klöckner kind of has its own. I mean, why isn't there a singular definition? And related to that, you also talked about the idea of having a German standard for green steel and then what is that and is that in and of itself a model that other groups are expected to adopt at some point?

Laura Varriale:

I think that's the million-dollar question about a lack of green steel definition. So I think the lack of a green steel definition stems from the fragmentation of how to achieve lower carbon emission steel because there are various ways and different production routes and they all have different emissions. So if you have fragmented production of green steel that's still mostly lacks mass production and you top it with a lack of an authority such as the European Commission saying this is what green steel is, you end up in a wild west of different shades of green. And there are groups such as Responsible Steel, as you said the German Steel Federation who have come forward with ideas all hoping that it would be internationally adopted and that still remains to be seen. What most are acknowledging now, however, is, and this is what said in the interview, that lowering emissions to near zero will not come overnight. So coming up with categories of different levels has been the recent development and this is also what the German Steel Federation has put forward.

Camellia Moors:

Got it. Wild west of different shades of green certainly paints an image I think. Something else I wanted to ask you about too is you mentioned that you're assessing a green steel premium, wondering if you could elaborate on that, what it looks like and how that might compare to "non-green" steel.

Laura Varriale:

Yeah. So in May, 2023, we launched the world's first carbon-accounted steel assessment. Our team at Commodity Insights assesses the premium of the so-called green hot rolled coil produced in Europe and we chose hot rolled coil because this looks to be the most widely traded green steel in Europe because that's where the push for green is. So because of a lack of definition, we had our initial specification of CO₂ emissions fairly wide, up to 2.1 metric tons of CO₂ per metric ton produced of steel, which is below the average of blast furnace emissions in order to catch as many data points as we could. And the interesting thing is that over the course of the year market participants started to give us prices for material that predominantly is now below one metric tons of CO₂, whereas a year ago we got many more between one and two metric tons. So it looks like the actual trading or demand of green material is mostly lower than one metric ton, but trading is very slow. For most of 2024, the premium has been between €100 to €150 per metric ton. And if you want a green hot rolled coil, you have to add the price of conventional hot rolled coil, which is around €620 to €630. So it's pricey to buy green steel amid a weak economic environment.

Camellia Moors:

That's really interesting. Something I do want to ask about as well, because you do touch on this in the conversation in a moment. For anyone who isn't aware, could you maybe give a little bit of a quick recap on how the EU's carbon border or adjustment mechanism works and how it actually applies to steel? I mean, for example, do you have any color on how much volume of steel this would actually apply to?

Laura Varriale:

So the carbon border adjustment mechanism by the European Commission, in short CBAM, will fully kick off in 2026 when a carbon tax will be introduced on imports of steel. In a nutshell, the higher the emissions of the material, the more it'll cost to get the material into the European Union. And monitoring of CO₂ levels has started this year and often it has fallen to a default value, which is roughly the average of a blast furnace production, because importers find it very hard at the moment to actually get the documentation from the producers. You don't have to pay yet, it's a transition phase right now. And the underlying reason for CBAM is to protect producers in the EU who have high production costs and higher price material which means there is a significant interest from buyers to import material. But as Guido said in the interview, some consumers such as the auto industry try to buy locally. So CBAM is likely to hit some steel buyers harder than others. And imports in 2023, for example, of finished products stood at 28.9 million tons, mostly from other European countries outside the EU or Asia. The share of imports depends on the product, but if we look at flat steel for example, 23% come from imports just short of a quarter.

Camellia Moors:

That's certainly very helpful, I appreciate that. And the last sort of stage setting question I had for you here is, I mean could you give some color maybe on the state of the European steel market or production? I mean how would you characterize that overall?

Laura Varriale:

It's been fairly quiet this year on the steel market. Demand has been tepid this year, so the capacity utilization of European steelmakers hovered around 70% according to our Commodity insights analytics team. It varies by country, but the times of full capacity utilization are over for now in Europe. Germany, the biggest European economy, has been reeling from a weak economy this year. Although it's been holding up fairly well overall with the utilization rate of around 80%, our analytics team estimates that the steel capacity cuts currently stand at 21.9 million tons this year across seven different European countries with further cuts of 6.9 million tons later this year in the UK and Germany. So it's not the best year for steel, 2024, and at the moment it looks like we have over capacity in Europe and European mills are trying to keep the steel prices stable by making further cuts.

Camellia Moors:

Well, this all sounds really interesting. I'm very excited to get into this conversation.

Laura Varriale:

Hello, my name is Laura Varriale, managing editor of the Ferrous Metals team in EMEA at S&P Global Commodity Insights. And today's discussion is going to be about green Steel, the buzzword of the last one and a half years in the steel industry, and with me today is Guido Kerkhoff, CEO of the major steel stockholder Klöckner. And despite a lack of definition of green steel, it has already started to trade. There's no definition that is internationally accepted right now, but the market has moved along and we hear a lot of buzz from producers and the buy side such as the automotive industry and being a distributor is really an interesting position to be in in this whole complex of green steel trading and Klöckner is one of the largest steel distributors and with major presences in Europe and the US. So amid the producers and buyers that are making a lot of noise, how is Klöckner dealing with green steel and a lack of definition of it?

Guido Kerkhoff:

Well thanks, Laura, for that question because I share your view, there is a lack in the market of a clear definition and that's not helpful. It's not helpful for producers, it's not helpful for distributors, but I think most of all it's not helpful for customers because it's not possible as a customer today to base your decisions on how much carbon footprint do you have in a product. Now what we've done to overcome this, because we definitely believe that steel by the end of the day of decarbonizing our societies and the world is more part of the solution than just part of the problem, it already contains less carbon emissions than other materials and you can decarbonize it. That's why we think a standard is of extremely high importance.

That's why we started already, when I joined Klöckner in 2020 and we published things in '21, how can we define a standard that makes it comparable from what sources you buy your steel so it is the same standard for each and every producer, and that is in line with the usual standards used by SPTI or by the greenhouse gas. So what we've done, because there was a lack of a standard, is we defined it ourselves and we made it along with ISO standards 14067 and all the results that we using for the protocol footprint are always tooth audited so that for our customers we have created a standard that makes it comparable and is externally certified so that customers can really rely upon it.

Laura Varriale:

It's interesting that everyone pretty much in the steel industry had to define green steel for themselves, as we have done as well. We are assessing a premium for hot rolled coil that is carbon reduced since May 2023. And we've ran into problems. We spoke obviously with a lot of certifiers and a lot of people in the industry what green steel is and how they define it amid the lack of an international accepted definition. And there are many shades of green steel and there are various different views what can be accepted as green steel. In a nutshell, how do you define, let's say flat steel, which is in Europe predominantly blast furnace produced in 2024, it's going to change, but how do you define it roughly? What are the carbon emissions? Do you have different categories?

Guido Kerkhoff:

Yes. By the end of the day how did, we go about when we looked onto how do we define and measure the product carbon footprint of steel products, we try to align as much as we can with the greenhouse gas protocol. So we clearly said no balancing is allowed and no offsetting as well. So we try to stick to the physical root of the production and then measure the carbon emissions. Again with no offsetting and not a mixing and balancing of different aggregates or different sites that might be used, which some of the producers are doing to get in the mix, I think, a better carbon footprint for the product. And based on that, we started in the beginning to define categories, five categories, that we would call green. If you talk about a blast furnace steel and hot rolled coil, if you are currently producing that via a blast furnace including scope one, two, and three, which is always important that you include three and not only have one and two, you usually have kind of between 2,500 kilos and 3,000 kilos per ton of steel as carbon emissions.

So to get it down to zero is currently not doable. So we define five categories that start at below 400 kilograms, which would be the best category, and the kind of weakest green category was below 1,750 kilograms. Because we think this step approach and these different categories for us, I think, are helpful to over time get the carbon emissions down. It's not going to be a change that comes overnight. And this is not doable. I mean you have to redo the mills, they have to invest a lot. That takes time. But if all customers can define their own path from today to zero maybe in 2040 or 2050, we want to help them and say, look, 25%, 30 or 50% may be good steps in between. And if you have different categories and the clear product carbon footprint, we're currently more focusing on the exact product carbon footprint cradle to gate so our customers can judge and find out what is available and how can they develop their path to zero in what steps. And what are the costs allocated to it, so it's all going to be a cost issue as well. So people have to balance cost against benefits.

Laura Varriale:

Yeah. So what we've seen a lot of interest from end users, especially in green steel, and it varies a little bit what we've seen over the course of over a year now that we have been assessing a green steel premium for hot rolled coil and it very much at the moment is fluctuating with the conventional steel market. If the prices of conventional steel are not moving or rather the demand is not that great, we see that green steel isn't moving as well and it's getting quite hard for mills to actually get a premium. But in terms of obviously Europe has to change, European mills have to change because they're predominantly producing via blast furnaces, flood steel, which has higher carbon emissions than electric arc furnaces. So we see a similar move in long steel right now, which in Europe obviously is produced by electric arc furnaces, where a lot of mills are saying, well, our steel is already green because we produce by electric arc furnaces. We invest a little bit more in solar power, we put some solar panels on top and we get certified. And because you have a presence in the US as well, and it seems at the moment that Europe is a first mover in terms of really getting into the green steel trade and looking at it and end users are really pushing for it, how do you see the development in the US?

Guido Kerkhoff:

Well, as you're rightly mentioned, in the US energy has always been cheaper and quality demands for steel a bit lower. That's why historically, and it was mainly cost driven, electric arc furnaces have been more name of the game in the US. You have around 70% of the US production based on the electric arc, not because it's greener, it was because of the availability of cheaper energy. Electricity has always been way cheaper and you need a lot less CapEx for an electric arc than for a blast furnace. In Europe, the game has always been completely different because electricity has always been more expensive and the quality grades you can get out of the blast furnace are higher. So especially for the automotive sector, that's why blast furnace was cheaper and higher qualities in Europe, so that was name of the game. So in Europe, as you said, we only have about 40% on electric arc and more long products, not so much flat products.

Now in the US what we see is indeed that the demand of the decarbonization for our customers does play more and more a role in the discussions we have with them. But it is true that if you are on an electric arc, you are on a lower level and it's easier if you buy green electricity to get it even greener. It's then rather depending on how much scrap you use and how much HBI you have to put into it because the level of carbon emissions for HBI, if you don't get it with green hydrogen, is a lot higher. So that depends a bit on where you go. But that's why we see in the US most of the producers, especially the ones with the EAF, in the beginning they thought, oh, we're a lot easier green. They now, I think, found out that there's still something to do, but they're on a better level and we will see how that balances out over time because worldwide there will be not more than 40% scrap available compared to the whole steel production. So that means that a root where you start from iron ore and produce steel will always be needed to cover the demand on steel.

Laura Varriale:

Yeah. I think the scrap shortage that is expected to happen as Europe is moving more towards electric arc furnaces while Asia actually there is going to be more demand for cooking coal, for example, because there's still blast furnaces going to be built and also they're quite young in Asia comparatively. I read recently that the average age of a blast furnace in the world is 15 years, which is not that old for a blast furnace, and European blast furnaces are much older and they're really moving in Europe right now. But how do you think, because we are obviously looking towards the carbon border adjustment mechanism that is going to kick in in a few years. Monitoring has started. Carbon emissions, when you import steel into the European Union, they have to be recorded. At the moment they have been very often falling to default values because it is quite difficult to get the carbon emissions registered, especially when you are importing outside of Europe. But as a distributor, are you going to expect a change of trade because we are going to get pretty much a carbon border adjustment mechanism, which is making it quite expensive to import steel that has higher carbon emissions?

Guido Kerkhoff:

Well it can be, but still if you take a look at carbon steel transportation costs already always mattered and it's a long time to import steel from Asia into Europe or into the US. So the US has a high protection of tariffs against, for example, Chinese steel. In Europe that's a bit less and has always been a bit less. But on the other hand, the large majority of the steel that is consumed is produced in the regions where it is used. To be just in time from China to let's say European auto manufacturers is not so easy, so that's why the biggest volumes still were local. Whether the carbon adjustment mechanism will really change the world remains to be seen. Again, the largest part of the steel production is in Europe for Europe or in the US for the US. But where I slightly would disagree with what you said is I think we will see over the next decades that the Asian production of steel will be decarbonized as well.

If I take a look into how many DRI plants are built and where will we see the first DRI plants, I think it can very likely be in China. They have a huge transformation ahead of them and they don't have scrap in the market as the whole society and the economy has been built over the last two decades. And steel mostly stays in infrastructure and buildings for way longer. So there's only about 10% of the required raw materials for the steel production in China is coming out of scrap. So they have to invest into DRIs, they have to invest into green energy and the hydrogen there. But what we see is investments in solar fields, wind energy, and even DRI facilities, it's starting and as half of the production is in China of the steel worldwide, it's a huge transformation but I'm not negative that they will move as well. And maybe it takes a bit longer because still they have a huge demand and there's no other way of producing it currently for them than with a blast furnace, but I'm not so negative that over time they will move into a decarbonized steel production as well. And they might be more modern than the other countries.

Laura Varriale:

So do you think that Europe is going to see more, let's say green steel coming from Asia into Europe right now, or do you think, because you talked a little bit about how there is a little bit of a globalization going on in the economy in general in industries, and do you think due to this globalization happening right now, do you think that there will be more imports coming to Europe?

Guido Kerkhoff:

Honestly, I think the question for me is a bit too short. We will have to look into how can this decarbonization happen and it's later on, if you take a look onto the competitiveness of the products, you have to look into where can you produce and have the availability of enough green energy. You need green electricity not only to replace the blast furnace by a DRI plant, but to produce green hydrogen as well. I mean hydrogen doesn't exist naturally, so you need to split water and the way to do it is you use green energy for that and this is what you have to see. And that's, I think, for the European and the German view to do this transformation will be a bit more difficult because there is not enough green electricity currently available. And there are other places in the world where that might be a lot cheaper.

In some places like H2 Green Steel for example, in the north of Sweden you have enough hydropower which is green to create it so you can be competitive. But it's from my point of view to say, look, will the production be only here or only there? I wouldn't see it that way. I mean the steel production is a complex process. You need the raw iron, you need the HBI, then you need the electric arc furnace and all the rolling you do later on, hot rolling and cold rolling and whatever you do there. So the question is how do you split it? The same way you do it today or will you have maybe HBI imports, where you use a lot of this electricity for, from regions where you can produce that and generate that cheaper and then start on a little bit a higher level in other regions of the to do then the steel production in the electric arc and do all the rolling that is needed, hot and cold. So that's why I think it's not a black and white question and the level of competitiveness of cost on the OPEC side will be decisive on where you will do it. It's not just the CapEx and the original investment, which is huge as well, but the OPEC side will play a role.

Speaker 5:

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Laura Varriale:

I was at an industry conference recently where it was very much the discussion point is steel production going to move where the energy is in abundance or green energy is available. And that would be a change, right? Steel production would move to let's say as the example is H2 Green Steel with hydropower in Sweden, which are building a completely new mill right now. Or they move to let's say Southern Europe where you have more sunshine and you can have more solar power and then rolling would be more local. Possibly, that's one argument that we've been hearing in the industry. But then at the same time, there's obviously the risk of deindustrialization, which is also a big topic right now in the industry. For example Germany, they don't want that. Jobs are going to be lost because the industry is getting more deindustrialized.

Guido Kerkhoff:

Yeah. Well, I hear that argument very often. It's largely used by the unions in Germany and some other parts as well, but I do not really agree. If you take a look on how many people are working on steel mills and how many of them are just working on the blast furnace and whatever it takes, you would see it's less than 10%, maybe 5% of the people in a complex integrated steel mill that are just working on the blast furnace. So if you were to produce the HBI where the cheaper and the availability of green electricity is there, it would change the production process but far less than people expect. And if on the other hand you're trying to produce your HBI on your own in the same place where you are today, and by the end of the day you find out that it is too expensive so that you're not competitive then on the hot and cold world material, you risk the other jobs as well.

So that's why I think this question of deindustrialization is not black and white. The question is at what level do I start and at what level do I produce what? So because if you want to be just in time, especially for the automotive and other industries with larger volumes, you should be pretty close to your customer. But the quality you do not do 100% on the HBI and the DRI mill, that starts rather with the electric arc then. So that's why I think to have a split where you do the HBI production outside your home countries is not that important and won't change the infrastructure overall as much as people expect or think.

Laura Varriale:

Moving on a little bit more to Klöckner and how Klöckner is navigating the current green steel demand. So my question is how much interest or how much change have you seen in interest for green steel from your customer side over the last year?

Guido Kerkhoff:

The interest is still increasing. While in the past it was rather the big very large customers, so rather say DAX 40 companies in Germany or Anastasia companies in the US and SEC listed ones, so the really big ones, it is getting broader now. Still today people are showing interest, they want to know what it means, but as in the end product, the carbon emissions are not really visible, you cannot differentiate your product and therefore the willingness to pay for customers is still rather low because they cannot differentiate the product. You don't have the carbon emissions of a car or a dishwasher that you buy, so therefore they can't use it. We see now more and more some customers coming and saying, look, the procurement people got targets not only on getting the best price in their activities but reducing carbon emissions, for example on the used steel by 25% till 2030.

So they want to define a path down and that's where we see as a distributor a big opportunity. That's why we've developed our so-called Nexogen data services. So as we have the carbon footprint certified for almost every product that we sell, we are one of the few parties that you will find that can give the full carbon footprint of the product we sell to our customers. So they already have a comparable GHG conform and SPTI conform definition of their starting base. And with that we can look and develop with them how a path can look like. And what we find out there very often is that a -25% doesn't require that you need just that what people would call green steel, so DRI based and the very green assets. If you start that you are on blast furnace steel and you import it from somewhere, it might already be enough to change your supplier to a more local supplier or to move in the mix more towards electric arc steel to get the 25% done.

And that's what we are currently focusing on. First, educate the market and educate our customers. And our offering out there is rather how can we help you to get the decarbonization what you want to achieve as a customer on the steel part of it, because we have a broad overview that is comparable between all the mills and all the different routes. And we always have scope 1, 2, 3 till indeed the gate of our customers. So it's a full picture they can get from us and we can define for them then how their way down can look like and what costs are allocated to it. It's always price earnings ratio that customers will look into and we can do that together with them. And that's what we're offering with our data services now.

Laura Varriale:

I think as a distributor, you're probably one of the first movers in that space to really embark upon this journey of decarbonization of steel. When we talked with the market last year, when it really kicked off last year, seemingly there has been so much discussion around green steel but there were still a lot of distributors saying that, no, we don't really touch it right now. We still need to figure out how it works. And a lot of mills where everyone at this moment, because there's not a definition right now that is internationally accepted, is figuring it out as they go along. And this is really interesting for us to see that even though obviously the whole move of the energy transition is being driven by policymakers, the steel industry really has started moving without all the parameters being set right now.

So do you see then, because you talked about there's a lot of education needed within the market, I mean, what would you like policymakers to do? Would you agree that there is a need, for example the European Commission, to come out with a standard because that's what's been talked about a lot. We are waiting for a definition from the European Commission because the German Economy Ministry has together with the German Steel Federation come out with a definition or a path really with a lot of categories and it's quite elaborate. And so far I have not heard that it has been accepted yet internationally, which has been the aim really.

Guido Kerkhoff:

Well, I think what we see there is the worst part that can happen on lobbying because it's pretty easy. If we want to decarbonize the world, we need to get the carbon emissions out of a product and to do the calculation of carbon emissions cradle to gate is easy. It's doable. If we can for 190,000 products do it, even if we don't get data from the mills and we get it TÜV certified in line with greenhouse gas and SPTI requirements according to ISO standards, can't be that difficult. And you need a standard that compares the carbon emissions not only steel with steel. So you see a lot of lobbying electric arc against blast furnace producers and the other way around, that doesn't make sense. If you want to decarbonize products, you need to decarbonize the product independent of what materials are in there. So you need a standard that is comparable not only steel to steel, but steel to aluminum, carbon fiber, plastics, concrete, everything else.

So that's why I think it's very easy. Just a physical route, as close as you can get to the physical route, and then have the product carbon footprint. Just that and nothing else. So if you take a look at this German standard that was developed, it has the PCF so the carbon content as well on it, and another standard where you cannot really find out what that means and how the balance between scrap portions that are in there are used so as long as you have the PCF, I think for the customers finally, it's just the protocol footprint. And the producers of end products will then look into how can we achieve the levels that we have to achieve by what material makes? Is it more steel, is it more plastic, is it more aluminum? And what can be decarbonized and what costs are allocated to that? And this is what I honestly miss in the steel industry because I see, and we see, a big opportunity in this steel is cheap and can be decarbonized. And compared to other products it contains already today less carbon emissions than aluminum or carbon fiber for example. So the competitiveness of steel should increase and steel is way cheaper. So we rather take a look at it from an opportunity side. I think more steel and decarbonizing steel over time is more part of the solution to decarbonize our economies and societies.

Laura Varriale:

That is really interesting because obviously at S&P global Commodity Insights metals is just one commodity where we have teams and where we assess prices. So obviously we have looked at this from all sides, right? We are looking at carbon accounted shipping for example. So this more expanding of how to look at this in a cross commodity, cross product sense that is not new for us, but it seems that right now everyone's working a little bit in silos to define steel, green steel rather.

Guido Kerkhoff:

Yeah, I couldn't agree more. And I think before we came out with our classification and the way how we measure it, we talked to all our suppliers, so all our mills worldwide, and I think they were really afraid of this big change as it requires a lot of CapEx and we'll change the competitive landscape. That's why I find it's a pity that especially the blast furnace producers don't see it from a way, what's the opportunity in it after the transformation and they're rather looking onto it, ooh, how big is the change and how much of that can we avoid and get to support to make it happen? I'd rather appreciate if they were to come from the part of, how can we help to make it happen and how much can we be part of the solution. And this is what I'm missing a bit with the steel producers unfortunately.

Laura Varriale:

And jumping to the US side, is that a similar sentiment that you're seeing from steel producers? I mean they have a little bit of a different position because it's mostly the electric arc furnace produced and it doesn't seem to be that there is this sense of urgency like in Europe right now, but is that a similar sentiment that do they want to be part of the solution?

Guido Kerkhoff:

Yes. And what we see with our suppliers there is that the discussion on how can we get it greener is there and how can we decarbonize, but it's clear that the electric arc furnace is producers, and again 70% in the US are electric arc based, they have an easier way to get there. So they're looking into green energy and then they look into how can they get to CO2 reduced HBI they need for higher quality so it's not all scrap based what you can use. But indeed their starting base is easier and they always take a very pragmatic approach. So they see that it's for them way easier to make that transformation than it is for the European or the Chinese mills. So that's I think why they take a bit more relaxed approach to it. But indeed over the last two years I've seen changes when we talk to them in the beginning to three years ago, it was like, "Ah, the Europeans are doing it". But that has changed, they're taking it very serious right now. And they see that with their EAF basis, it's for them an opportunity.

Laura Varriale:

In which way do you think it's an opportunity? I mean, do you think they're going to export more to, for example, Europe where probably the change in Europe is going to take some time?

Guido Kerkhoff:

Even that is doable, even that is doable. I think for the US side to export, which usually wouldn't have done in the past, US steel production costs have always been higher than in other parts of the world or European steel price have always been historically below US prices. But with the carbon adjustments and all that, that might change. And you might even see exports coming from the US into Europe.

Laura Varriale:

Yes, because we had this conversation very briefly on the sidelines of a conference earlier in spring. And I did then compare the prices that we assess in Europe and in the US and I even applied our carbon accounted premium to it to see how they would compare the prices for a hot rolled coil, for example, between the US and Europe. And right now Europe is not doing that great in terms of demand. So the steel prices haven't been comparatively high to some years that we have seen in the last couple of years, but it still would be quite tricky because I think what we are hearing from buyers very often, they don't necessarily always want to switch. Whereas obviously if you're speaking to traders are going to trade whatever is possible, but it's also about relationship building. So would that take some time, the US producers exporting more to Europe?

Guido Kerkhoff:

Sure. If you run through certified material, for example in the automotive sector, you need to apply for the certification and then you need to establish delivery routes and the whole logistics. It takes time. But that's true for the whole decarbonization process. I mean, if you want to build a DRI based mill and replace blast furnaces, that takes years as well. So I think this decarbonization will not happen overnight, but it's going to come over time and therefore you have to establish contacts and you have to see what new routes you can find and what logistics are doable. So I'm not afraid of that timeframe.

Laura Varriale:

And it looks like Klöckner has set itself up for the new change that is the energy transition, which is changing the industry. And I think we covered pretty much everything right now. If there's anything, Guido, that you wanted to get off your chest.

Guido Kerkhoff:

Yeah, thanks Laura. No, maybe a couple of messages from my side. I think if you take a look into the green steel transformation, I would rather appreciate a broader look from how does steel compare to other materials being used? And that's why I see a lot more opportunities for steel than the rest. Yes, in the production, to go from a blast furnace to DRI is very expensive. But still, even if you double steel prices, steel is one of the cheapest materials for the end product if you take a look into cars, buildings, appliances, or engineering.

And therefore I do see for steel rather than opportunity and growth with decarbonization of our economies than a threat, you just have to get across this high level of CapEx that you need in the beginning. But if we have kind of worldwide standards and use them and apply them, steel is -- won't change the price levels of the final product. That's why I would really appreciate if more players would take a look into it from the opportunity side than just from the risk side. And that's what I'm missing a bit in this discussion. You need to compare what materials are we going to use for the products the world needs and we need more housing, we need transportation, we need all that stuff. So just reducing demand will never be a solution. That's why I think steel is indeed more part of the solution than part of the problem.

Taylor Kuykendall:

All right, listeners, thank you so much for listening to the latest episode of Energy Evolution. I want to give a special shout out to our incredible podcast team members. I am once again Taylor Kuykendall, but other people behind this podcast include Dan Testa, Camilla Naschert, Camellia Moors, Christopher Coats, Karen Willenbrecht, and our wonderful agency partner, The 199. To stay up to date with our upcoming episodes, be sure to subscribe to Energy Evolution on your favorite platform. If you have any ideas for future themes or guests, we'd love to hear from you. All you have to do is shoot an email at energyevolution@spglobal.com. And look, if you liked what you heard today, do consider sharing the podcast with others or leaving a review on your preferred podcast platform. We can't wait to bring you more fascinating discussions in the future. Until next time, take care and stay tuned for more from Energy Evolution.