PERTH (miningweekly.com) – Advisory firm Wood Mackenzie (Woodmac) this week noted that carbon emissions in the steel sector will need to fall by 75% from current levels in order to limit global warming to within 2 °C above preindustrial levels.

This means reducing global steel emissions from over 3-billion tonnes of carbon dioxide (CO₂) equivalent in 2020 to just 780-million tonnes CO₂ by 2050. 

“This is an extremely challenging target to meet. The steel industry would need to find the right balance between managing rising demand and pressure to decarbonise. The pathway to a 2°C world is filled with obstacles compared to our base case view,” Woodmac senior analyst Mihir Vora said.

Steel demand is expected to rise 23% to 2.3-billion tonnes between 2020 and 2050. Developing economies such as India, Southeast Asia and South America are expected to drive demand growth, while China and Europe would pare down their consumption. 

“Currently, steel is responsible for 7% of global CO₂ emissions. The industry needs to prioritise decarbonisation if the world is going to achieve a 2 °C warming pathway aligned to the goals of the Paris climate agreement,” Vora said. 

“Advanced economies will need to do more to curb emissions via innovative new steelmaking pathways such as hydrogen use, while developing nations will be slow adopters and small contributors to emissions reduction.” 

Woodmac has outlined five main outcomes that would need to be achieved for the steel sector to achieve a 2 °C warming pathway. They include doubling scrap use in steelmaking; 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. 

Aligning to a challenging 2 °C warming pathway in the steel industry would mean disruption to the iron-ore and metallurgical coal markets. It would, however, be a boon for hydrogen demand in steelmaking as well as carbon capture and storage, Woodmac said.

“Steel’s potential extreme decarbonisation in a 2 °C scenario would mean tripling DRI production. This presents a huge opportunity for suppliers of premium iron-ore,” said Rohan Kendall, head of Woodmac’s iron-ore research.

“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%.” 

Kendall said that the decarbonisation of the steel sector in this scenario would boost DRI trade.

Australia and Brazil could be well positioned to produce H-DRI for export. DRI using green hydrogen as the reductant can produce steel with almost zero CO₂ emissions. China and Europe would be key DRI importers. 

Meanwhile, to achieve scrap use growth, scrap recycling rates would have to increase from 80% and 85% to 95%. India and China scrap supply chains would require substantial development which would contribute to displacement of iron-ore demand, notably taking effect post 2030. 

Metallurgical coal principal analyst Anthony Knutson said that under a 2 °C scenario, hot metal consumption is expected to decrease 667-million tonnes a year below Woodmac's base case by 2050 to 795-million tonnes a year.

“This in turn leads to an almost halving of the total annual metallurgical coal demand to 622-million tonnes from our base case by 2050.” 

Seaborne metallurgical coal trade would fall in this scenario, although domestic coal in China would bear the brunt of declines.  

“In a 2 °C world, seaborne imports would be all but eliminated during the 2040s in China, leaving only a nominal volume of the highest-quality coking coals imported to coastal mills. India, on the other hand, would double its import requirement to 123-million tonnes a year, as its steel demand outpaces its ability to decarbonise,” Knutson said.

"PCI demand comes under great pressure in a 2 °C scenario falling by 50%, or 37-million tonnes, as hydrogen injection rates increase.” 

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 is from blast furnace/basic oxygen furnace steelmaking.