New Argus assessments show costs of decarbonising steel in Europe

London 3 July 2023 

Global energy and commodity price reporting agency Argus has launched a series of cost indexes that bring transparency to the process of creating “green steel” in Europe.

Steel, a common alloy of iron, is an indispensable foundation of modern life — yet the sector accounts for 8% of global carbon emissions. The majority of these occur as part of the ironmaking phase, which historically has involved the use of fossil fuels, usually coal, to ‘reduce’ the oxides and remove impurities found in naturally occurring iron ore. 

Today, most primary steel that is not made from recycled scrap is made from iron produced in a coal-fired blast furnace. A far smaller share of global ironmaking is done using the direct reduction process, a much less carbon-intensive process that can use methane as the reducing agent. Methane itself has a not insignificant carbon footprint, but can be substituted with “green” hydrogen produced using renewable energy. The output is carbon-free directly reduced iron (DRI), which can be smelted into “green” steel in an electric arc furnace, if that in turn is powered by renewable electricity. 

While there are a range of technologies to reduce emissions in the iron and steelmaking process, direct reduction using zero-carbon hydrogen is currently the most technologically viable route to emission-free steelmaking. 

The new Argus Green DRI indexes show the theoretical cost of this process in northern Europe, drawing on Argus assessments of the price of iron ore, energy and hydrogen production costs in the region. They will be published weekly alongside costs for natural gas-based DRI, allowing direct comparison between green and non-green steelmaking feedstocks — including hydrogen made with fossil fuels.

The iron ore feedstock will be 67% Fe direct reduction pellets, delivered to Rotterdam. This iron ore price will be calculated daily from existing Argus iron ore and freight assessments and launched alongside the DRI costs.

Despite the launch of a number of low-carbon steel projects, a lack of standardisation in definitions, as well as low spot market liquidity, currently make it challenging to assess a market-based green premium. The new Argus prices will provide a clear indicator of the theoretical cost premium for entirely carbon-free steelmaking.

“Providing new transparency about the costs of different steel-making pathways allows companies across the steel value chain to make informed decisions and allocate resources effectively as they seek to reduce emissions from this traditionally hard-to-abate sector,” Argus Media chairman and chief executive Adrian Binks said. “Steel is fundamental to the real economy but needs to decarbonise quickly and efficiently, especially as it remains a critical ingredient in the roll-out of renewable energy, from its use in wind turbines to the mounting brackets for solar energy photovoltaic arrays.”