TORONTO-The steel industry is at a crossroads. Government policies such as carbon pricing aimed at combating climate change have hit the bottom line of manufacturers, and international pledges may seek further concessions from companies burning fossil fuels.
The CEO of Algoma Steel hopes that the company's expensive investment in the manufacture of "green steel" will help protect it from the industry-wide downturn that previously led to its bankruptcy.
"I will never say never, but we will definitely do our best to minimize or even eliminate this risk," said CEO Michael McQuaid, who plans to reduce the company's carbon emissions by approximately 70 %.
With the economy recovering from the COVID-19 pandemic of reduced demand and from the punitive tariffs imposed by the Trump administration in 2019, Canada's steel industry is currently in a strong position.
This $15 billion industry produces approximately 13 million tons of primary steel, steel pipe and tube products in more than 30 plants in five provinces.
Due to the increase in oil drilling and infrastructure spending resulting in strong demand, the prices of products mainly sold in Canada and the United States have risen, and profits have soared. This is not always the case, as competitors have previously flooded the market when transportation costs were low, thereby lowering commodity prices for metals.
Algoma is taking advantage of the current situation and it said it will position it as a low-cost producer in the future.
Only three months after becoming a public company again, and three years after getting rid of the court protection of creditors (Sault Ste's largest employer). Mary, Ontario, announced a $703 million plan to transform its greenhouse gas-emitting blast furnace into an electric arc furnace to achieve electrification.
This move, supported by the federal government's $420 million and the $306 million combined with Legato, will reduce the carbon emissions of the 120-year-old company by approximately 70%.
The new furnace will mainly use Ontario’s power grid to convert scrap metal into molten steel, which is mainly derived from non-fossil fuel sources.
McQuade said that the electric arc furnace is a proven technology that allows Algoma to adjust production to meet market demand, which is difficult to achieve with traditional blast furnaces, which use coking coal to heat iron ore at high temperatures. Its annual production capacity will also increase by more than 50% from the current 2.4 to 2.5 million tons to 3.7 million tons.
An important driver of this shift is the federal government’s plan to increase carbon pricing to stimulate Canada to reduce greenhouse gas emissions. By 2030, the carbon price per ton of carbon dioxide will rise from the current US$40 to about US$170.
He said that now spending more money to electrify instead of re-adjusting the blast furnace will save carbon costs, improve its ESG image and become the preferred supplier.
Nevertheless, in this border city where the factory has employed several generations of workers, the switch to electric arc furnaces is not without problems.
Local workers suspect that the new technology will further reduce employment. Due to automation, the number of employed people has dropped to 2,500. In Canada, the number of direct employment in the steel industry has fallen by more than half since the 1970s, from 35,000 in 1990 to approximately 22,000.
"If they do well, the impact may be small. The problem is that they didn't negotiate with us, so there are a lot of fears among the workers, such as I will lose my job," said Meg Gingrich, assistant to Ken Neumann, National Director of the Canadian Steel Workers Federation. .
McQuade did not disclose how many positions will eventually be laid off, but he pointed out that hundreds of employees are eligible to retire. He said that the company has always been transparent about why the conversion is needed, and pointed out that there will be a mixed phase where existing and new technologies will run together, and it may not be until 2029 that a full transition can be achieved.
Canada's second-largest steelmaker is not alone, because the industry is adapting to the new paradigm described by McQuade.
The federal government has also used a US$8 billion program to support industrial decarbonization by investing US$400 million in ArcelorMittal Dofasco, and the company is seeking a US$1.7 billion project to phase out coal-fired steelmaking in its facilities.
Canada's largest flat steel producer and Hamilton's largest private-sector employer stated that the project will reduce carbon dioxide (CO2) emissions by as much as 3 million tons per year by 2030.
Canadian steelmakers are already one of the world's most environmentally friendly steelmakers, but the industry is striving to achieve net zero by 2050, by which time global demand is expected to soar by more than one-third from current levels. It is estimated that the steel industry currently accounts for about 7% of the world's carbon emissions.
Catherine Cobden, President and CEO of the Canadian Steel Manufacturers Association, said: "When you emit 16 million tons of carbon dioxide each year and the carbon price is $170, we know we need to solve this problem."
She said that these two conversion projects are part of the journey to net zero, which is not easy.
"I think it almost exists for us. We live in a country that has important climate goals and strong regulatory and carbon pricing mechanisms to support these goals."
Cobden said that achieving net zero will require substantial investment and additional policy support from the government. She said this includes procurement requirements that support the procurement of low-carbon steel and further stimulate the transformation.
At the recent COP26 environmental summit in Scotland, Canada signed the Industrial Deep Decarbonization Initiative, under which countries will require green factors to be considered when purchasing materials including steel.
The United States and the European Union also recently announced their commitment to negotiate the world's first carbon-based steel and aluminum trading sector arrangement by 2024. The agreement will be open to other interested countries, will restrict access to dirty steel in its market and restrict access to the country that dumped steel and caused a global oversupply-namely China.
Cobden said that carbon-based arrangements are expected to drive investment in green steel production, and the new US$1 trillion bipartisan infrastructure agreement is expected to increase demand in the next few years, provided that there are no restrictions on free trade.
Sarah Petraven, director of Canada’s clean energy policy at Simon Fraser University’s think tank, said that steel producers will not currently receive a price premium for low-carbon steel, but stricter procurement rules may boost the price of low-carbon steel. Demand.
She said in an interview: "Of course, as the market becomes more and more competitive, who can produce the cleanest products with the highest quality, may get a premium."
Petrevan said that achieving net zero will require the use of different cleaning technologies, especially the use of green hydrogen, which is in the early stages of technical preparation.
"At present, some of the technologies needed by the steel industry have not been commercialized or have been commercialized, but have not yet been commercialized to the extent that they are easily affordable."
The Canadian Press report was first published on November 21, 2021.
The company in this story: (Toronto Stock Exchange symbol: ASTL)
Ross Mallowitz, Canadian media
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