By Paul Homewood

There was some discussion on Harrabin’s thread yesterday about “green steel”, supposedly a new process which was going to save the planet!

The link refers to something called DRI (Direct Reduced Iron), through which iron ore can be reduced (the oxygen taken out) by heating to around 800C with hydrogen, producing sponge iron.

The idea is that this can be fed into steel furnaces instead of pig iron produced by blast furnaces using coke. (Carbon is added in the steel furnace).

What the Harrabin’s green cronies don’t seem to realise is that DRI is not a new invention, far from it. There is still, for instance, a DRI plant in Hamburg, run by Arcelor, which was constructed in 1971.

World DRI output reached 108 million tonnes in 2019, but this is tiny in comparison to world steel production of 1869 million tonnes.

The only difference is that these existing plants use coal or gas, instead of hydrogen.

DRI does have certain advantages. For instance, blast furnaces are only really economically viable as part of large integrated steelworks. On the other hand, smaller DRI units can operate alongside mini-mills.

It is also true that blast furnaces need good quality coking coal. It is noticeable on the above chart that Iran, Russia, Mexico and Saudi top the list, all with access to cheap gas supplies. Equally India at the top has plenty of coal, and non-coking coal can be used as a reductant.

However the fact that DRI is still a bit part player tells you all you need to know about its competitiveness. After all, if was such a good process, steelmakers around the world would be queuing up to install them.

Hydrogen, particularly from electrolysis, is several times the cost of natural gas, so this new “green steel” is likely to be extremely uncompetitive. And that is before we consider the implications of intermittent wind power!

There is also another factor. Coke ovens produce gas as part of the process, and this is used in other parts of the steelworks, such as rolling mills. DRI does not have this benefit, so extra energy would be required.

The clamour for new DRI plants in Europe ignores economic realities. The European steel industry has stagnated in recent decades, in the face of cheap imports. Steelmakers neither have the money nor profit incentive to spend tens of billions replacing existing kit.

Even more so, as producers in China, India and the rest of the world are unlikely to follow suit, thus increasing the competitive gap.

The cost of new investment will either have to be funded by taxpayers, or made profitable with the help of carbon taxes and high import tariffs. Either way, Europeans will pay the bill via higher taxes and/or inflation.

In the long run, with the help of policies such as these, Europe will increasingly become an irrelevant, self obsessed backwater. Nobody will want to buy its expensive exports, which in any event will be badly hit by retaliatory tariffs by China and elsewhere. And Europeans will not be able to afford to import.

Meanwhile Asia will plough ahead, supplying the rest of the world with what it wants.

Too pessimistic? We actually have a very comparable example in recent history – the USSR.

For different reasons, the Soviet economy became less and less competitive and efficient, as it looked ever more inward. Industry suffered from a lack of investment, and became increasingly obsolete. Bloated centralised bureaucracy sapped any entrepreneurial spirit and innovation. And its citizens grew ever poorer in relative terms.

This is Harrabin’s bright new future.


January 27, 2021 at 08:48AM