Issue with 'eco-friendly' steel production - ArcelorMittal adjusts strategies - Invoking Article 93 (2) of the Treaty, the Commission will instigate the specified procedure.
Title: Green Steel Snafu - ArcelorMittal Shelves Plans for Eco-Friendly Steel Production
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It's a setback for the 'green' transition in Germany's steel sector as ArcelorMittal Europe is scrapping plans to convert its flat steel mills in Bremen and Eisenhüttenstadt to climate-neutral production, after announcing the move due to challenging market conditions making the ambitious eco-friendly project economically unfeasible [2][3][4][5].
ArcelorMittal's decision comes after the federal government had agreed to fund the project, with the proviso that construction was set to commence by June 2025. This project involved the establishment of direct reduction plants (using hydrogen) and electric arc furnaces (electricity-powered) [1]. The Federal Ministry of Economics expressed regret over ArcelorMittal's decision, but highlighted that no state funds have been disbursed yet [1].
Three similar projects by manufacturers Salzgitter Flachstahl, Thyssenkrupp Steel Europe, and SHS (Stahl-Holding-Saar) have already received funding totalling around 5.6 billion euros and are currently being implemented [1].
Hydrogen and Electricity Hurdles
"We appreciate the backing by the federal government and the states of Bremen and Brandenburg for this project," said Geert Van Poelvoorde, CEO of ArcelorMittal Europe. "However, even with financial support, the economic viability of the conversion remains a challenge in our view," explained Reiner Blaschek, CEO of ArcelorMittal's European flat steel division. "The framework conditions are not conducive to a sustainable business model in our estimation, and funding is tied to stringent conditions for rapid utilization of green hydrogen, which is fraught with substantial uncertainty due to the limited availability and high costs of green hydrogen" [1].
Bremen Senate expressed anger and disappointment, describing the move as a rejection of the decarbonization of the furnaces. The Senate invested approximately 250 million euros in revamping the steelworks [1].
Andreas Bovenschulte, Mayor of Bremen, lamented the move, stating that "Arcelor-Mittal's withdrawal from the green steel revolution is a severe blow to Bremen's economic standing as well as the future of the furnace, and most crucially, a heavy blow to the employees and their families" [1].
The state of Brandenburg and its Minister President, Dietmar Woidke (SPD), expressed a commitment to safeguarding jobs at the Eisenhüttenstadt steelworks [1].
Shifting Focus
ArcelorMittal now plans to focus on constructing electric arc furnaces in Bremen and Eisenhüttenstadt, preparing for a time when steel production using these furnaces becomes economically sustainable. Electrical arc furnaces are primarily powered by electricity [1].
The company had earlier intended to replace a blast furnace in Bremen and Eisenhüttenstadt by 2030, outfitting them with a direct reduction plant (using green hydrogen) and electric arc furnaces. According to the original plan, the new plants would eventually rely on "green" hydrogen [1].
ArcelorMittal had repeatedly emphasized that competitive electricity prices and sufficient hydrogen availability were essential for transforming steel production [1]. However, hydrogen remains insufficiently available and overpriced from the energy sector's viewpoint, and companies in Germany have consistently complained about higher-than-average electricity prices compared to the international average [1].
Problems with Hydrogen and Electricity Prices
The German steel industry is a significant CO2 emitter, playing a pivotal role in the nation's efforts to meet climate goals. The use of "green" hydrogen instead of coke coal in direct reduction plants (DRI) is seen as crucial in addressing steel's carbon footprint. "Green" hydrogen is considered 'green' when generated utilizing renewable sources like wind and solar energy [1].
ArcelorMittal maintained that green hydrogen is not yet a sustainable energy source, contending that DRI production based on natural gas cannot realistically serve as a transitional solution [1]. Turning from blast furnaces to electric arc furnaces means shifting from coal as an energy source to a furnace operated using natural gas and electricity, but the current high electricity prices in Germany remain a major concern [1].
The first electric arc furnaces slated for construction are expected to be built in countries that can offer competitive and predictable power supplies. In May, ArcelorMittal announced plans to construct the next electric arc furnace in Dunkirk, France [1].
CO2 Target Doubts
The corporation reaffirmed its commitment to improving the CO2 balance of its facilities, acknowledging that it is increasingly improbable that the CO2 reduction targets will be met by 2030. "It's becoming increasingly apparent that the energy transition is advancing slower than expected in all areas" [1].
Industry in crisisThe German steel industry is facing a crisis. In 2024, the amount of crude steel produced remained at recession levels, as reported by Wirtschaftsvereinigung Stahl, with companies grappling with increased cheap imports from China and uncompetitive costs for electricity [1].
Poelvoorde stated that the European steel industry is currently grappling with unprecedented pressure to maintain its competitiveness even without the additional costs associated with green energy transition. "The European Commission and its member states are taking steps to address this issue with the Action Plan for Steel and Metals, but the process is progressing too slowly" [1].
SubsidiesThe former Federal Minister of Economics, Robert Habeck (Greens), championed the transformation of the steel industry with multi-billion-euro subsidies and touted it as a significant contribution to climate protection. The steel projects were important customers for the ramp-up of the hydrogen economy [1].
- Despite the European Commission's Action Plan for Steel and Metals, the European steel industry, including ArcelorMittal, continues to struggle with maintaining competitiveness due to the increased costs of the green energy transition.
- The economic viability of conversions to climate-neutral production, as seen in ArcelorMittal's case, remains a challenge due to stringent conditions for rapid utilization of green hydrogen, which is both limited in availability and high in cost.
- With insufficient green hydrogen and overpriced electricity in Germany, companies such as ArcelorMittal are planning to construct electric arc furnaces in countries that can offer competitive and predictable power supplies.
- The use of 'green' hydrogen, generated utilizing renewable sources like wind and solar energy, is considered crucial in addressing steel's carbon footprint, but its availability and affordability currently hinder the green transition in EC countries' steel sector.
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