Steel Sector Could Shrink in Value by 14% without Better Emissions Management

The steel sector is facing significant financial losses from future climate regulation: the top 20 steel giants could see a potential loss of 14% of their value by 2040, according to a new report from CDP.

In order to reduce emissions at the rate required to keep global warming below 2°C, the steel sector must reduce its emissions by 65% by 2050, but cumulative company targets suggest a reduction of less than 50% by that date. At the same time, existing steel production techniques are already close to the limits of their efficiency, so meeting the goals of the Paris Climate Agreement will require a radical change by the industry. This is creating a material financial risk for steel giants, says the CDP report which analyzed a $259 billion grouping of the world’s 20 largest steel companies.

Approximately 86% of the sector’s production is covered by existing or planned carbon pricing markets and, given the scenario of a $100 carbon price by 2040, the average value at risk for these 20 companies would be 14%, according to the report.

“The pace at which the steel sector is reducing emissions is too slow for the transition to a low-carbon economy and it needs to deploy and commercialize radical technologies if it is to avoid looming carbon costs and remain competitive,” says Luke Fletcher, senior analyst at CDP commented.

Recent events at British Steel are an example of the huge financial risks the sector faces, and companies need to show evidence that strategies are being adopted to ensure resilience for the changes ahead, he added.

Giant Chasm

The report also reveals a significant geographical divide between the highest and lowest performing companies. European and East Asian companies have been proactive, setting ambitious emissions reduction targets and investing in a number of innovative low-carbon technologies. Chinese, Russian and US companies lag behind in terms of disclosure and performance across most key areas and have demonstrated little evidence of developing low-carbon technologies.

SSAB, ArcelorMittal, Hyundai Steel and Tata Steel are leading on business readiness for a low-carbon transition while Beijing Shougang, US Steel and Inner Mongolia Baotou Steel are lagging, according to the report.

Necessary for a Circular Economy

More than 90% of metal produced in the world is steel, and the steel sector is responsible for up to 9% of global greenhouse gas emissions from fossil fuel use and industry. With 650 million metric tons of steel recycled each year, it is also the world’s most recycled material and as such has a central role to play in driving forward the circular economy, CDP says.

Water, an at-risk resource, is used throughout the steelmaking process so is crucial to the survival of the steel industry. It is therefore concerning that across the 20 companies, over 50% of inland steel capacity is exposed to risks from decreasing supplies of freshwater and an increase in the frequency and severity of extreme weather events such as drought. Company operations located in China and India are most at risk. 

Some Take Significant Steps…

Encouragingly, some companies are taking steps to decarbonize and six of the companies have delivered technologies that could drive a step-change in emissions performance. These include:  

  • SSAB, which has set a goal to reach carbon neutrality by 2045 across its entire operations, while Hyundai Steel have targeted an 80% reduction in emissions by 2050.
  • ArcelorMittal, which is developing a suite of innovative technologies including Siderwin which uses electricity for the direct reduction of iron oxides, and Carbon2value, a Carbon Capture Utilization and Storage (CCUS) technology to separate CO2 from waste gases.
  • Four companies (ArcelorMittal, Baoshan Iron & Steel, Beijing Shougangand Inner Mongolia Baotou Steel) have partnered with the carbon recycling company Lanzatech, which converts waste gases from the steelmaking process to produce bioethanol.

…Others Lack Disclosure

A handful of companies did not respond to CDP’s 2018 climate change questions. These include Angang Steel, Baoshan Iron & Steel, Beijing Shougang, BlueScope Steel, Gerdau, Inner Mongolia Baotou Steel, NLMK, Nucor and US Steel.

CDP encourages investors to raise this “lack of transparency” in discussions with company management.

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