Green steel hubs: A crucial path to decarbonising industry
- 25 November 2024
In the green transition the steel industry needs to find ways to lower emissions. One way forward could be rethinking not only how, but where, steel manufacturing happens across the globe.
The steel industry is responsible for 7% of global greenhouse gas emissions, making it a critical sector for emissions reduction. European CO2 taxes and legislation have already prompted significant changes, with other regions expected to follow due to similar regulatory and sustainability pressures.
Steelmakers are already exploring alternatives to the traditional blast furnace route, including scrap, hot briquetted iron (HBI), and direct reduced iron (DRI) as well as renewable energy and deploying carbon capture, utilisation, and storage (CCUS). Yet, much work remains, as over 1650 steel plants globally need upgrades to lower emissions and meet climate targets.
Green steel hubs, located in regions with low-cost energy and suitable metallic feedstocks, could be an effective strategy. These hubs are not a silver bullet, but could complement the decarbonisation journeys of existing steel players, potentially becoming a part of hybrid solutions. For instance, green steel hubs could produce HBI in regions such as the Middle East, Oceania, and South America, where access to low-cost, renewable energy is abundant. HBI can then be transported as feedstock to electric arc furnaces (EAFs) in other areas. This setup could help reduce emissions by shifting carbon-intensive production stages to optimal locations, creating a more sustainable supply chain.
Could green steel hubs lead to a reconfiguration of global steel supply chains?
Decarbonising the steel industry could drive a major restructuring of assets and supply chains. Today’s carbon-intensive blast furnace–basic oxygen furnace (BF-BOF) plants, which handle both ironmaking and finishing, rely heavily on coke, producing significant emissions. To reduce these emissions, companies are exploring alternatives like DRI using green hydrogen, EAFs powered by renewables, and carbon capture.
Green steel hubs offer a flexible model by decentralising production, allowing DRI and HBI to be produced in optimal locations, making long-distance transport viable.
Additionally, “green iron” hubs, which separate ironmaking from raw steel production, would enable each process to be situated where resources are most affordable and sustainable. Effective collaboration across industries and a hybrid approach—combining local DRI-EAF or pre-melter production with HBI imports—will be key to building an efficient, decarbonised supply chain that meets global demand.
What shape could a new value chain optimised for green steel production take?
An optimised green steel value chain could take multiple forms, offering flexibility. Some players may choose a fully integrated DRI and EAF or pre-melter model, while others may break up the process at various points to capture energy-cost advantages.
In practice, many companies will likely adopt a hybrid approach, combining different solutions to maximise efficiency. This model allows steelmakers to shift from capital-intensive infrastructure to flexible operational costs, to lower decarbonisation expenses.
What stakeholders are essential to building a successful green steel hub ecosystem?
Green steel hubs require collaboration across multiple stakeholders — mining companies for raw materials, energy suppliers for renewable power and hydrogen, investors to fund new HBI and DRI production plants, equipment manufacturers for specialised machinery, governments for permits and nfrastructure, logistics providers for inbound and outbound transport and port infrastructure, and also hub operators.
How important is a go-to-market strategy for green steel hubs?
A robust sales and go-to-market strategy is essential. Hub operators must secure long-term contracts with steelmakers, ensuring steady demand for green steel and adherence to strict quality standards. Such partnerships will help balance economic success for hub operators with cost competitiveness, providing the stability needed to expand green steel capacity to meet demand.
Green steel hubs aren’t a one-size-fits-all solution but can play a critical role in accelerating the shift to low-carbon production. Over time, hubs could broaden their scope, producing semi-finished products like slabs or finished goods such as hot-rolled coils for global markets. A phased approach, starting with natural gas for reduction and eventually transitioning to green hydrogen, would allow hubs to adapt to deeper decarbonisation needs as climate targets tighten.
Authors: Karel Eloot is a senior partner in McKinsey’s Shenzhen office and a global leader in the Metals & Mining Practice; Wieland Gurlit is a senior partner in São Paulo; Christian Hoffmann is a partner in Dusseldorf and co-leader of McKinsey’s green steel team; Bob Evans is a partner in Sydney; and Marlene Heimer is an associate partner in Munich.
