“Circular economy models should be promoted where steel producers can recycle and reuse their own steel scrap.”
The ability of customers to absorb a green premium of 40-70% per tonne is untested beyond prototype projects as low-emission steel represents less than 1% of global supply.
A 40-70% increase in the per tonne cost of steel translates into lower green premiums for end consumers. It can range from 0.5% for passenger cars to 2% for buildings.
The ability for the industry to pass along this premium, or to monetize near-zero-emission steel as a differentiating attribute depends on the target consumer segment (for example, passenger cars vs buildings), and geography (developed vs developing regions). The largest forecasted increases in steel consumption globally align with the markets with likely the lowest ability to absorb a significant green premium.
Currently, several major global players are taking proactive steps towards decarbonizing steel production. China Baowu Group, the world’s largest steel producer, has signed an MoU with Rio Tinto to jointly explore green steel projects. They’ve also established a Global Low-Carbon Metallurgical Innovation Alliance with partners from 15 countries, aimed at reducing GHG emissions in steelmaking.
In the automotive industry, bilateral offtake agreements with steel producers are impacting the market, offering convenient access to buyers who secure their supply in advance. For instance, Volkswagen Group and Salzgitter AG have signed an MoU to source near-zero-emission steel starting in late 2025.
The Clean Energy Ministerial Industrial Deep Decarbonisation Initiative (IDDI)239 is developing globally recognized targets for the public procurement of near-zero-emission steel. The IDDI is set to introduce standardized definitions, methodologies and guidelines across the industry. Additionally, Responsible Steel have implemented auditable to near-zero-emission steel production certifications, available to its members. These initiatives signal a potential shift towards boosting demand and encouraging collective efforts towards near-zero-emission products, and ultimately driving a positive trajectory towards net-zero emissions.
Improving supply chain efficiency and promoting circularity is essential to accelerate secondary steel production in regions with limited access to scrap steel. In these areas, optimizing supply chains becomes paramount to ensure a consistent flow of recyclable materials. Implementing connected supply chain networks, supported by AI technology and blockchain, can enhance transparency and traceability, reducing waste and losses. Moreover, promoting a circular economy model by encouraging steel producers to recycle and reuse their own steel scrap can reduce reliance on external sources. By integrating these strategies, regions facing scrap steel shortages can bolster their secondary steel production capabilities.
Source: World Economic Forum
