European producers of ‘green’ steel are facing increasing challenges regarding competitiveness in the global market due to high production costs. Experts note that this factor could significantly impact the EU’s position in the steel industry in the coming years.
This is reported by Finway
High Tariffs and Rising Energy Costs
The development of ‘green’ steel production in Europe is actively supported by political instruments, significant initial investments, and government funding. While the European Union remains a leader in terms of planned and unfinished capacities, other regions of the world are demonstrating significant advantages in this area. The main competitors to the EU are becoming countries in the Middle East, North Africa (MENA), and Canada, which have access to cheaper hydrogen, natural gas, and clean electricity.
The demand for innovative solutions is growing, but high electricity prices in Europe are becoming a critical factor. The weighted average industrial tariffs in the region often exceed €100 per MWh — this is 2 to 4 times higher than in the USA and China. As a result, steel production using hydrogen is significantly more expensive for European companies, and importing hot briquetted iron (HBI) and direct reduced iron (DRI) from the MENA region may become more economically viable.
Competitors’ Potential and Structural Challenges
It is expected that by 2030, about 80% of the world’s capacities for electric arc furnaces operating on DRI with hydrogen will belong to European producers. At the same time, large Scandinavian projects such as Stegra, Hybrit, and Blastr green steel are gaining advantages due to access to low-carbon electricity, government support, and regulatory incentives through the emissions trading system (ETS).
However, even with government support, the transition to decarbonization remains challenging for European metallurgists. The use of hydrogen for DRI production is still not economically justified, as converting production to electric arc furnaces requires a significant increase in electricity consumption.
“Electricity prices in Europe are significantly higher than in many other regions. Industrial tariffs often exceed €100/MWh, which is 2-4 times higher than in the United States and China. Thus, European flat steel production based on hydrogen is often structurally more expensive. By 2030, the average producer in MENA will have costs 17% lower than their European competitors, due to lower labor, electricity, capital, and hydrogen costs.”
An additional advantage for MENA countries is the ability to produce hydrogen at a significantly lower price than in Europe. It is forecasted that by 2030, the average cost of hydrogen production in this region will be half that of European producers. Moreover, steel production in electric arc furnaces using natural gas remains profitable in the Middle East and North Africa.
The introduction of the Carbon Border Adjustment Mechanism (CBAM) partially levels the playing field for European ‘green’ steel producers, but does not completely eliminate the competitiveness gap with countries where production costs are lower.