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■ Date: Jul 10, 2023
【China’s Path to Green Steel: Varies Technologies Can Have a Chance】
Author
[Snapshot]
1. International policies such as CBAM and US’s Global Agreement with the EU will further accelerate a low-carbon transition for China’s steel export business. Although the immediate impact is low now, steel exporters better pay close attention to its long-term impact.
2. Three main options exist for Chinese steel producers. EAF might be the fastest one to adopt. The proportion of steel produced by EAF is expected to exceed 15% by 2025 and 20% by 2030. Hydrogen reduction and DRI can commercialize in the later phase but with huge potential.
3. China has a large share of young blast furnaces, it is not economical to shift to hydrogen DRI or EAF in the short term. Thus new technologies such as CCUS, biomass and hydrogen reduction could have some potential as well.
4. China is rich in coal but lacks natural gas resources. Because of this, coke oven gas is mostly used to inject hydrogen reduction or hydrogen DRI. This lowered costs but comes with limited emission reduction. This creates future business opportunities for green hydrogen, distributed generators, water electrolysis etc.
Keywords: #CBAM #AEAF #hydrogen reduction #DRI #green hydrogen #CCUS #coke oven gas
Background: urgency to reduce emissions in steel production
Figure 1. GHG emission distribution in China
Based on industry estimation, China’s steel industry accounts for around 15% of total national GHG emissions. It is the second largest emitter after the power sector. Thus, it is a crucial part for China to achieve its “3060 targets”.
On the national level, the government target for the steel industry to achieve carbon neutrality is tight. in 2022, the Chinese government released the “Guiding Opinions on Promoting High-Quality Development of the Steel Industry关于促进钢铁工业高质量发展的指导意见” in which it states that the steel industry should reach carbon peak emission before 2030. Although this target is already five years delayed than the China Iron and Steel Association’s previous target, it might still be difficult for small to medium-sized steel companies.
On the industry level, large players have set more lofty goals and aim to reach carbon peak before 2025. For instance, Baowu aims to reach carbon peak in 2023 before cutting them by 30% by 2035. HBIS has divided its carbon neutral plan into three stages: carbon peaking plateau stage (2022~2025), steady reduction stage (2026~2030) and deep decarbonization stage (2031~2050).
Figure 2. Major Steel companies’ carbon neutrality timeline
Key downstream industry users especially the
automobile industry
have put forward new demand for green steel or low-carbon steel from steel mills. In August 2022, HBIS Group and BMW Group signed a Memorandum of Cooperation on building a green supply chain in Shenyang. In November 2022, Baosteel established cooperation with Beijing Benz and will begin to supply green steel to Benz in 2023.
Figure 3. Steel industry downstream user structure 2022
On the international level, foreign policies are also pushing China to accelerate green steel production. Especially the US and the EU have been putting pressure on China.
Three major pathways for cleaner steel production in China
The current predominant method to produce steel in China is still the “Blast furnace to Basic oxygen furnace (BF-BOF)” route. In 2022, about 90% of steel in China is made through this route with the rest 10% produced by Electric Arc Furnace (EAF). This usage rate of BF-BOF in China is considered much higher than the international level 73% and the US level 30%.
Not surprisingly, BF-BOF is the most energy-intensive method to produce steel. Coal is used as the main energy source and reductant agent in the process. About 67% of carbon emission happens in the blast furnace due to the burning of coal which means the key to decarbonising steel production is to reduce the carbon intensity of the reduction agent. Under this method, to produce one ton of steel, around 450kg equivalent coke will be needed, emitting a very high pollution of 2.07 tons of CO2 (scope 1 emission).
To deal with this high pollution from the BF-BOF steelmaking process, three main options exist for Chinese steel producers.
Figure 4. Major steel production methods
1. Hydrogen reduction (10-20% emission cut)
Since most of China’s blast furnaces are still young, hydrogen reduction is implemented as a transition technology in the short term, but emission cut is limited. The basic concept of this process is to replace 10-20% coal with hydrogen in the blast furnace. Hydrogen as a reductant will release H2O instead of greenhouse gas CO2 in the chemical reduction step, thus reducing emissions.
Figure 5 Concept of hydrogen reduction
In China, this source of hydrogen is mostly by-product hydrogen. It is usually recycled from the coke oven gas in the existing process and injected back into the blast furnace after gasification and reforming to increase the H2 concentration. In areas where natural gas resources are abundant, such as Shaanxi, Xinjiang and Sichuan Province, hydrogen from natural gas can also be considered.
The main challenge of this method is the flammability and explosiveness of hydrogen in coke oven gas. Hydrogen has a very wide flammability range (4-75% in air) and can cause fire and exploration when it leaks into the air or under a sharp increase in temperature or pressure. Once exploded, it can move rapidly through the combustion area and damage all nearby facilities. Also, when coke oven gas is injected, overheating issues can happen. This would mostly damage the furnace wall and tuyere thus more frequent maintenance would be required.
This process is piloted by Baowu Group宝武, Xingtai 邢台钢铁, Jinnan Steel Group 晋南钢铁etc. in China and COURSE50 (Japan), ThyssenKrupp (Germany) and POSCO (South Korea) etc. internationally.
Figure 6. Baowu’s Hydrogen-enriched carbon recycling test BF
2. Hydrogen based-direct reduced iron (DRI) (40-50% emission cut, 100% cut with green H2)
DRI is the more promising method of incorporating hydrogen into the steelmaking process. There are two major types of DRI: (1) coal/natural gas based (2) electrolysis based. In China, currently, coal or natural gas-based route (e.g., inject coke oven gas) is the dominant method due to high technology maturity and relatively low cost. But this method generates high emissions during production, thus it is seen as the transition gas option for China now. And unlike BF-BOF, shaft furnaces and EAF are used to replace BF and BOF. Therefore, the facility switch costs could be high, but one large potential of this method is with 100% green hydrogen DRI together with EAF, zero-carbon crude steel might be produced.
However, many problems still exist if a large amount of hydrogen is used.
Firstly, when green hydrogen is produced onsite, the costs of hydrogen especially transportation costs (20% of total production costs) remain high due to the unmatched location between the renewable energy source and steel production base (see figure 7 below). Most of China’s steel production sites are concentrated in the Circum-Bohai-Sea region (especially Hebei, Jiangsu and Shandong) and Jiangsu while China’s most abundant wind and solar resources are in the further north and northwest. This would largely increase transportation costs since long-distance transportation is required.
Figure 7. China’s crude steel production in 2020 vs China's renewable energy curtailment
Secondly, it can
limit production efficiency and product variety
. In the conventional reduction process, the heat source mainly comes from carbon in the BF-BOF route. However, in DRI production with 100% hydrogen, no carbon source is available which can cause two problems. Firstly, low temperatures generated by hydrogen can
l
ower production rates by 30%
. The process of reducing iron ore with pure hydrogen will absorb a large amount of heat and the temperature field in the shaft furnace will sharply drop, delaying subsequent reactions that require large amounts of heat and thus significantly reduce the production rate. This is why now 100% hydrogen is not adopted in many projects. Now, Chinese companies such as Baowu and HBIS use a mixture of CO and H2 from coke oven gas to avoid this issue. Secondly, the lack of carbon content in the steel can make the steel more ductile but weak. Thus,
limited product variety can be made
.
Thirdly,
capital costs will increase
. Hydrogen compressor and high-quality iron ore are needed for DRI. Another chemical aspect of H2, its low density, also has a negative impact. Because the density of hydrogen is much smaller, once it entered the furnace, it will quickly escape upward (see figure 8). However, the major reduction zone is in the center of the furnace not at the top, thus,
hydrogen compressors
will be needed to compress the hydrogen downward. Thus, additional costs are required.
Figure 8. Hydrogen route in the shaft furnace
Also, DRI would require a higher quality of iron ore feedstock that has a Fe content >66%. However, China does not have much high-grade iron ore to satisfy DRI production. Chinese iron ore is mostly low-grade and has an average Fe content of 34.5%. Thus, Chinese DRI producers might need to rely on imported iron ores which further increase costs.
Currently, only one domestic project in China has successfully produced hydrogen DRI. And that is the Shanxi Taihang COG Direct reduced iron project 山西中晋太行焦炉煤气竖炉直接还原铁项目in its 2021 testing phase. This project cooperated with an Iranian firm named Iran MME GmbH and used its DRI technology called PERED. Big Chinese firms such as HBIS group, have also started their R&D project in DRI. In 2019, it signed a strategic partnership with the Italian company-Tenova to jointly develop a DRI project that would produce fossil-free steel with green hydrogen in the future.
Figure 9. Shanxi Taihang Mining Group's PERED shaft furnace
3. EAF and scrap (80-100% emission cut)
This is also an often-highlighted carbon emission reduction strategy and is largely implemented in the US (~70%) and EU (~46%). In an EAF based steelmaking, raw material will be scrap and the main facility is EAF. With 100% scrape, where electricity is used as the main energy input, it consumes about 400 kWh of electricity and emits only about 0.36 tons of CO2 per ton of steel, which is about 80% less than the BF-BOF route.
Although this is a promising method and the Chinese government has been promoting it, its share in China remains low. This is mostly due to the following reasons:
Firstly, there is a shortage of scrap in China. Roughly calculating, to produce one ton of steel we will need 1.13 tons of scrap. China’s measured scrap supply was about 260 million tons in 2022. However, China’s crude steel output has been reaching 1013 million tons in 2022, leaving a huge shortage of scrap supply. Additionally, the BF-BOF process in China now also consumes a large amount of scrap to cut CO2 emissions. Competition for scrap between blast furnaces and EAF has led to an increased shortage of scrap for EAF steelmakers. Because of this, some EAF producers are adding hot iron instead which emits large amounts of carbon dioxide.
Secondly, scrap quality in China is low. About 50% of recycled scrap in China is depreciation scrap, typically including end-products from vehicles, construction materials, ships and machinery. Unlike other developed countries where scrap mainly comes from steel structure in construction, most of China’s construction scrap is from concrete structure, which affects steel purity. Furthermore, scrap detection and selection techniques are also not mature in China. The impurities in collected scrap may cause corrosion and therefore lower the strength when producing high-grade steel products.
Figure 10. Scrap yard operated by irregulated distributors
Thirdly, the steel industry’s electricity price is relatively high in China which further raises the production cost. Electricity price amount to about 11% of EAF steel production cost. The steel industry which is classified as “high energy consumption entity 高耗能企业”, its electricity price will not be subject to the 20% upper limit. This means electricity prices could go up to 40-50% higher than the local coal benchmark price. (See our article about China’s power market【China Raises Cap on Electricity Price: What has Changed and Possible Impact for Business】) Compared with the BF-BOF route, EAF steelmaking needs an extra electricity consumption of about 300 kWh/ton of steel. If we take 0.78yuan/kWh as the average electricity price, EAF producers would need to pay an additional 234yuan per ton of steel. For green electricity which usually premiums 0.02-0.03 yuan/kWh, would translate to an extra 9 yuan/kWh per ton of steel. So far, there is no preferential power price has been implemented by the government yet.
Problems lead to business chances
Within the problems lies greater opportunities. Some of the current issues that continue to be addressed include scrap, reforming technology and green hydrogen. Also as mentioned previously, an immediate switch of the facility to shaft furnace or EAF seems unrealistic. This complex situation also leads to opportunities in technologies that can be applied to existing blast furnaces such as CCUS and biomass. (Our article about CCUS【CCUS in China: Unlocking the Potential Opportunities of Carbon Utilization and Storage】)
1) Scrap quality inspection system
Currently only 50% of scrap is going to regulated collectors with the rest 50% going to the black market. By 2021, the Ministry of Industry and Information Technology has acknowledged about 584 companies in the scrap steel processing industry, but there are in total more than 1,500 non-licensed related companies in the industry. However, scrap collected from non-licensed players is usually easy to mix with multiple materials. Therefore, the establishment of scrap quality inspection system might be a good opportunity.
One example is the “Intelligent Scrap Inspection System 星云废钢智能检判系统” by Cluster星云. Based on artificial intelligence, it is able to do scrap tracking, scrap quality inspection, non-conforming material alarm and abnormal alarm.
Figure 11. Cluster's Intelligent scrap inspection system
2) Reformer
Reforming is one of the most critical steps in the hydrogen DRI steelmaking process. As mentioned, China lacks high-grade iron ore. So reforming technologies that can cope with low to medium-grade iron ore might have huge demand in China.Currently there have been some attempts by some domestic companies to cooperate with foreign technologies. For instance, HBIS’s 1.2 million tons DRI project in cooperation with Tenova in Hebei has deployed a self-reforming technology named “Energiron-ZR”. This technology allows the reduction of iron ore in a shaft furnace without external gas reforming equipment. It operates under high pressure (6-8 bar) and high temperature (>1000 °C), thus different types of iron ores can be used.
Figure 12. Energiron shaft furnace
Another example is Shanxi Taihang (CSTM) COG Direct reduced iron project 山西中晋太行焦炉煤气竖炉直接还原铁项目. In this project, CSTM used a dry reforming technology that it co-invented with the China University of Petroleum. Low-grade iron ore (Fe<30%) can be used which helps to reduce feedstock costs.
3) Green hydrogen and microgrid
Green hydrogen can be a game changer for the iron and steel industry as it can make it possible to completely decarbonize the process. Currently the main bottleneck is its high price and the lack of carbon content it causes. According to RMI research, at about 42 yuan/kg green hydrogen price now, DRI with green hydrogen is about 80% higher than the BF-BOF steelmaking route. The price needs to drop to 21 yuan/kg to be cheaper than CCS and drop below 10.5 yuan/kg to be cheaper than the BF-BOF route.
Although to go green, another way is to join the interprovincial green power trade, but since green PPA is still in the nascent stage in China, self-production of green hydrogen remains an alternative option. Some steel companies have been trying to produce hydrogen on their steel site now. Baowu, for example, has constructed its own hydrogen fuelling station inside its Shanghai steel mill. The main focus is coke oven gas, but also hydrogen production from photovoltaics, natural gas, etc.
In our future vision of a green steel mill (see figure 13 below), green electricity in the microgrid can be used for their EAF, to provide more decarbonization options for steelmakers. Sooner or later, “microgrid + hydrogen + steel mills” structure can be born to decarbonize steelmaking. This could lead to huge business opportunities for microgrid development, distributed generators and water electrolysis.
Figure 13. Future vision of green steel mill
In conclusion, it is expected that in the short to medium future, the main adoption will be EAF and some pilots of hydrogen reduction happening at the same time. The final step would be green hydrogen DRI when the demand for green hydrogen rises and the hydrogen price drop below 10.5 yuan/kg. CCUS opportunities would come around 2030 globally and its deployment is likely to expand most rapidly in existing power plants and factories (steel, cement etc.). Ultimately, due to the immense size of the steel industry in China, the pathways to achieve green production in China still has plenty of room for growth and it is worth keep paying attention to the Chinese steel industry’s decarbonization progress.
Reference:
[1] 东莞证券，2022-2，钢铁行业深度报告
[2] GMK Center, 2023-2, European CBAM will accelerate decarbonization in China
[3] China Briefing, 2023-4, How Will the EU Carbon Border Adjustment Mechanism Impact China Businesses?
[4] Worldsteel Association, 2022 World Steel in Figures
[5] ESTEP, 2019, Green steel by EAF route: a sustainable value chain in the EU Circular Economy scenario
[6] Recycling Today, 2020, The growth of EAF steelmaking
[7] 我的钢铁网，2023，Mysteel参考丨2022年中国废钢铁市场供需平衡分析
[8] RMI, 2021, Pursuing Zero-Carbon Steel in China
[9] Longi, 2022, 深度解析绿氢成本，能否实现平价
[10] 北极星固废网，2021，干货整理！9批共584家符合废钢加工准入条件企业名单发布！
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