November 19, 2021 - Hydrogen-based steelmaking is unlikely to displace blast furnace-based steelmaking for two to three decades, which will support demand for metallurgical coal during that period, miners and analysts said at the Financial Times Commodities Asia Summit this week.
Steel sector decarbonization will be lengthy, they said. Scrap supplies are insufficient for a large scale shift to electric arc furnace-based steelmaking - which is less carbon-intensive than blast-furnace based production - green hydrogen continues uncompetitive as a steelmaking input, and green steel may cost 20%-30% more to produce than conventional steel.
Steelmaking typically accounts for 9%-10% of global carbon emissions, although these can be higher in some countries, including China.
"It's hard to see any big displacement of coking coal by hydrogen for at least two decades," Ernie Thrasher, CEO of US marketing and logistics company XCoal Energy & Resources, told the virtual event. "If you look at the global supply of scrap and metallic units, the future of the blast furnace seems to be strong for two-three decades. As the steel industry tries to reduce carbon emissions using electric arc furnaces, the issue is where the power comes from and metallic units originate."
Jim North, interim CEO of Ferrexpo, an iron ore pellet producer in Ukraine, said he doesn't believe the steel industry can fund the transition away from blast furnaces and coal within at least two decades and needs to transition to using direct-reduced iron pellets in the shorter term as it decarbonizes. "It's early days [for hydrogen use in steelmaking]" he said.
CRU senior coal analyst Dmitry Popov agreed with a 20- to 30-year timeline for phasing out coal due to high use in nations including China and India.
Blast Furnace Optimization
Huw McKay, vice president, market analysis & economics at miner BHP, said green hydrogen "is currently spectacularly uncompetitive" as a steelmaking input and may be available at scale for steelmaking only in the mid-2030s or early 2040s. China, which produces 57% of the world's steel, is likely to act to reduce the carbon intensity of its blast furnaces over the next two decades, rather than use hydrogen, he said.
Rio Tinto's vice president-sales & marketing, iron ore, Simon Farry, highlighted growing collaboration between miners and steelmakers to "optimize the blast furnace" by using iron ore lump and pellets instead of sinter fines, which could reduce blast furnace carbon emissions by about 30%.
The world's biggest steelmaker China Baowu launched Nov. 18 the Global Low-Carbon Metallurgical Innovation Alliance whose 60 members include ArcelorMittal, Tata Steel, BHP, Rio Tinto, Vale and Fortescue Metals Group, international news agencies reported. This follows miners setting up various accords with steelmakers and shippers to work together to reduce their Scope 3 carbon emissions.
Rebecca Campbell, partner, mining & metals at US law firm White & Case, said carbon capture, utilization and storage may offer a "bridging solution" in decarbonization until blast furnaces are replaced, in the long term, but may need incentives to work.
Martin Pei, executive vice president & CTO of Swedish steelmaker SSAB, which is already producing fossil-free steel at a pilot plant level using pellets, estimated this type of hybrid steel currently costs 20-30% more to produce than conventional blast-furnace steel but should be cost-competitive in the long term due to rising costs of emissions.
Coal Supplies Set to Tighten
Coal prices are robust on supply issues related to lack of investment in the industry since 2015, COVID-19 disruptions and ESG issues, said Thrasher.
"People simply can't bring their mines back to pre-COVID capacity, certainly in the US, traditionally a swing supplier to fill gaps, but that capacity doesn't exist today," he said. US coal output has fallen by around 50% since 2017 and it's not possible to bring this back online, even with high prices, he said.
Hendri Tan, marketing director of coal miner PT Adaro Indonesia, said demand for coal is very much supported, noting coal has in part been used to replace natural gas whose prices recently hit record levels.
"China recovered so quickly that supply can't catch up," Tan said. "Everyone is looking for coking coal.... and there are net-zero coking coal mines."
CRU's Popov said China's coal-powered electricity generation is expected to grow 10% on-year this year to a historical high and domestic demand remains strong. As China is closing nearly 1 billion mt of uneconomic and pollutant coal mine capacity, its thermal coal imports are also stronger this year.
Globally, there is little supply growth in coal and "there is almost enough supply from existing mines but from 2040 the market will be tighter," he said.
Paul Flynn, CEO of Australian miner Whitehaven Coal, said "an elongation of approval lines for new projects", with potential financiers seeking "coal premiums" and fearing reputational risks from financing coal projects, leading some miners to have "given up on greenfield projects." Brownfield coal mine expansions are expected to occur in Russia, Indonesia and Australia, in metallurgical and thermal coal.
S&P Global Platts assessed Premium Low Vol coking coal down $4/mt at $366/mt FOB Australia, while CFR China plunged $50/mt at $414/mt Nov. 18, its biggest-ever one-day drop, as China continued to restrict steelmakers' output to cut pollution. At the same time it is ramping up domestic coking coal mine production which has cut demand for imports of this type of coal. The CFR China price hit its highest-ever price of $615/mt Oct. 21 on tight supplies.