Potentials for overseas DRI/HBI production
Initial findings and conclusions of 1st internal assessment
Short summary for policymakers
31 March 2023
thyssenkrupp Steel Europe AG
Context
• Steel is the base for many integrated value chains and key for Europe’s strategic autonomy.
• Today, the steel industry emits about 10% of global CO2 emissions, 80% of which are generated in the
initial step of primary steel production – the reduction of iron ore.
• Solutions exist. Traditional blast furnaces using coal as reduction agent must be substituted by hydrogen-
based direct reduction plants in combination with melting units (Direct Reduced Iron – DRI – needs to be
melted before it can be further processed into steel).
• Multi-billion euro investments in this change of technology are underway across Europe, supported by
government funding.
• With DRI as feedstock, steel will become a major off-taker of renewable energy and green hydrogen.
• Cost of renewable energy sources (RES) and hydrogen will largely determine competitiveness of green
steel production in Europe.
• Currently, energy prices in Germany are significantly higher compared to other countries and regions.
Thus, questions arise as to what extent DRI production should rather be established in regions with
abundant RES and thus lower DRI production cost.
• To this end, thyssenkrupp steel carried out an initial cost comparison between local production in
Germany versus potential DRI/HBI production abroad / overseas in order to understand longer-term
strategic options.
2
| 31 March 2023 | Assessment HBI Make vs. Import | Summary for policymakers
thyssenkrupp Steel – “green” steel for Europe’s strategic autonomy
Our first hydrogen-ready DR-plant is underway
3 Our steel: pioneer in green transition
With tkH2Steel, we are becoming a
technological leader for climate-
neutral steel production
2 Our steel: is going green!
1 Our steel: basis for strategic value chains
Central contribution to
CO2 emission
reductions
System-relevant basic
Securing highly
We are an essential part of the
material supply
qualified jobs
hydrogen economy of the future
Basic material of the energy
A climate-neutral, resilient European
and mobility transition
economy needs green steel.
We are pushing ahead with our
green transition and an investment
in breakthrough technology and
Decarbonization on a large industrial scale
Resilient industries of the
securing jobs in future oriented
future
industries.
3
| 31 March 2023 | Assessment HBI Make vs. Import | Summary for policymakers
3
Our steel is going green – we plan to decarbonize already half of our production by 2030
2
Sustainable investments in the future
Direct reduction plant
with innovative melting units
We are replacing blast furnaces with direct reduction (DR) plants and
melting units – while maintaining the range of grades and full quality
With tkH2Steel, we are becoming a technology
leader for climate-neutral steel production
We will replace coking coal with green hydrogen in the medium term
and will be connected to the European hydrogen network from 2027
onwards
Our timetable
Investment approval for first direct reduction plant – total volume
2022
two billion euros
2026
Startup of the first DR plant
Investment plan
Commissioning of second DR plant and production of 5 million
2030
metric tons of low-CO2 steel
Up to
2026 – 2029
Up to
Up to
Climate-neutral production and replacement of all coal-based blast
2045
2026
2030
2045
furnaces with alternative solutions.
4
| 31 March 2023 | Assessment HBI Make vs. Import | Summary for policymakers
In the future all steelmakers will face the question whether to make DRI locally or to buy/import HBI
Options
Build own DR plant on site
Buy/import DRI/HBI
Description
Continue to build DR plants together with melting
Build only melting units on site
units locally (i.e. in Duisburg in case of tk Steel)
Source HBI either with partner or via off-take
Fully benefit from integrated supply chain and
agreements
especially „hot link“1
Key rationale
Long-term competitive energy costs in Europe
• Long term non-competitive energy cost in Europe
Positive environment for investments in large
(for DRI/HBI production)
scale CAPEX projects in Europe (e.g. funding,
• Local incentives to build energy/HBI hubs outside
financing aid,…)
Europe (e.g. subsidies, tax credits, etc.)
Key
All production steps from smelting to steelworks and downstream processes remain in Germany/Europe
principle
No liquid/merchant green HBI market expected in the short to mid-term future
1 Charging of the hot DRI directly from the DR unit into the smelter; compared to sourcing of HBI with the need for re-heating
6 | 1 |
5 3
.0 1
7 Mar
.202 c
3 h 2023 | Assessment HBI Make vs. Import | Summary for policymakers
Different archetypes for external DRI/HBI sourcing have been subject to a first assessment
Key success criteria
Archetype
Location (example) Rationale
Access to sufficient and
Energy hub with upside
Gulf of Mexico/ Favorable RES, access to blue H2,
cheap green electricity for
from subsidies
Texas
favorable infrastructure, possible IRA
H2 production
subsidy access
Access to DRI grade iron
Proximity to iron ore
Green H2 from low-cost grid electricity,
Açu
ore supply and pelletizing
and grid-based green H2
proximity to DR pellets
capacity
Advantageous RES1 and
Proximity to DR pellets from Canada,
Newfoundland
proximity to iron ore
favorable RES (onshore wind)
Access to required
infrastructure, e.g., deep
Favorable RES due to location; high
seaport and bulk logistics
Middle east location with
high share of solar
Various sites
local political interest to further drive
industrialization
power
Offtake agreement with
key customers
Favorable RES (in EU), EU jurisdiction
EU location with
Valencia coast
risk mitigation, possible EU subsidy
advantageous RES
access
Resilience to absorb
uncertainties, e.g.,
Initial focus on green H2, widened to blue H2 and alternative options
technology, regulatory
such as natural gas + CCS
1 Renewable energy supply
7
| 31 March 2023 | Assessment HBI Make vs. Import | Summary for policymakers
7
Initial findings suggest that there is no clear business case for importing HBI
Initial cost comparison
Key drivers
Advantages:
• Delta in H2 costs key driver for attractiveness of HBI
Cost advantages
Cost Disadvantages
import (1€/kg H2 cost delta results in ~60 €/t cost delta
for HBI); access to cost competitive hydrogen import
(e.g. via pipeline from ESP/PRT) may narrow gap
• Funding/state aid schemes for local H2/energy
production (e.g. IRA, industry energy price) may widen
70-90
or narrow the gap
30-60
Disadvantages:
60-180
40-60
• Details on CBAM regulation and impact on cost
40-50
structure to be determined
• Transport: DRI is a very porous and reactive and must
be compacted at a temperature greater than 650° C to
so-called Hot Briquetted Iron (HBI) in order to prevent
corrosion and self-heating (inflammation) during
transport and handling. Compaction of DRI increases
energy demand and adds cost.
Local DR
Energy Funding/ CO2-costs Transport Hot Link
Importing Margin
Sourcing
plant with
• Hot-link: Energy demad in SAF process increases by up
Costs H2 subsidies/ (CBAM)
of HBI from
HBI from
to 40%. While HBI can be charged hot (>500°) in an
smelters
aid
own/shared
3rd
integrated plant, it needs to be re-heatet in case of
facility
parties
shipping
“Make vs. Buy” ist currently not a straightforward decision and vastly dependent on highly uncertain parameters
8
| 31 March 2023 | Assessment HBI Make vs. Import | Summary for policymakers
8
Main conclusions
• We continue our transition roadmap as planned with a first H2-ready, integrated DR/SAF
combination on site in Duisburg and will continue replacing all our current blast furnaces.
• We currently plan to have a second DR/SAF up and running before 2030 and will need to
make our next investment decision latest in 2024. This requires us to closely monitor and
analyse the key parameters, especially the development of energy prices and the
regulatory environment both in Europe as well as in third countries.
• Establishing an industry energy price (e.g. 7 cts/kWh) will be a precondition to unlock
investments in equipment for renewable energy and hydrogen production and thus for
providing infrastructure for a competitive DRI-based steel production in Europe.
• As appropriate, we proactively share facts and figures with the EU and national
governments to inform policy developments and contribute to the further development of
the EU Net Zero Industry Act.
9
| 31 March 2023 | Assessment HBI Make vs. Import | Summary for policymakers
