China has established enough low-carbon electric arc furnace steel capacity to meet its 2025 production target, but more efforts should be made to transition to the green steel, a new report said.

The world's biggest steelmaker aims to make 15% of its total crude steel output from electric arc furnaces (EAFs) by 2025, up from 10.1% in 2023. Scrap-based EAFs have about 70% lower carbon emissions than mainstream blast furnaces (BFs) and basic oxygen furnaces (BOFs) running on iron ore, coke and limestone, according to the World Steel Association.

As of January 2024, China has installed 151 million metric tons per year of operating EAF capacity, exceeding the 143 MMt/y needed to achieve the 15% EAF production target, according to a March 19 report by Global Energy Monitor. But to achieve the 15% goal by 2025, Beijing has to operate its EAFs at a similar capacity utilization rate to those of its BF-BOFs, the report said.

"Historically, EAF rates have been lower because of limited scrap availability, electricity shortages, and the fact that it used to be cheaper to produce via BF-BOF because of the low cost of coal," Caitlin Swalec, Global Energy Monitor's program director for heavy industry, told S&P Global Commodity Insights. China's EAF capacity utilization rate is about 65%, compared with 90%-95% for BFs and BOFs, Swalec estimates.

"Now EAF is cheaper, more scrap is becoming available, and electricity shortages are far less common with a lot of renewables being built out," Swalec said. "So China is really in great shape to turn this ship around."

Accelerating the transition to EAF

Major steel producers, including Baoshan Iron & Steel Co. Ltd. (Baosteel), are using more scrap or hydrogen metallurgy to reduce carbon emissions from BF-BOFs, but it is a stopgap.

"The emissions of blast furnaces can be lowered significantly, but they can never align with net-zero because of the way that coal is used in the process," Swalec said. "So, any effort to mitigate emissions from blast furnaces instead of moving toward direct reduced iron-EAF and scrap-EAF technology is just prolonging the life of the fossil fuel industry and resisting movement towards net-zero."

Every ton of scrap steel used could reduce 1.6 tons of carbon dioxide emissions, according to Hu Wangming, chairman of China Baowu Steel Group Co.Ltd., Baosteel's parent company.

But the country's recycling industry needs supportive policies to improve, Hu said in a March 3 proposal to the National People's Congress and Chinese People's Political Consultative Conference. Hu suggested that China should cultivate leading companies in the recycling industry and build a national trading service platform.

"It's of great significance to establish and improve the recycling and utilization system of renewable resources, such as scrap steel, to improve the recycling rate, and promote the green transformation of traditional industries such as steel and nonferrous metals" to achieve China's goal of reaching carbon peak, Hu said.

China recycled 260 MMt of scrap steel in 2023, enough to meet the needs for more than 20% of crude steel production, Zheng Shanjie, head of the National Development and Reform Commission (NDRC), said during a March 6 press conference. The NDRC anticipates China recycling 320 MMt of scrap steel by 2025. But more than 60% of scrap steel has been consumed by BF-BOFs, as large BOF plants are more willing to pay higher prices to compete for resources to lower carbon emissions.

"Right now China uses an unusually high amount of scrap to charge its blast furnaces because of the low cost, so moving from BF to more EAF should free up some of that scrap and make the supply gap for EAFs a bit smaller," Swalec said.

To accelerate the shift to EAFs, China should modify its capacity swap policies to make BF-BOF capacity more heavily weighted than EAF capacity. Under the capacity swap policy, steelmakers aiming to create new steelmaking capacity are required to shut down existing facilities with the same or bigger capacity.

"In other words, instead of saying that capacity can only be swapped by an equal amount of capacity without any mind of technology type, say that 1 share of BF-BOF capacity can be swapped for 1 share of EAF capacity or only 0.5 share of new BF-BOF," Swalec said.