Steel Demand Is On The Rise And So Are Its Decarbonization Efforts

The reference price for hot-rolled coil steel reached $482 per metric ton in 2020, while according to estimates for 2023, this figure will rise to around $505. And since price and demand are on the rise —and the global outlook seems healthy for the next 12 months— so are steel producers’ efforts to cut down on CO2 emissions.

Steel Production

Global production of crude steel exceeded 1.8bn tons in 2020, this being the second-highest figure recorded up to that point in recent years. Also, China was responsible for more than half of the world’s production —by comparison, North America and the European Union accounted for around 15% of the total.

According to Reuters, “Global crude steel output rose 3.7% last year to 1.95bn tons, data from the World Steel Association showed on Tuesday, despite a drop in China, the metal's top producer, as the crisis energy-reduced operations.”

The rebound of the global steel industry is estimated to spread into 2022 driven by rising demand, a regulatory frame for an applicable trade environment, and the recovery of the construction and manufacturing sectors.

Demand and Inflation

An S&P Global report establishes that amid inflation, producers are less anxious for the higher prices than for the energy transition. 

Still, despite steel producers catching a breather during earnings seasons, “prolonged inflationary pressures could further effect steel companies’ input costs for raw materials, labor constraints, and higher logistics costs.”

According to the report, two months of 2022 have passed and the steel industry is already settling down on proceedings to boost decarbonization as demand soars. This is partly driven by President Joe Biden’s emphasis on the importance of low carbon-emitting steel, and by the fact that six big global banks are set to define a lending framework for decarbonization.

Decarbonization efforts are also —very positively— coming from the world’s largest producer. On February 11, China raised the industry’s efficiency targets in the next three years, after implementing last year a compulsory steel output cut to tail off on the sector's carbon emissions.

“Steel output from China’s major producing province Hebei has been halted from October 1, 2021, through March 31 as part of the Ministry of Ecology and Environment’s anti-pollution campaign for the Winter Olympics.” 

The Chinese Stage

The short-lived crunch in steel supply this year comes after poor earnings results from Chinese big players in Q42021. 

Ronnie Cecil, an S&P Global Market Intelligence principal analyst for iron ore and steel, asserts: “There's a broader picture around decarbonization that affects steel more than any attempts to control pollution around the Olympics.” 

“China cut steel production [in 2021], and they will likely do so again this year, and other than some slow down around February, the Olympics won't have much impact,” he adds.

In its 2022 industry top trends outlook for metals and mining, S&P Global Ratings said that steel production slashes ordered by the government at Chinese steel mills and the initiatives to restrain industrial output affected the commodity market demand and prices last year. 

“We believe the Chinese government is unlikely to loosen the control on steel production in 2022. Moreover, given China’s goal of peak carbon emission by 2030, its crude steel production is likely to gradually fall. Given that China accounts for over half of global demand for raw materials, a prolonged weakness in demand or market expectations would weaken key support for prices.” 

In Europe, according to S&P Global Ratings, steel supply has entirely bounced back from the Covid commotion and a recovery in demand has meant unprecedented profits for steelmakers. They have reached the goal of growing prices above the cost levels of inflation and raw materials, and have edged closer to allocating more cash flow to their shareholders.