The American Midwest could become the epicenter of a green steel revolution if steelmakers are willing to invest in low-carbon equipment, and if the renewable energy and clean hydrogen sectors grow at the same pace.

The region is the last US hotbed for primary steelmaking, housing the only nine facilities in the country that still make steel using iron ore and blast furnaces.

These plants are responsible for about 30% of US steelmaking, but they make up approximately 73% of CO₂ emissions from the sector in the US, according to research from RMI, a research nonprofit working on advancing the energy transition.

The rest of US steel is made using recycled steel scrap and electric arc furnaces that produce lower emissions but also lower-quality steel.

Industry participants said the need for high-quality and specialty steel products, especially for the automotive sector, creates a major opportunity for primary steel producers who invest in lowering CO₂ emissions at these plants.

"The Midwest is the heartland of steel," Lachlan Carey, RMI's lead on regional development through clean energy investment, told S&P Global Commodity Insights. "It has the workforce, it has the knowledge, it has the supply chain connections to be a real leader in green steel if it takes the right steps."

A Midwest transformation

Global demand for steel is projected to increase by more than a third from 2019 to 2050, according to the International Energy Agency, and steel produced using scrap, or secondary steel, is not expected to meet the needs of consumers.

"It's a quality issue at the end of the day," Chathurika Gamage, principal at RMI's Climate-Aligned Industries Program and leader of RMI's work on iron and steel decarbonization, told Commodity Insights. "You can spend more money in technology research and development to try and get that recycled steel to the same quality level, or accelerate ore-based steelmaking to be clean as well."

The US currently feeds its need for high-quality steel through the nine ore-based facilities in Illinois, Indiana, Ohio, Michigan and Pennsylvania. Six of those plants are owned by Cleveland-Cliffs Inc. and three by U.S. Steel Corp., Market Intelligence data shows.

Steel producers that invest in lowering CO₂ emissions at these plants could kickstart a green steel industry in the US and give a boost to the primary steel producers.

"Because of the advantages of being on a supply line for iron ore, I don't see steelmaking going somewhere else," said Kevin Dempsey, CEO of the trade association American Iron and Steel Institute (AISI).

But long lead times for deployment of clean technology means investments must be made now.

"Of the blast furnaces that are operating currently in the Great Lakes ... 50% of them are up for an investment decision, a 'reline,' this decade," RMI's Gamage said.

"[With] all of the engineering, all the planning and the permitting that goes with it, you have to start thinking ... fundamentally, how are you setting yourself up for when you have to make that switch in 2028 or 2030?" Gamage added.

Steelmakers talk investments

U.S. Steel's carbon reduction strategy is focused on expanding steel production using an electric arc furnace (EAF) fed with scrap, starting with an investment to double the capacity of its Arkansas complex under subsidiary Big River Steel LLC.

The company is also working on producing iron ore pellets at its Minnesota mines that can be used in the direct reduced iron (DRI) ironmaking process. This iron will ultimately be fed into an EAF with scrap to improve steel quality.

The company's roadmap to achieve net-zero emissions by 2050 has been silent on investments in its existing primary steel facilities, other than announcements made this year on testing carbon capture technology at two of its Midwest facilities without definitive agreements.

Japan-based Nippon Steel Corp. announced Dec. 18, 2023, that it would acquire U.S. Steel at a 40% premium above the company's share price of $39.33 as of market close Dec. 15. U.S. Steel declined to comment, while a Nippon Steel spokesperson told Commodity Insights that "a key area of collaboration post-transaction will be continuing to ... collaborate on alternative technologies in decarbonization."

Nippon Steel is working toward using hydrogen in blast furnaces and the DRI process, as well as producing high-grade steel in a larger EAF.

Cleveland-Cliffs' sustainable steel strategy has been focused on switching blast furnace feedstocks to a lower-carbon alternative. In 2020, the company completed a DRI facility in Toledo, Ohio, that is powered by natural gas and produces hot-briquetted iron (HBI) to substitute for pig iron, reducing emissions.

"A big factor to our success so far has been the use of compacted hot-briquetted iron in our blast furnaces ... usually HBI is used in electric arc furnaces, or can be used, but we have found great success in boosting productivity within the blast furnace by using HBI," Traci Forrester, executive vice president of environmental and sustainability at Cleveland-Cliffs, told Commodity Insights.

"The concept of stretching hot metal with recycled scrap is also used in our furnaces across our footprint and we have maximized the use of natural gas injection in our blast furnaces ... driving down the amount of coal and coke necessary," Forrester said.

Steelmakers could also fuel their furnaces with hydrogen, avoiding the high emissions that come with burning coal. And they are getting a boost from the government. For hydrogen to lower overall steel emissions, the hydrogen itself must be made using low-carbon energy sources. The bipartisan infrastructure law enacted in 2021 allocated $7 billion to build clean hydrogen hubs in the US, and the administration is contemplating a Midwest hub to support the decarbonization of heavy industry.

The Inflation Reduction Act of 2022 also offers policy support for hydrogen by providing a tax credit of $3 per kilogram of low-carbon hydrogen produced, lowering fuel costs for steelmakers who use it.

But steelmakers are looking for trade policy, too.

"The biggest threat is high-emitting steel from other regions of the world at a cheaper price ... we need trade policy that takes into account the differential in emissions," AISI's Dempsey said. "You impose a tariff based on how much dirtier the steel from abroad is than the steel from the US."

Roadblocks pile up

However, steelmakers say they will need high-emission blast furnaces for years to come, particularly to supply high-strength steel for carmakers.

"I want to debunk the myth that whatever steels are made in a blast furnace can be made in an electric arc furnace ... this iron-bearing steel is still necessary to achieve some of these high strength and formability steels that remain in high demand today," Cleveland-Cliffs' Forrester said.

"Automotive producers are demanding lower carbon emissions deals from us, but they're not necessarily willing to pay the premium that it takes to produce those," added Forrester.

RMI expects green steel to command a premium of about 20%, partially due to the use of higher-cost renewable energy and clean hydrogen to generate the extremely high temperatures that steelmaking requires.

Cleveland-Cliffs says the adoption of hydrogen is next on its sustainability agenda. But it will be pricey, and the company will charge extra.

"Until all the subsidies for carbon offsets or a carbon tax are in place, there will be no drivers for those steel mills to change. The price of the steel will be very expensive and the demand for that steel would probably be low," said Daniel Charette, COO at Charbone Hydrogen Corp., a clean hydrogen producer with 11 projects planned for the US.

The timelines for when the larger steel industry will adopt hydrogen is a major question. Charette does not expect any action "before the next five to seven years," as the US still requires massive scaling of its hydrogen and renewable energy infrastructure, which will dictate the build-out and price of clean hydrogen.

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