The European Union's transition to green steel production is facing supply-side constraints, raising concerns about meeting customer demand, according to Guido Kerkhoff, CEO of German steel distributor Kloeckner, who spoke at the EUROMETAL conference in Zurich on May 21, 2024.Kerkhoff highlighted delays in capacity expansions and current offers not meeting customer requirements as key challenges in the green steel transition. However, this could be offset by growing opportunities on the demand side, as the EU's 2050 net zero targets are boosting demand for green steel, which currently exceeds supply.
Market participants emphasized that the green transition cannot happen immediately and must be implemented gradually. Andreas Steffes, executive manager of Handel Schweiz, stated, "We can't say this is green and this is not, but we can say this is a greener option for the time being," indicating that interim solutions may be necessary during the transition period.
One of the major obstacles to the shift towards green steel production is the high cost and limited feasibility of transitioning to electric arc furnaces (EAFs) for every producer, primarily due to the limited supply of scrap. Steffes noted that Germany heavily relies on importing raw materials and cheaper energy due to a lack of natural resources, creating significant challenges for using direct-reduced iron (DRI) and producing hydrogen from renewable sources. Importing hydrogen is also very expensive, partly due to high transportation costs.
Furthermore, there is currently no uniform standard for defining green steel, although efforts are underway to establish one.
To successfully transform the steel industry, Stefan Feichtinger, a senior manager at Swiss Steel, emphasized the need for several tailwinds, including establishing a solid political framework, competitively priced green energy, sufficient technological solutions, fair allocations of subsidies, and demand from customers and green markets.
As the EU navigates the green steel transition, it faces supply-side constraints and challenges in meeting customer demand, requiring a coordinated effort to address issues such as capacity expansions, scrap supply, energy sources, and the establishment of uniform standards and supportive policies.
