The Steel Mills That Built the World Face Decline

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Jun 19, 2023

The Steel Mills That Built the World Face Decline

The takeover battle for US Steel Corp. is about more than the ignominious fall of the world’s first billion-dollar company. It’s also about the fate of the planet. Andrew Carnegie’s vast industrial

The takeover battle for US Steel Corp. is about more than the ignominious fall of the world’s first billion-dollar company. It’s also about the fate of the planet.

Andrew Carnegie’s vast industrial enterprise churned out the beams, bars and plates that made America’s railways, skyscrapers and the military machine that helped win World War II. But the steelmaking technology that built the 20th century is clashing head-on with the challenges of preventing catastrophic climate change in the 21st century.

Carnegie’s blast furnaces used a simple recipe. To produce a metric ton of steel, they took about 1.4 metric tons of iron ore from the rich deposits north of Lake Superior, and 800 kilograms (1,763 pounds) of coal from the carbon-rich mines of Appalachia, before melting them down in a blast furnace and blowing air through the mix to produce strong, ductile metal.

There’s an alternative recipe, though, using electric arc furnaces, or EAFs. To make the same ton of steel, they take 600 kilograms of iron ore, 150 kilograms of coal and 700 kilograms of scrap metal, and melt them with electricity. Greenhouse emissions are far lower, at about 0.4 tons of carbon dioxide relative to 2.3 tons in a blast furnace.

For much of the 20th century, EAFs were relatively niche. As the steel produced by America’s industrialization piled up, however, a growing mountain of cheap scrap allowed them to out-compete Carnegie-style blast furnace steel. Nucor Corp., an EAF-based steelmaker whose sales were roughly a third of US Steel’s in the early 1990s, now posts double the revenues with far superior profitability. Nucor’s market capitalization is now $41 billion. US Steel’s, on the eve of this month’s takeover bid by miner-turned steelmaker Cleveland-Cliffs Inc., was less than $5 billion.

That transition is now poised to take place across the global industry. While blast furnaces continue to dominate in terms of worldwide steel output, they’ve fallen sharply as a share of planned steelmaking capacity, Global Energy Monitor, a clean-energy think tank, wrote in a report last month. From 67% of the total in March 2022 — roughly the same as they currently enjoy in the industry as a whole — blast furnaces slipped to 57% last year. That’s the first solid sign of a shift toward electricity that the entire industry needs to undergo if steelmaking, which accounts for about 7% of global emissions, is to start reducing its carbon footprint.

Part of this transformation is being driven by decarbonization. H2GS AB, a Swedish company that hopes to start production in 2025 of green steel using zero-carbon hydrogen to produce iron for melting in EAFs, has signed supply agreements for metal with Rio Tinto Group and Vale SA in recent months.

China Baowu Steel Group, the world’s biggest steelmaker, plans to peak its carbon emissions this year and cut them by 30% by 2025. Ansteel Group and HBIS Group, China’s second- and fourth-biggest mills, have peak carbon targets set for 2024 and 2022, respectively. ArcelorMittal SA, the second-biggest player globally, plans to cut the footprint of its European mills by 30% in 2030 relative to 2018 levels.

The fact that steelmakers are so willing to make these commitments is a sign the forces that drove US Steel’s decline are setting in across the world. Blast furnaces have dominated China’s steel production because there simply wasn’t enough scrap metal in the world to feed the voracious demand for new metal. Since 2020 alone, China has made more steel than the US produced in the past 30 years.

The prodigious mountain of scrap generated by that boom will soon be available. Cars, ships and buildings built a decade or more ago are now being crushed and demolished, releasing their iron to be recycled in EAFs. The government’s planning body wants to lift China’s usage of steel scrap from 260 million tons in 2020 to 320 million tons in 2025, enough to displace nearly a 10th of the iron ore it imports with domestically produced metal. If junkyards can be mobilized to produce the rusted metal that arc furnaces need, that will rapidly start eating into China’s demand for new steel — along with the emissions that result from producing it.

The global steel industry is clearly not moving fast enough to hit widespread targets of zeroing out its carbon footprint by 2050 — and given the 30-year lifetime of a blast furnace, their share of planned production should be closer to zero than the 57% reported by Global Energy Monitor.

Even so, it’s long been the assumption that the world has no alternative to dirty, old blast furnaces. The experience of US Steel, worth less in 2020 than it was when Andrew Carnegie and JP Morgan put it together in 1901, suggests that path is anything but inevitable.

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The Steel Mills That Built the World Face Decline