Understanding the cost of decarbonization and its impact on steel prices and raw material costs, the pressure to reduce CO2 emissions is mounting for carbon-intensive industries, while scientists warn that we may be running out of time.  

The steel industry is a significant contributor to global emissions, but there is currently no formal pricing mechanism for green steel like there is for aluminium. However, could this all be about to change as the United States government prioritizes lowering CO2 emissions to meet environmental objectives? 

Steel production in the US typically emits less CO2 than other nations. High usage of electric-arc furnaces (EAFs) in steel production and the vast scrap availability in the US steel market keeps emissions low.  

Will US buyers pay more for green steel?  

Steel prices in the US have risen by more than 200% since March 2020, with buyers paying record-high prices for finished steels. Capacity issues alongside other market factors keep steel prices high, and despite previous forecasts, this price rally could last long into 2022.   

Another costly consideration for buyers and producers seeking trade with the US is import tariffs imposed on steel products. These tariffs make it harder for foreign steel to enter the US market, restricting potential trade opportunities. However, current plans to resolve US/EU trade issues have sparked optimism amongst market participants.  

In Europe, the appetite for a green steel premium is further along than in the US market. European steel companies have already started to journey down this road – selling green steel for higher prices. For instance, ArcelorMittal and Ovako offered the first certified “green steel” products earlier this year, anticipating demand of 600,000 tonnes by 2022.  

The US market, on the other hand, is not quite there. Buyers are currently less enthusiastic about paying more for green steel than their European counterparts. This lack of enthusiasm is partly because buyers are already paying record more for steel products in North America and other Americas markets. Soaring steel prices have led to some US buyers paying up to 4x more than they did a year ago. Recent market conditions have seen US HRC prices continue to soar, averaging $600 per tonne above European HRC prices and $1,000 per tonne above Chinese HRC prices in July through to August.  

Will there be a standardized green steel premium in the future?  

The US steel industry has a significant carbon advantage, emitting less carbon than other major steel-producing regions. The American edge, along with the current landscape of record high steel prices and bountiful margins, makes it unlikely that we will see a green steel premium introduced anytime soon.  

However, the market is changing and will adapt quickly to public opinion driven by governmental policy, climate change advocates, and science. The cost of green steel will rise, and until a standardized green steel pricing mechanism emerges, uncertainty in this space will remain the only constant.  

Source : https://www.fastmarkets.com