Record-high steel prices could hamper renewable rollout in near-term

Russia’s invasion of Ukraine has roiled the oil and gas markets, and it could soon impact the renewable energy world, too.

Along with the historic surge in the cost of other key climate-tech materials, like nickel, steel prices have hit record highs. The cause? Supply constraints and soaring energy costs resulting from the war in Ukraine.

Steel is essential to building out clean-energy tech. Electric vehicles, wind turbines, solar panels, geothermal and hydrogen plants—they all require significant amounts of the metal. Wind turbines, for example, are more than 70% steel.

The higher prices could slow the push for renewables in the near term, especially as the world turns its attention to more immediate priorities, like the war and the risks it poses to food and fuel supplies.

“Will a price spike in the price of steel have any impact on energy transitions? Maybe in the short term,” Morgan Bazilian, an energy expert and director of the Payne Institute for Public Policy at the Colorado School of Mines, told Emerging Tech Brew. “That has an impact, but I don’t think it’s probably a lasting one. But certainly there’s a period of time here where the same momentum that was gathering [around decarbonization] is not happening.”

The price per ton for steel in Europe rose above $1,500 on Friday, March 18, as the EU agreed to ban imports of Russian steel, and traders braced for the impact. Russia is the world’s third-largest exporter of steel, and the EU’s decision is expected to affect about $3.6 billion worth of products.

The ubiquity of steel

Steel and iron—which is used to make steel—are by far the most commonly used metals, accounting for 95% of all the metal produced globally each year. Demand for iron and steel has more than tripled since 1970 and is expected to continue to rise.

The EU’s sanctions ban imports of most finished steel products but do still allow for some steel inputs, which many steel mills in the EU source from Russian exports. Industry experts do not expect a shortage of steel, but the pressure on the supply chain is driving prices up, and that means building the hardware for renewable tech could become more expensive.

As with the nickel price spike in early March, Bazilian says the big takeaway here is that governments and businesses can’t think about these critical materials for renewables in the same way as the oil and gas market.

“The energy transition will be more mineral- and metal-intensive than the current system is, [and] not from the same kind of things that are mined. So not from coal, but from cobalt, and nickel and steel, and aluminum, and silver, and all these things,” he said. “It’s just a new economic and security paradigm that hasn’t been the center stage before.”

A circular problem

Compounding the problem of Russian supply is that steel is itself extremely carbon-intensive to produce, meaning as fuel prices rise, so does the production cost of the metal. Even before the sanctions, European steelmakers were cutting back production due to higher energy prices following the invasion of Ukraine.

The iron and steel industry is the largest consumer of coal (after electricity generation) and the biggest emitter of greenhouse gasses among heavy industries, producing at least 7%–9% of global greenhouse-gas emissions.

Steel is also one of the most challenging industries to decarbonize, says Bazilian, who recently co-authored a study on the topic. The difficulty is due to elements of the process itself—such as high heat requirements and the use of carbon—as well as economic and political factors—like low profit margins, high capital intensity, long asset life, and trade challenges.

Steel producers in the US are taking some steps toward more renewable energy, implementing more sustainable processes, and increasing the share of steel made from recycled materials. In 2020, about 70% of US steelmaking came from electric-arc furnaces, which emit less CO2 than burning fossil fuels, according to the American Iron and Steel Institute. Globally, only about 26% of all steel was made using electric-arc furnaces that year.

However, because of the high energy costs in Europe since the invasion of Ukraine, the industry expects steel plants in the EU using electric-arc furnaces—where power makes up a greater proportion of total costs—to experience more losses than those using coal-fired furnaces.

“When the price of steel goes up, it does impact those technologies and [the] energy transition, as well as the rest of the economy, because, of course, it’s in buildings. It’s ubiquitous,” Bazilian said.

However, Brazilian emphasized, these disruptions are of much lesser concern than the violence in Ukraine itself.

“The focus should not be on market dynamics or decarbonization; [the] focus should be on saving lives,” he said. “When you work back from saving lives, you then work back from revenue to [the] Russian government and that revenue—from those steel products, especially—is significant to the European Union.”