ThyssenKrupp at a Crossroads – The Price of Green Steel Production Too High

The German company ThyssenKrupp is reconsidering its ambitious plan for green steel production at its plant in Duisburg due to rising costs, even though the German government has so far invested billions of euros in this project, reports Euronews.

According to a report by the German newspaper Handelsblatt, which cites internal company documents, ThyssenKrupp’s management and CEO Miguel Lopez have initiated a thorough review of the direct reduction (DRI) plant project. This plant would produce steel using hydrogen instead of coal, with operations planned to start in 2027.

The federal government and the government of North Rhine-Westphalia have committed to providing two billion euros for this project, of which reportedly 500 million euros in state subsidies have already been disbursed. If the project is canceled, ThyssenKrupp would have to return the received funds, which is now becoming a reality for the company.

Although the company states that it has not completely abandoned the project, such a scenario is under consideration due to the enormous costs, according to Handelsblatt. A company spokesperson stated that ‘the situation is currently under review,’ but that the company ‘currently assumes that the direct reduction plant can be realized under existing conditions.’ He also added that a potential increase in costs for the DRI plant currently has no impact on subsidies.

Challenges in ThyssenKrupp’s Steel Division

The German industrial giant is facing severe challenges. The company announced disappointing results in June, with a drastic decline in net income and profit, along with rising operational costs. The steel division of the company is particularly in focus, with a major reorganization of the management structure. A series of resignations within the company has led to the appointment of a new CEO, chairman, and five new directors of the steel division. The resignations are reportedly a result of conflicts over the takeover of ThyssenKrupp, after Czech billionaire Daniel Křetínský acquired a 20 percent stake in the steel business, with the possibility of purchasing an additional 30 percent.

Five years ago, ThyssenKrupp proposed a joint venture with Tata Steel Europe, which would create the second-largest steel producer in Europe. However, the European Commission banned the merger in 2019 due to concerns about reduced competition and increased prices, which was appealed by the companies. However, this week, the highest European court, the Court of Justice of the European Union, dismissed ThyssenKrupp’s appeal, supporting the European Commission’s decision.

Meanwhile, ThyssenKrupp’s steel division is facing strong competition from Asia, while high energy prices and reduced demand in Europe further pressure its business prospects. Additionally, meeting climate goals requires significant investments, which is not a small expense for someone producing steel.

Despite the challenges, the transition to green steel production remains a prestigious project for the company, as well as for the German government. In a statement to Euronews, ThyssenKrupp emphasized that the company remains committed to its ‘green transformation and climate-neutral steel production.’ However, the fact remains that the price of these ‘green’ efforts remains high, which has also reflected in the decline of ThyssenKrupp’s shares.

Steel vs. Green Steel

Steel, a key material for modern infrastructure and industry, is currently among the largest industrial sources of CO2 emissions, and its production process is largely dependent on fossil fuels. However, with the aim of achieving global climate goals and decarbonizing the industry, there is increasing talk of ‘green steel’ as a potential solution for reducing the carbon footprint.

Green steel refers to steel produced without the use of fossil fuels, significantly reducing carbon dioxide emissions. One of the main solutions for reducing emissions in steel production is the use of ‘green hydrogen,’ which is produced by electrolyzing water using energy from renewable sources. This process is completely free of CO2 emissions, explain the Mitsubishi Heavy Industries (MHI) group.

In addition to green hydrogen, there is also the option of ‘blue hydrogen,’ which is produced from fossil fuels but using carbon capture, utilization, and storage technologies, which also reportedly reduce emissions.

Electric arc furnaces represent another option for cleaner steel production, although they depend on the energy source using renewable sources to make production completely green. According to a report by the Global Energy Monitor organization, currently, 31 percent of global steel production uses this technology, but the transition to electric furnaces is occurring significantly slower than the necessary pace to meet ambitious decarbonization goals.

Expensive, Expensive

One of the main obstacles in green steel production is the availability of low-carbon hydrogen. To fully develop the technology, massive investments in green hydrogen production are required, amounting to billions of dollars. The EU has, for example, set an ambitious plan through REPowerEU, aiming to significantly increase the use of renewable hydrogen by 2030. The largest European steel producer, ArcelorMittal, estimates that decarbonizing its plants in Europe in line with EU goals will cost up to 40 billion dollars.