, you poor deluded soul. Green hydrogen is the future, along with lithium and other battery metals driving the electrification of the world. Nuclear and coal are the past. Although Europe has delayed retirement of some coal and nuclear just to meet the current emergency, the trajectory is clear.
Multinational conglomerate ThyssenKrupp hasgiven the green lightto a plan to replace its blast furnaces with low-carbon technology at Germany’s largest steelmaking plant.
In the near future we may look back on this decision as the moment when the global steel technology transition accelerated.
A key feature of ThyssenKrupp’s investment allows the continued use of blast furnace-grade iron ore rather than requiring the use of scarce direct reduction-grade (DR-grade) ore. The technology combination to be employed offers a route to a more widespread global uptake ofsteelmaking technologythat does not use coal.
The company’s decision on a €2 billion investment will see the first of four blast furnaces replaced with a direct reduced iron (DRI) plant using hydrogen to reduce iron ore, instead of metallurgical coal.
The first plant will be bigger than originally planned and is intended to be operational by 2026 with the three remaining blast furnaces to be replaced thereafter.
The DRI plant will be combined with a melting unit to liquify the iron before being fed into the company’s existing steelmaking plant at its Duisberg site.
The combination of DRI with a melting unit allows more flexibility with respect to iron ore quality relative to existing DRI plants around the world.
Solving the iron ore quality problem
Decarbonising the global steel industry will need more scrap steel recycling and a switch in primary production from coal-consuming blast furnaces to DRI processes using green hydrogen. This will require a plentiful supply of both green hydrogen and iron ore that is suitable for DRI processes.
Green hydrogen is already experiencing amajor boomin investment and hardly a week goes by without anew announcement. Rapid expansions in electrolyser manufacturing capacity will see the cost of green hydrogen reduce, similar to the significant reductions already seen in the cost of wind and solar power technology.
The lack of supply of enough DR-grade iron ore had looked like achallengeto greater global use of low-carbon DRI-based steelmaking.
DRI processes require ores with a higher iron content than those used in blast furnaces, with DR-grade ores making up only around 4% of the global market. The dominant iron ore producing Pilbara region of Western Australia exports ores below DR-grade and it seems difficult to beneficiate such ores enough for use in DRI.
However, asIEEFA highlightedlast month, some companies are examining new technology combinations that could resolve the iron ore quality issue by allowing the use of blast furnace grade iron ore pellet in DRI processes. ThyssenKrupp’s plan was the most advanced.
The company’s decision to proceed will see this technology put into operation in just four years. With the example set, other steelmakers may now move faster into low-carbon DRI given this solution to iron ore quality issues.
Global steelmaking giant ArcelorMittalalready hasa similar DRI-melting unit plan at its Dunkirk site in France.
Shift away from metallurgical coal could happen faster than expected
A faster-than-expected transition from blast furnaces to DRI-based steelmaking will clearly have implications for long-term metallurgical coal demand.
The consensus among metallurgical coal miners appears to rest with it still having a brighter future thanthermal coal. In itsnew 2022 Annual Report, BHP – the world’s largest shipper of metallurgical coal stated, “Long term, we believe that a wholesale shift away from blast furnace steelmaking is still decades in the future.”
However, BHP also noted that, “as governments, institutions, companies and society increasingly focus on addressing climate change, the potential for a non-linear and/or more rapid transition and the subsequent impact on threats and opportunities increases.”
As we have seen, new technologies can prompt a “more rapid transition” as power generators competing with low cost renewables can attest.
Investors will ultimately call the shots
Investors are already asking questions about the future of metallurgical coal,highlighted recently by producer South32. If a new technology offers an alternative sooner than expected, investors can be expected to abandon metallurgical faster.
South32 recentlyabandoned plansto extend development of its Dendrobium metallurgical coal mine in New South Wales, Australia as it eyes an investment shift towards “metals critical to a low carbon future”.
And Australia’s BlueScope Steel previouslywarnedthat it may have to spend $A150 million on new coal berths at the Port Kembla Coal Terminal and incur additional logistics costs of $A50-$100 million/year if coal from Dendrobium and other nearby mines in the Southern Coalfield region of New South Wales was no longer available.
Any reduction in metallurgical coal mine investment will raise costs for steelmakers.
BlueScope is among the steelmakers investigating DRI-melter technology combinations that can use lower quality iron ore however it currently remains focused onreliningits No. 6 blast furnace at Port Kembla.
If such technology investment now accelerates the steelmaking transition and investors start abandoning metallurgical coal in greater numbers, BlueScope and other steelmakers may need to hasten their new technology plans.
Simon Nicholas isIEEFA‘s lead energy finance analyst for the global steel sector as well as Asian seaborne thermal and coking coal markets.
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