'Huge opportunity' for high grade iron ore, hydrogen if steel sector emissions are to fall 75%

Carbon emissions in the steel sector have to fall by 75% to limit global warming to within 2 degrees Celsius as per the Paris agreement, Wood Mackenzie says, creating opportunity for premium iron ore and hydrogen producers.

That would basically mean reducing global steel emissions from over 3,000 million tonnes of carbon dioxide equivalent in 2020 to just 780 million tonnes by 2050.

Over this time, steel demand is expected to rise 23% to 2,300 million tonnes between 2020-2050 – making it a tough target to meet.

“The steel industry would need to find the right balance between managing rising demand and pressure to decarbonise,” WoodMac senior analyst Mihir Vora said.

“Currently, steel is responsible for 7% of global CO₂ emissions.

“Advanced economies will need to do more to curb emissions via innovative new steelmaking pathways such as hydrogen use.”

Wood Mackenzie highlighted five steps to meet the target. While they would disrupt iron ore and metallurgical coal markets it could mean a big opportunity for premium iron ore and hydrogen.

They include:

Doubling scrap use in steel making;
Tripling direct reduced iron (DRI) production and use;
Reducing global average electric arc furnace (EAF) emissions intensity by 70%;
Reducing blast furnace – basic oxygen furnace (BF-BOF) emissions intensity by 30%, close to its theoretical minimum; and
Capturing and storing 45% of the residual carbon emissions (around 500 million tonnes per annum).

What does this mean for hydrogen and iron ore?

WoodMac head of iron ore research Rohan Kendall said reducing steel emissions would be a “boon for hydrogen demand in steelmaking as well as carbon capture and storage.”

“Steel’s potential extreme decarbonisation in a 2°C scenario would mean tripling DRI production,” he said.

“This presents a huge opportunity for suppliers of premium iron ore.

“Although the rise in scrap consumption would lead to total iron ore demand falling by 24% below our base case, the market for pellet products would expand by 35%.”

The decarbonisation of the steel sector in this scenario would also boost DRI trade – as using green hydrogen as the reductant can produce steel with almost zero CO₂ emissions. Australia could be well placed to produce H-DRI for export to China and Europe.

Metallurgical coal could still have a role to play

Metallurgical coal principal analyst Anthony Knutson said taking these steps would halve the total metallurgical coal demand by 2050.

“In a 2°C world, seaborne imports would be all but eliminated during the 2040s in China,” he said.

“India, on the other hand, would double its import requirement to 123 million tonnes per annum, as its steel demand outpaces its ability to decarbonise.”

Knutson also said that demand for pulverized coal injection (PCI) into blast furnaces would fall by 50% or 37 million tonnes as hydrogen injection rates increase.

But it wouldn’t be the end of the road for metallurgical coal.

Knutson said a successful rollout of carbon capture and storage – which under this scenario could reach 500 million tonnes of emissions captured in 2050 – would provide an opportunity for continued use of metallurgical coal in steelmaking as emissions captured via this pathway are from BF/BOF steelmaking.