- Scrap-based EAF could strengthen Europe’s future competitiveness
- India and Gulf states remain well-positioned for competitive DRI production
Traditional primary steel production in central Europe is expected to lose its long-term economic competitiveness, with Europe’s steel industry likely to shift towards scrap-based electric arc furnace (EAF) production and higher-value downstream activities, according to a study by PwC Deutschland previewed by German business daily Handelsblatt.
In its report, The end of the European steel industry… or simply a different one?, PwC assesses the cost competitiveness of different steelmaking routes through 2045 under three scenarios for energy, hydrogen and CO₂ prices.
BF-BOF route expected to become uncompetitive
PwC’s analysis indicates that the conventional blast furnace-basic oxygen furnace (BF-BOF) route will no longer be economically competitive in central Europe beyond 2040 under any of the scenarios examined. Rising CO₂ costs under the EU Emissions Trading System (EU ETS) are expected to significantly increase production costs, with PwC estimating that these costs could double by 2045.
The study also finds that the Carbon Border Adjustment Mechanism (CBAM) may not fully offset Europe’s structural energy-cost disadvantage. Regions with lower energy costs and better access to natural gas, renewable power, green hydrogen and iron ore are therefore expected to gain an increasing advantage in primary steel production.
PwC estimates that by 2030, natural gas-based direct reduced iron-electric arc furnace (DRI-EAF) production in the Gulf states could be around 30% cheaper than comparable production in Europe.
Gulf states and India emerge as competitive green steel hubs
The report identifies the Gulf states and India as particularly well positioned to develop competitive DRI-based steel production, supported by relatively favourable energy costs, access to raw materials and potential availability of low-carbon hydrogen. Within Europe, only Scandinavia is considered capable of maintaining competitive costs for green primary steel production.
PwC therefore finds no scenario in which primary steel production in central Europe remains economically competitive over the long term.
For Germany, this raises questions about the future structure of its steel industry. The country has committed around €5.9 billion in public funding to decarbonisation projects aimed at replacing blast furnaces with DRI plants and renewable-powered EAFs. However, PwC argues that public support alone may not be enough to overcome Europe’s structural cost disadvantage and secure long-term international competitiveness.
Overseas DRI projects highlight emerging production model
The shift is already becoming visible through new projects outside Europe. PwC highlights several DRI and hot briquetted iron (HBI) projects under development in Oman’s Duqm Special Economic Zone, targeting international markets.
These include Jindal Steel’s 5 million tonnes (mnt) per year Duqm project, Meranti Green Steel’s 2.5 mnt/year HBI plant and Vale’s large-scale iron ore processing and HBI hub. PwC also notes that Thyssenkrupp Materials Trading has agreed to purchase 1 mnt/year of HBI from the Meranti project.
These developments highlight the potential for energy-intensive primary production to shift towards regions with more competitive energy and raw-material costs, while supplying semi-finished metallics to overseas markets.
Europe could focus on scrap-based EAF and downstream value
PwC argues that Europe’s future steel value chain could involve relocating the most energy-intensive stage, iron ore reduction, to more competitive regions while retaining higher-value activities within Europe.
European steelmakers could increasingly focus on secondary metallurgy, specialty steels, engineering and advanced downstream processing. European companies could also participate in overseas projects as technology partners, investors or operators while securing long-term supplies of DRI and HBI.
PwC stresses that this should not necessarily be viewed as deindustrialisation, but rather as a restructuring of the global steel value chain and a new international division of production.
Scrap-EAF route offers greater resilience
Ferrous scrap is expected to play a central role in Europe’s future steel industry. According to PwC, EAF production based on domestic scrap represents Europe’s most resilient production route, remaining competitive across all scenarios examined.
However, scrap availability alone will not be sufficient to replace all of the primary steelmaking capacity that could be lost in the coming decades. Europe will therefore also need alternative metallics such as DRI and HBI, particularly as demand for high-quality steel continues.
Higher-value manufacturing key to Europe’s future
PwC concludes that Europe’s future competitiveness will increasingly depend on activities where technological expertise and value addition matter more than energy costs. These include research and development, advanced steel grades, engineering capabilities and industrial clusters connecting steelmakers, technology providers, universities and energy infrastructure.
Overall, the study points to a structural transformation rather than the disappearance of Europe’s steel industry. Energy-intensive primary production could increasingly shift towards regions such as the Gulf states and India, while Europe focuses on scrap-based EAF production, advanced steelmaking and higher-value downstream manufacturing.
Leave a Reply