Humans have been making steel in some form or other for over two millennia – and consistently re-using and recycling it along the way. This week on Sea Change Radio, we speak with Chathu Gamage from the Rocky Mountain Institute to learn more about the steel industry. We look back at the modern history of the steel market, examine the impact that China’s steel manufacturing dominance is having around the globe, and discuss some of the biggest challenges of making steel a net zero product.
Narrator | 00:02 – This is Sea Change Radio covering the shift to sustainability. I’m Alex Wise.
Chathu Gamage (CG) | 00:19 – When we talk about recycling, it is a bit of stock and flow, and what that really means is, do you have enough to have a recycling loop in the system? And the US is quite good at that because we’ve built that stock of recycling product over time. We’ve had buildings and we’ve had automotive things that use steel in our system for a long time that then come available again to be able to be recycled. And so the recycling rates are quite high, whereas in China, that market is still developing.
Narrator | 00:51 – Humans have been making steel in some form or other for over two millennia – and consistently re-using and recycling it along the way. This week on Sea Change Radio, we speak with Chathu Gamage from the Rocky Mountain Institute to learn more about the steel industry. We look back at the modern history of the steel market, examine the impact that China’s steel manufacturing dominance is having around the globe, and discuss some of the biggest challenges of making steel a net zero product.
Alex Wise (AW) | 01:30 – I am joined now on Sea Change Radio by Chathu Gamage. She’s a principal at the Rocky Mountain Institute in the Climate-aligned Industries division. Chathu, welcome to Sea. Change. Radio,
Chathu Gamage (CG) | 01:50 – Great to be here.
Alex Wise (AW) | 01:52 – So you and your colleagues produced a paper in March of 2023 entitled, forging a Clean Steel Economy in the United States. And I, and I wanted to break that down for our listeners because I don’t think people really understand a lot of the permutations that go into the steel industry. Let’s focus on the carbon footprint element of steel. There are goals to create a steel sector in this country that is net zero. What needs to happen to achieve that? It’s not a pipe dream, is it?
CG | 02:28 – No. And I think maybe just taking a couple of steps back, particularly in the US and when we think about the steel sector, um, it’s been around for a long time, um, particularly around the Great Lakes region. It’s where it’s been, you know, predominantly and historically, uh, showcased. And as over the years and decades and different technologies have occurred, that processing method and the jobs and employment have sort of dwindled away from that region. And what’s important to know is there’s optionalities to bring that back, but it’s, you know, a globally traded commodity. So taking kind of your first question about why do we care about steel, particularly within R M I and what I work on, and to decarbonize this sector, um, it’s hugely emissions intensive. The way that steel is typically made is either one of two ways. You either can recycle it, it’s, you know, essentially infinitely recyclable, um, or you make it from scratch. So by getting iron ore and uh, splitting that up with sort of Coke to produce a primary product, this primary product is more valuable in the market. It has, you know, less, uh, scrap material that goes into it when you make a final product and therefore that’s where a lot of the emissions intensivity comes from because of this coal that’s made.
AW| 03:54 – So a lot of us are familiar with the steel boom in the US of the early 20th century, but why don’t you get us up to speed with what’s happened over the last few decades with China and how that plays into your calculations?
CG | 04:09 – Yeah, so we know when we think about a global situation of how the, how steel is made, the US has over the past couple of decades switched over to what is more known as electric arc furnaces. So this scrap steel, um, that I mentioned earlier, um, that has more so the way that the US’ footprint um, sort of occurs and how we make a lot of steel. So the majority, so 70% of global steel is made through this primary method. Um, and that’s a lot in China as we’ll go into. But in the US that stat is actually flipped and we make a lot of our steel using um, recycled materials and that’s because there’s a lot of stock in the us. Um, we’ve had, again, a lot of years to build construction, have lots of cars and so there’s a lot of, I guess, available steel in the market to be able to be recycled. Whereas when you look over in the, the boom that’s certainly happened in China and that’s a lot of construction and new material and you know, mega cities being constructed in that region, they didn’t really have a lot of that stock as well. And you know, there was a impetus to grow that economy and that eventuated in hundreds of assets, blast furnace assets. So that’s the way, um, predominantly to make primary steel. And all of those assets essentially tip the scales in terms of when you look at a global footprint. And so China now dominates primary steel making and also a lot of then the associated emissions that come along with that.
AW | 05:48 – You write that the US steel industry claims one of the cleanest global emissions footprints due to its high recycling rate of scrap. So to make it a net zero industry, which is the biggest variable in that, is it on the production side or trying to narrow the gap of the recycling rate from 70 to a hundred percent.
CG | 06:10 – Yeah, so I guess taking that back to, as I said, the US is really good at recycling <laugh> and doing that. And so we’ve already optimized the way that we can do all of that recycling. So there’s probably not that much more to go in that realm. And so how do you then get to net zero with the rest of it is on a production basis of this primary steel And we talk about primary steel, this is with the Coke making aspect. And so you have to change the way that that type of steel is made.
AW | 06:41 – And you mentioned that hydrogen could be a good alternative moving forward. Can you expand on that?
CG | 06:48 – Yeah, so we’ve got a couple of options, particularly in the next, um, we’d say like decade, um, or 15 years where when we are thinking about changing this type of Coke making, so blast furnace technology into something else. And so that requires a technology shift, um, into either using hydrogen, so renewable hydrogen through this direct reduction process. So that’s a change in asset that then uses hydrogen or that process already is, you know, usable in the world today and that uses natural gas. So there is a leapfrogging opportunity that we have, um, globally to go towards renewable hydrogen, but of course, you know, it’s a lot of electricity and it’s, you know, the costs associated with that is also not low.
AW | 07:37 – Can you break down a little bit more of how the Chinese differ from the US in terms of their production and their recycling? I know that’s not really a part of your paper, but I kept thinking about that because I know what big players the Chinese are in this industry now, and I wanted to understand how in lockstep both countries are in these efforts that you set out in terms of trying to lower these global emissions.
CG | 08:05 – Yeah, so China, uh, as we mentioned earlier, is the world’s largest producer. Um, it makes more, it has more than half the world’s capacity in sort of steel, but one important thing to note that it also consumes almost all of what it makes. So that’s like about 95%. And so the result is that China’s not, you know, a particularly big player when it turns to trading of steel and supplying steel to other markets. It makes, it uses what it makes essentially.
AW | 08:37 – I see. So it’s key in the global emissions calculus, but it doesn’t really play into the commodity and, and the, the trade surplus element.
CG | 08:47 – Yeah. And so when we think about then a whole essentially new assets, right? So these assets are around for let’s say like 25 years or so. There’s a lot of new blast furnaces that are in China. And so when we think about Chinese steel makers looking to also be then competitive, so they’re producing, they’ve already made all this steel for a lot of their construction, that demand is going down. What do they do with these assets? Do they start shutting them down? Do they start pivoting them towards cleaner technologies? And so there has been domestic policy in that region to obviously think about, you know, slashing those emissions as well from steel making. And the major producers and steel for example, the big companies over there, they’ve also set targets and have carbon peaking and neutrality commitments as well. So I think the vision that they won’t do anything is certainly not valid, but the transition in that region and what that means, they’re also exploring right CCS, hydrogen as we mentioned earlier as well. So they could start developing that technology there and then that would be quite interesting to see how that plays out.
AW | 10:02 – And CCS stands for carbon capture, right?
CG | 10:05 – Sorry, yep. Carbon capture and storage
(Music Break) | 10:19
AW | 11:15 – This is Alex Wise on Sea Change Radio and I’m speaking to Chathu Gamage. She is a principal at the Rocky Mountain Institute. So Chathu, let’s keep diving into the China versus US element of this. Can we compare the rates of recycling, like how efficient and effective both countries are at reusing what they’ve already produced?
CG | 11:39 – Yeah, so when we talk about recycling, it is a bit of stock and flow. And what that really means is do you have enough to have a recycling loop in the system? And the US is quite good at that because we’ve built that stock of recycling product over time. We’ve had buildings and we’ve had automotive things that use steel in our system for a long time that then come available again to be able to be recycled. And so the recycling rates are quite high, whereas in China, that market is still developing, right? So the, all the buildings that have been constructed newly, you know, they’re still in its infancy and so it hasn’t gone through those cycling rates. So I don’t know China’s recycling rate at the top of my head. I can certainly look that up for you. But in terms of maturity in market, that’s why there is more of a primary steel focus there and the recycling hasn’t sort of moved towards that stage of high recycling optimization.
AW | 12:35 Yes. You write about ore-based primary steel and I don’t quite understand what that is. Can you explain?
CG | 12:41 – Yeah, sure. So when we talk about steel and making steel, a lot of this ore-based steel means you’re getting iron ore out of the ground. Um, and then you essentially mix it with coke, uh, to make just the, its own product of iron and that’s what gets melted down and made into steel. And so a lot of the emissions when we talk about steel making is actually in the iron process. So breaking apart that iron ore means that you get left with the iron, but then the ore also, you know, reacts with coke and you get c o two or carbon dioxide. And so that primary steel making, um, as we say is a pure form of product. You have a lot of control over what goes into that product. However, it has a lot more processes involved as you can imagine. You’re taking iron ore out of the ground, you’re mining it, you are, you know, mixing it with the Coke and it goes through several steps.
AW | 13:37 – So is primary steel earlier in the supply chain process or is it a different product from secondary steel?
CG | 13:46 – It’s a little bit complicated because both things get mixed into all of the different types of steel that we use today. So they’re not sort of, uh, earlier or later as we say. Um, I guess it comes from primary steel can be, you can, you can think about it as a original step and then the recycling comes in a little bit later on and then those two products get mixed together.
AW | 14:11 – So it’s interesting comparing the recycling lifespan of steel between China and the US because it could be a good template moving forward with other industries. The US would have the advantage one would think in, in having a higher recycling rate because they’ve been recycling scrap metals since before there was really efforts to reduce carbon footprints. It was much more just a, an economic choice. But it’s one of the earliest products that we’ve been able to reuse in a industrial scale like this. But then on the other side you have China, which has ramped up its steel production so quickly, but within the knowledge that global emissions and our carbon footprint is an issue. And so making a cleaner product was a hopefully a little bit more in the back of their minds to begin with as they’re building newer buildings. Recycling is, is in the back of engineers’ minds more than they were in like 1920 when they’re building a bridge let’s say. So it’s, it’s hard to kind of evaluate which one might in the end be more effective and be able to get to net zero.
CG | 15:19 – Yeah, I mean the, a couple of points there I think on this is all like a old SY systems view thinking. So if you think about, you know, buildings now also coming to be certified and being clean buildings, right? And then them demanding cleaner steel and cleaner, you know, concrete products and glass et cetera in those buildings. And so I think those types of standards and building codes will ask for different things that will then dictate producers to make, you know, those cleaner products as well. So that’s kind of a loop that we’re also seeing a bit in the market. And then secondly, we sort of mentioned again getting to net zero once again, I think, you know, there is, the US is an interesting case because we’ve done so well in this recycling stage. However, there’s only so much that we can recycle and so we see demand for steel still increasing up to 2050. And then, so you need to do something again. You know, I don’t think we’re going to be cutting down our demand and certainly people have thought to do demand side reductions, but if that’s not on the table or if we’re not looking to do that, there needs to be a solution for how we make this all base primary steel because the scrap component might not be able to meet all of our demand.
(Music Break) | 16:44
AW | 18:03 – This is Alex Wise on Sea Change Radio, and I’m speaking to Chathu Gamage, she is a principal at the Rocky Mountain Institute. So Chathu, from an investment standpoint, if you were looking at investing in the US steel industry, is it on stable footing or is there always that chance that China decides not to keep pouring its own steel manufacturing back into its own domestic demand and flood the international market? Couldn’t that bury the US steel industry if, if China decided to become more of a global player?
CG | 18:39 – Yeah, and so this is, one of these interesting moments of I guess domestic production and it’s obviously, you know, a highly traded commodity. So within the US we have two major steel players, US Steel and Cleveland Cliffs. And when we talk about their sort of business model and structure, you know, they’re obviously partnered up with and have long-term contracts already in place with, you know, let’s say large automotive or construction already. And so this idea of China sort of flooding the market, their product would have to be incredibly competitive. Um, so a lot cheaper than what the existing players are already making in the market. Um, along with, you know, sort of the transportation costs that come with moving such a commodity. So, you know, in that aspect of those types of things, uh, in terms of how much they could undercut the existing market, I mean that we don’t really see a way that that could um, you know, sort of pan out. On the other side of that, we’re seeing a lot of climate policy essentially coming in as well and, you know, protecting innovation and domestic innovation in likes of CBAM. So that’s, uh, the carbon border adjustment mechanism that’s going to be rolled out from the EU. And so what that’s looking for is to say anything that we import into the E.U. member countries will have to have an X in terms of emissions threshold and that will have to be as clean as what we’re making inside of the EU.
AW | 20:14 – So you don’t view the US market as volatile as it was in that period of like 1950 to 1975 when it went from importing less than as you write less than 2% of steel to 17% by the mid-70s. And that really took a toll on, on the US side of the industry. You write that it caused a shutdown of approximately 75% of the US blast furnace fleet. So the US market is much more stable now than that era in your estimation?
CG | 20:45 – Well I think the demand for these products are stabilizing as well as back then that was a technology shift, right? So we went from open half to blast furnace and that was a big shift that essentially the US didn’t catch on in time <laugh>. And so we’re sort of facing this again, and this is where we say for primary steel making in the us you know, everyone is looking around globally at the shift between blast furnace to a newer technology that will have, you know, essentially competitive costs but as well as a low, you know, emissions footprint in product. And so nations that can go towards jumping from blast furnace fleets to this other type of technology. So direct reduction, um, will be more competitive right in the market. The US is maybe lucky or unlucky in the sense that it has a very small footprint of blast furnaces. There’s only eight in the, in the country. And so when we think about eight assets and what to do there, you know, the opportunities for transitioning those certainly should be huge and maybe put us more in a front runner position of making the cleanest primary steel in the world. But those actions need to sort of be in motion in the next decade.
(Music Break) | 22:07
AW | 23:17 – This is Alex Wise on Sea Change Radio and I’m speaking to Chathu Gamage, she is a principal at the Rocky Mountain Institute. So looking at it from a, a larger viewpoint, what kind of lessons can we learn from steel, not just lowering costs, but lowering emissions and how do you see it informing other industries Chathu?
CG | 23:39 – Yeah, so I think the innovation side of what steel has been able to do, um, can sort of be replicated when we think about all heavy industry. So, you know, when we, the way we make chemicals or you know, fuels and things like that, all need to shift quite dramatically if we are to meet not only our climate goals but also, you know, sustain economic development and also just regional competitiveness as well, um, within these certain industrialized areas. And we’re not even getting into I think the associated impacts right, on communities in terms of sort of the health and welfare as well. So there’s quite an impetus for us to change the way that we’ve done things before and we see that a lot, you know, outside of steel even before that, right? With the switch in terms of renewables and getting these sort of products on what we call a learning curve. And so the mass production of these types of components and bits will essentially, you know, the replicability of that makes the process more efficient and makes it cheaper. And then we see that with solar, right? And the increased sort of growth and penetration that we have of that industry. And so similarly, how do we replicate that for other bulk assets such as steel and refining. And there’s technologies that are coming through today. So, you know, we mentioned hydrogen, but there’s also, you know, carbon capture and getting both of those things right, uh, is sort of critical more so for the, for the local economy. And with hydrogen there is this sense that we can learn off with solar in terms of electrolyzers and how do we mass sort of manufacture and produce and become sort of state-of-the-art innovation for those types of core components that will then feed into these industries. Not only steel, but how we make fertilizer or how we make shipping fuels and so on.
AW | 25:39 – Obviously there’s not that much that we can do when we go into a store to affect change on the demand side, although, you know, consumer habits do matter, but on the big buyer side of things, how can they affect the demand side of things And what are some of the innovations on the demand side that give you hope that we’re going to meet these goals, Chathu?
CG | 26:04 – Yeah, so I think demand plays a pretty critical part in terms of the push and pull, um, of, of certain sectors. And we’ve seen that in aviation, uh, where, you know, there’s a sustainable aviation buyers alliance, which r m I has been sort of co-chairing that has asked, you know, members to say we want cleaner fuels. And similarly there’s a concept in steel, um, in terms of asking for, you know, cleaner steel and greener steel. And so private sector makers, particularly auto makers, um, have already come out and you might have seen big commitments from folks like B M W and Mercedes and Volkswagen saying, you know, we have this type of commitment and then they’ve gone ahead and signed up for pledges, um, stuff like the first Movers Coalition to say we’re going to be procuring 10% of our steel in 2030, um, and it’s going to be clean steel. And there’s a definition attached to that. And so we think all those commitments are fantastic, right? And it gives a slight certainty to the producers to say, Hey, people are out there and they want our product and they might be willing to pay a bit more for this product as well. And so what we did last week was launch the sustainable steel buyers platform and what that aims to do within North America is aggregate these buyers together, um, convene steel purchases and to coordinate an actual off-take agreement. So we’re translating these corporate commitments into this agreement. So that’ll support the actual producers to make investments to get if it’s hydrogen or if it’s CCS or another way to produce this clean steel. So connecting the demand to the supply, um, in order to make these new clean facilities happen.
AW | 27:53 – She’s a principal at the Rocky Mountain Institute, Chathu Gamage. Chathu, thanks so much for being my guest on Sea Change Radio.
CG | 28:01 – Thank you.
Narrator| 28:17 – You’ve been listening to Sea Change Radio. Our intro music is by Sanford Lewis, and our outro music is by Alex Wise. Additional music by Chris Joss, Walter Egan, Tenacious D and Eric Bibb. To read a transcript of this show, go to SeaChangeRadio.com stream or download the show or subscribe to our podcast on our site or visit our archives to hear from Doris Kearns Goodwin, Gavin Newsom, Stewart Brand, and many others. And tune in to Sea Change Radio next week as we continue making connections for sustainability. For Sea Change Radio, I’m Alex Wise.