Steel alloys are mainly used in the steel industry – but battery and energy storage applications mean they will also play an increasingly important role in the energy transition, says Wood Mackenzie, a Verisk business.

Stainless steel: long term growth dominated by China

Global stainless steel melt production is expected to be about 62 million tonnes (Mt) in 2022, rising to 90 Mt by 2050. China currently accounts for 60% of production and is home to six of the world’s top ten producing companies. It is also expected to be the main driver of future growth, supported by Indonesia and India.

In contrast, production in Europe, the Americas and Africa will stay almost flat over the next three decades.

Long-term stainless steel production growth is confined to Asia

Stainless steel accounts for around 80% of world chromium consumption, 65-70% of nickel, and 20-25% of molybdenum. All stainless steel contains chromium, while use of nickel depends on the grade. In the mature industries of Europe, the US and Japan, more than 50% of the input material is scrap, which contains nickel and chromium priced at a discount to the pure metal. As a younger industry, China has historically had less access to scrap but will be able to use more in future. This will flatten demand for chromium, nickel, and molybdenum over the long term.

Dale Hazelton, Head of Steel Alloys and Nickel Markets, said: “We expect demand for stainless steel to grow by 4% this year to 55 Mt. Home appliances have contributed strongly to recent demand, while the auto industry is recovering but still suffering from supply chain issues. Meanwhile, construction should get a boost from this year’s focus on infrastructure investment in China.”

Bulk alloys: demand continues to be driven by steel

The bulk alloys include manganese, chromium, and ferrosilicon. Steel dominates their consumption, accounting for more than 90% of manganese and chromium demand and close to 75% for ferrosilicon. Manganese is generally used in typical carbon steels, while chromium and ferrosilicon are used more in stainless and specialty steels. Non-steel uses include non-ferrous alloys and batteries for manganese, foundries, chemicals and refractories for chromium, and iron castings and magnesium for ferrosilicon.

China’s 14th five-year plan set goals to reach peak crude steel output within the early 2020s. However, reforms are less focused on high quality and refined products, so stainless and other alloy steels will continue to see growth while Chinese carbon steel declines. As a result,global silicomanganese production will become less China-centred, while China’s share of global ferrochrome and ferrosilicon production will hold up, and even rise slightly.

Despite being a major producer of steel alloys, China accounts for only 4% of global manganese ore production and a negligible amount of chromium ore production. It is therefore becoming heavily reliant on imports of these raw materials.

In terms of the outlook for bulk alloy metals, only manganese shows any major shift in demand patterns over the long-term outlook. Several novel cathode chemistries use manganese, and this will underpin growth in demand from the batteries segment. When compared to other common cathode metals, wider geographic distribution, greater scale of production and larger reserves offer better security of supply for manganese. Moreover, production costs are an order of magnitude lower than for cobalt and nickel, which also face ESG concerns. As a result, manganese will enjoy a five-fold increase in use for batteries between now and 2040.

Geography, geology, cost and ESG are key factors in the growing prominence of manganese in lithium-ion batteries

Noble alloys: significant potential in energy storage and EV battery use cases

Wood Mackenzie includes vanadium, niobium and molybdenum in its noble alloys research. The use of all three is dominated by steel alloy production, which accounts for 90% of vanadium and niobium consumption, and about 70% of molybdenum demand.

Demand for noble alloys will be largely dependent on China, where crude steel output is set to decline. Despite this, demand for noble alloys will grow thanks to more stringent technical requirements for steel, especially in construction – adding very small quantities of these metals can improve properties such as strength and corrosion resistance. Meanwhile, noble alloys’ potential in lightweighting steels, energy storage and EV batteries will give them a role in the energy transition.

Steel dominates noble alloy use, but they have a role to play in the energy transition

Most significantly, vanadium and niobium will find uses in battery applications, although the latter is still subject to technological improvements and successful commercialisation. In contrast, vanadium redox batteries (VRBs) are already being installed across the globe as part of energy storage systems (ESSs), particularly in China. VRB uptake faces challenges relating to the cost of the electrolyte and the potential for vanadium price volatility. However, its advantages include long duration, stable chemistry and a longer lifespan than lithium-ion batteries.

Steel industry’s carbon emissions is expected to fall 30% by 2050 compared to 2021 levels, according to a new report by Wood Mackenzie, a Verisk business.

Steel is a challenging sector to decarbonise. However, evolving green steel goals are altering the supply landscape and steelmakers are under pressure from stakeholders to reduce their reliance on conventional (highly polluting) blast furnace route and adopt low-emission alternatives.

Wood Mackenzie research director Malan Wu said: “The global share of electric arc furnace (EAF) in steelmaking is rising with policy shifts and increasing focus on scrap use. Basic oxygen furnace (BOF) output will decline 0.5% annually until 2050, whereas EAF output could increase 2.3% yearly in the same period. By 2050, EAF will account for 48% of the technology share used in steelmaking, up from 30% last year, making it almost on par with the traditional BOF method.

“Together with green hydrogen-based direct reduced iron (DRI), scrap use and adoption of carbon capture, utilisation and storage (CCUS), steel industry’s carbon emissions can decline 30% from current levels by mid-century.”

The steel industry is expected to commence hydrogen use as early as 2027, with EU taking the lead. Hydrogen-based steel production will eventually account for 10% of the total steel output or 232 million tonnes (Mt) by 2050. Wood Mackenzie projects that 40% of DRI produced by mid-century will be hydrogen-based.

Carbon offset measures such as CCUS will lend further support. Wood Mackenzie believes that the steel industry will be able to capture, store and potentially utilise around 178Mt of the residual emissions. This will make up 5% emission savings of the 30% carbon emissions decline by 2050.

Wu said: “Blast furnace gas emissions are complex, and it is challenging to separate carbon from them.  We assume that technological advancement and bulk efficiencies will allow a maximum capture rate of about 20-25% in advanced economies such as the US and EU.

“Capture rates can be improved by increasing the reliance on smelting reduction technologies such as HIsarna and Corex, that produce top-gas with much higher carbon concentrations. This will make it easier to separate carbon from other impurities. However, these technologies have yet to prove their commercial viability, even after being deployed in Asia and Europe.”

China is expected to take the lead in reducing absolute emissions. Wood Mackenzie estimates Chinese emissions to halve between 2021 and 2050, and a major proportion of emissions reduction will come from the projected fall in steel output.

Mature economies such as Japan, Korea, Taiwan, EU, UK and US will need to do more to curb emissions as developing nations will be slow adopters and small contributors to emissions cuts. These economies will abate emissions by nearly 50% from current levels while maintaining or increasing their steel output.

India and Southeast Asia will in turn worsen their emission profile as their crude steel production rises through the BF-BOF route. The aggregate emission intensity in these regions will improve as production triples and carbon emissions will in turn double from current levels. Decarbonisation initiatives in these regions will intensify in the second half of the forecast horizon.

Wu said: “The onus will be on mature economies to decarbonise quickly. These economies will look to pare down emissions by switching to EAF, which is three-quarters less emission-intensive than the blast furnace route. India and Southeast Asia, the key demand drivers, will buck this trend as most capacity additions are via the BF-BOF route. However, nearly two-thirds of incremental supply between 2021 and 2050 will materialise from India and Southeast Asia – cushioning the negative impact on hot metal.”

Australian and South African miners are exploring ways to supply coal and metals consumers in Europe scrambling for alternative sources to Russian supply, but logistics and cost constraints make it difficult to rapidly boost output, companies said.

Prices of palladium, coal and other commodities have skyrocketed since Russia’s Feb. 24 invasion of Ukraine, while sanctions on Moscow drive Western consumers to replace Russian supply.

Customers are approaching suppliers they have no existing relationships with, desperate to secure the commodities, major producers said. Miners typically utilize long-term contracts, making surplus supply scarce.

Palladium, used by automakers in engine exhausts to reduce emissions, hit a record high on Monday before easing back. Russia accounts for 25-30% of the world’s palladium supply.

South Africa’s Sibanye-Stillwater, the world’s largest primary producer of platinum, said some clients have asked about its ability to produce more platinum group metals (PGMs) but that it has very little flexibility to increase production in “any material way” in the short to medium term.

“Accelerating projects is possible but, this is not a quick fix and will generally still take months or even years before the benefits are apparent,” Sibanye said.

Automakers, who use palladium in engine exhausts to reduce emissions, will start substituting platinum for palladium if palladium prices stay high, Sibanye CEO Neal Froneman said last week.

The auto industry is expected to account for 42% of overall demand for platinum this year, up from 37% in 2021, the World Platinum Investment Council forecast on Wednesday.

Platinum prices have also risen due to uncertainty over Russian supplies, but more mutedly as platinum is forecast to remain in oversupply this year.

South Africa’s Impala Platinum, the world’s third-largest producer of PGMs, also said it has limited capacity to plug the gap left by Russia’s palladium supplies. Russia’s Norilsk Nickel alone produces around 38% of global palladium and 11% of global platinum, Sibanye said.

While miners are benefiting from the rise in metal prices, Sibanye’s Froneman cautioned that supply chain disruptions could have a destructive impact on demand further down the line.

More costly metals are also a headache for carmakers hoping to make electric vehicles more affordable.

Shunning Russian Coal

Companies in Europe, which relies on Russia for 70% of its coal supplies, are also turning to Australian miners for supply of the fuel.

“Due to the conflict, we are fielding requests from Europe for security of met coal supply,” said Gerhard Ziems, group chief financial officer of Coronado, one of the world’s largest producers of metallurgical coal, used in steelmaking.

Coronado will boost output to about 18-19 million tonnes (Mt) in 2022 from 17.4Mt last year, he said. Ziems estimated the Russia exports about 45 million metric tonnes of met coal per year.

“In circumstances where the international community is shunning Russian coal, supply shortfalls need to be sourced from elsewhere which includes established markets such as Australia and the U.S. in which Coronado operate,” he said.

Australia’s top independent producers, Whitehaven Coal and New Hope Group, said they have been approached to supply countries, including Poland, which have traditionally relied on Russian coal, and the latter said it was looking at ways to supply the European market.

“We have a mix of contracted and spot sales which allows us to take advantage of tactical opportunities in the market,” a Whitehaven spokeswoman said.

The Australian government said last week that it would help its coal-importing Western allies to find alternatives to Russia for supplies by connecting them with local producers.

Glyn Lawcock, head of mining research at Barrenjoey, said while the idea appeared simple, the execution was not, as Australian miners were already flat out.

“It’s not like people have volumes sitting there to give out. Ukraine/Russia produces high grade pellets for markets, there is no one sitting on surplus material,” Lawcock said.

In a sign of how tight the market is, coal prices for loading at Newcastle – the world’s biggest coal port on Australia’s east coast – rocketed to a record US$440 a tonne last Wednesday, a five-fold jump from a year ago.

Australian Resources Minister Keith Pitt said this was an opportunity for Australian miners, and called for expansion of coal mines in the country, as these could help desperate European nations wean themselves off Russian coal.

As Indian economy pushes forward to grow at 9% and above over the next few years, a key challenge for the country would be to rebalance its energy needs in favour of renewable sources by 2030 to 50% as per the Paris agreement. This is here that the Aluminum sector will play a greater than ever before role. Extensive growth in electric vehicles, renewables, modern infrastructure, energy efficient consumer goods and greater dependence on strategic sectors such as aerospace and defense, will drive Aluminium consumption to grow at CAGR of 10% or more. For example, Aluminium usage in EV battery is 40% – 50% more than a normal ICE. Being 3 times lighter than steel it aids in fuel efficiency making it an efficient choice for EV’s.

However, the Indian aluminium industry is struggling to revive itself over the last two years following the unprecedented Covid pandemic. The declining domestic producers market share with surging imports coupled with significant cost escalation for primary producers due to a rise in input costs of critical raw materials, escalating ocean freights & logistics costs due to container shortage, current coal crunch situation etc. is restricting the industry’s ability to support the future of the country at a time when India cannot rely on import sources alone to fuel this growth.

To give relief to the sector, there is a need for urgently looking at the duty structure. The basic custom duty on Aluminium and Aluminium scrap is not in line with other non-ferrous metals like Zink, lead, nickel and tin which is a huge disadvantage for domestic Aluminium producers. The industry expects increase in tariff rate of basic custom duty or peak custom duty rate from existing 10% to 15%. Currently custom duty on Primary Aluminium is 7.5%, Downstream Aluminium is 7.5% to 10% and Aluminium scrap is only 2.5%. This is the reason why despite having significant presence of primary Aluminium capacity and potential to generate sufficient domestic scrap, India’s consumption of scrap is 100% import dependent. The way forward is to increase custom duty on Aluminium srap from 2.5% to 10%.

Primary aluminium industry is facing severe threat from the increasing import of Aluminium scrap. The share of scrap in total imports increased from 52% in FY-16 to 66% in FY-21. resulting in Forex Outgo- of US$2 billion (Rs 15,000 Crore).

What is also affecting the Indian industry is China’s renewed measures to restrict Scrap imports through National Sword Policy, which is leading to greater inflow of scrap into India. China imposed 25% duty on Aluminium Scrap imports from USA, and classified Aluminium Scrap in restricted import list from July, 2019, with plan to completely ban all scrap and waste imports. Post that the share of import from the US in China’s total Aluminium scrap imports has declined from 53% in 2017 to just 16% in 2019. India has overtaken China as world’s largest aluminium scrap importer due to Chinese measures. As a result, entire global scrap chain is shifted to India in absence of any quality or BIS standards for scrap recycling/ usage and imports in the country. A major threat is from US scrap imports, as US is diverting large volume of scrap to India, since EU and other developed countries have stringent standards for scrap. The import from US as share of India’s total scrap imports increased from 8% in FY16 to 24% in FY21.

This precarious situation can be resolved by safeguarding the domestic industry against these non-essential imports in the upcoming union budget.

The industry demands increasing the basic custom duty on Chapter-76 (Aluminium & articles) as per the following:

Sweden’s steel industry produced 4.4 million tonnes (Mt) of crude steel (3.4 Mt of finished steel) in 2020, representing 3.2% of crude steel production (2.5% of total finished steel production) across EU-27 and the UK.

Despite its modest share in the region’s steel production, Sweden has been making headlines by being a frontrunner in the global race to produce fossil fuel-free steel at a commercial scale. At least two initiatives by HYBRIT and H2 Green Steel, separately, have been launched with a target to manufacture 10 Mt of crude steel annually by 2030.

Wood Mackenzie principal analyst Sohaib Malik said: “Sweden’s decarbonisation drive in the steel industry signals substantial cost reduction potential for green steel over the coming decades, due primarily to declining cost of renewables and green hydrogen and increasing carbon prices.

“The country boasts Europe’s largest iron ore reserves and excellent renewable energy resources – two primary prerequisites for the production of green hydrogen and decarbonised crude steel.”

At a levelised cost of electricity at US$30 per megawatt-hour (MWh), wind power is a highly economical source of power generation in Sweden today. Further cost reductions are expected with better financing structures for onshore wind, lower capex for onshore and offshore installations, technological optimisation for asset management and state support for offshore grid infrastructure.

Alkaline electrolysis technology is most likely to play a key role in green hydrogen production which is crucial for Sweden’s green steel production. Compared to proton exchange membrane electrolysis, it has a lower capex of US$925 per kilowatt today and it is expected to halve by 2030, enabling a levelised cost of US$1 per kilogram of green hydrogen using onshore wind power.

Senior research manager Mingming Zhang said: “We find that a combination of hydrogen from alkaline electrolysis and renewable energy from onshore wind will produce the most cost-effective green crude steel in Sweden.”

Assuming a carbon price of US$100/t, green steel producers could benefit from US$85/t of carbon credits. Better financing models for onshore wind and 48% lower capex for alkaline technology in 2025 yield steel cost of US$360-390/t in carbon price scenarios ranging between US$50/t and US$150/t.

Zhang added: “Producing green steel with cost parity to conventional steel in the 2020s is quite possible if we use natural gas-based direct reduction iron and electric arc furnace steelmaking process as a baseline.”

Although the HYBRIT and H2 Green Steel projects are backed by industrial heavyweights, some critical parts of the proposed value chain rely on technological solutions that have yet to be tested at an industrial scale, posing considerable challenges that must be overcome to deliver on the promises. Notably, both ventures have yet to find solutions for secure and economical storage of hydrogen and demonstrate their technology’s commercial success.

Malik said: “Global steel demand will reach 1,872 Mt a year by 2030, 6.4% higher than in 2020. The case for green steel will grow stronger as its cost reduces. In addition, the success of green hydrogen to produce green steel at a commercial scale will justify the enthusiasm around its ability to accelerate decarbonisation.”

Carbon emissions in the steel sector must fall by 75% from today’s levels to limit global warming to within 2 degree Celsius (°C), says Wood Mackenzie, a Verisk business (Nasdaq:VRSK).  

This means reducing global steel emissions from over 3,000 million tonnes of carbon dioxide equivalent (Mt CO2) in 2020 to just 780 Mt CO2 by 2050. 

Wood Mackenzie senior analyst Mihir Vora said: “This is an extremely challenging target to meet. The steel industry would need to find the right balance between managing rising demand and pressure to decarbonise. The pathway to a 2°C world is filled with obstacles compared to our base case view.”  

Steel demand is expected to rise 23% to 2,300 Mt between 2020 and 2050. Developing economies such as India, Southeast Asia and South America are expected to drive demand growth, while China and Europe would pare down their consumption. 

Vora said: “Currently, steel is responsible for 7% of global CO2 emissions. The industry needs to prioritise decarbonisation if the world is going to achieve a 2°C warming pathway aligned to the goals of the Paris climate agreement. 

“Advanced economies will need to do more to curb emissions via innovative new steelmaking pathways such as hydrogen use, while developing nations will be slow adopters and small contributors to emissions reduction.” 

Wood Mackenzie has outlined five main outcomes that would need to be achieved for the steel sector to achieve a 2°C warming pathway. They include (1) doubling scrap use in steel making; (2) tripling direct reduced iron (DRI) production and use; (3) reducing global average electric arc furnace (EAF) emissions intensity by 70%; (4) reducing blast furnace – basic oxygen furnace (BF-BOF) emissions intensity by 30%, close to its theoretical minimum; and (5) capturing and storing 45% of the residual carbon emissions (around 500 Mt per annum). 

Aligning to a challenging 2°C warming pathway in the steel industry would mean disruption to the iron ore and metallurgical coal markets. It would, however, be a boon for hydrogen demand in steelmaking as well as carbon capture and storage.  

“Steel’s potential extreme decarbonisation in a 2°C scenario would mean tripling DRI production. This presents a huge opportunity for suppliers of premium iron ore,” said Rohan Kendall, head of iron ore research. “Although the rise in scrap consumption would lead to total iron ore demand falling by 24% below our base case, the market for pellet products would expand by 35%.” 

The decarbonisation of the steel sector in this scenario would boost DRI trade. Australia and Brazil could be well positioned to produce H-DRI for export. DRI using green hydrogen as the reductant can produce steel with almost zero CO2 emissions. China and Europe would be key DRI importers. 

To achieve scrap use growth, scrap recycling rates would have to increase from 80%-85% to 95%. India and China scrap supply chains would require substantial development which would contribute to displacement of iron ore demand, notably taking effect post 2030. 

Metallurgical coal principal analyst Anthony Knutson said: “Under a 2°C scenario, hot metal consumption is expected to decrease 667 Mtpa below our base case by 2050 to 795 Mt. This in turn leads to an almost halving of the total annual metallurgical coal demand to 622 Mt from our base case by 2050.” 

Seaborne metallurgical coal trade would fall in this scenario, although domestic coal in China would bear the brunt of declines.  

Knutson said: “In a 2°C world, seaborne imports would be all but eliminated during the 2040s in China, leaving only a nominal volume of the highest-quality coking coals imported to coastal mills. India, on the other hand, would double its import requirement to 123 Mtpa, as its steel demand outpaces its ability to decarbonise. 

“PCI demand comes under great pressure in a 2°C scenario falling by 50% or 37 Mt as hydrogen injection rates increase.” 

A successful rollout of carbon capture and storage – which under this scenario could reach 500 Mt of emissions captured in 2050 – would provide an opportunity for continued use of metallurgical coal in steelmaking as emissions captured via this pathway is from BF/BOF steelmaking.