The global steel sector faces a period of rapid change and uncertainty. While substantial growth in steel demand is projected over the coming decades, decarbonization and escalating trade tensions are reshaping the competitive landscape for companies and regions alike. More than ever, steel companies must adopt integrated strategies that provide flexibility to adapt to near-term market dynamics while ensuring long-term resilience and sustainability.
Despite some scaling back of decarbonization regulations in the United States and other regions, we still expect demand for lower-carbon steel, typically produced in electric arc furnaces (EAFs) from scrap or direct-reduced iron (DRI), to grow. In part, this will be because of increasingly ambitious regulations in regions like Europe and voluntary commitments by steel end users, including automakers, to decarbonize.
S&P Global Market Intelligence forecasts that close to 800 million tonnes of EAF steel will be produced by 2035, up nearly 50% over the 530 million tonnes produced in 2024. That would raise EAF’s share of total steel production from 29% in 2024 to 40% a decade from now.
While EAF steel has a lower carbon intensity than steel produced in basic oxygen furnaces, not all EAF production qualifies as low carbon. Based on International Energy Agency (IEA) classifications, low-carbon steel carries a carbon footprint of below 0.4 tonnes of carbon dioxide (CO2) emitted per tonne of primary steel produced with DRI and 0.05 tonnes of CO2 per tonne of scrap-based steel. To get to these levels requires a combination of EAF, low-carbon energy, and low-carbon hydrogen (in the case of DRI).
Both lower-carbon production routes will require more EAF capacity in order to fulfill projected demand. Yet the economics governing the return on investment of scrap-based low carbon steel and DRI-based production vary significantly. We look at the competitive advantages of certain regions to understand how the marketplace may evolve over the next decade in terms of supply.
US steel producers have competitive advantages in scrap and low-cost electricity
The US is well-positioned to lead in a circular economy approach to low-carbon steel production because of its abundant scrap steel supply and low-cost power. While tariffs increase costs for steel end users, they also provide added rationale for investment in expansion of domestic production by international players eager to gain a more solid foothold in the US market. For instance, in addition to incentives from the 2022 Inflation Reduction Act (IRA) and the 2021 Infrastructure Investment and Jobs Act, tariffs are a factor in plans by South Korean automaker Hyundai and steelmaker POSCO to invest $5.8 billion in a new EAF steel mill in Louisiana that would supply auto plants in Alabama and Georgia.
The US is a global leader in EAF penetration and steel and iron recycling, consuming over 57 million tonnes of iron and steel scrap and exporting almost another 14 million tonnes in 2024. Steel production is the primary user of iron and steel scrap. An expansion in domestic EAF production could be supported by exporting less scrap and further investments in scrap collection infrastructure, although the US already recycles between 80% and 90% of its scrap steel.
Over the long term, the US is also expected to expand its production of low-carbon primary steel, which depends on DRI from high-grade iron ore. In 2024, US consumption of DRI rose 7.1%, according to the US Geological Survey. But limited reserves of high-grade iron ore and potential tariffs on imports of the ore from Brazil, Canada, and elsewhere could complicate that expansion.
Low-carbon steel also relies on low-carbon electricity and hydrogen. But the potential removal of government incentives for low-carbon hydrogen and power development, put in place under the IRA, may also slow the expansion of US low-carbon primary steel production.
European regulation and end users continue to expand demand for low-carbon steel
Despite recent changes to the Carbon Border Adjustment Mechanism, European regulations still justify a shift toward lower-carbon steel for companies with sales in the European Union (EU). End users, such as the automotive, energy generation, and construction industries, are also demanding low-carbon steel to meet their own commitments to lower greenhouse gas emissions, particularly in Europe.
The region continues to support the development of low-carbon hydrogen and already has a high share of renewables in its power mix, giving an advantage to steel producers looking to expand their low-carbon steel production. One of the largest low-carbon steel production facilities globally is located in Sweden.
However, due to higher-than-average energy costs and the capital intensity of new EU steel production capacity, Europe will most likely rely on other regions to produce much of the low-carbon primary, circular, and raw steel it will need to meet its growing demand.
Middle East set to compete in low-carbon steel production
Middle Eastern steelmakers also have advantages that will help the region increase its export of low-carbon primary steel to Europe over the next decade. While not one of the biggest producers globally at 54.1 million tonnes in 2024, the region is already a leader in DRI and EAFs, using EAFs for over 95% of its production. Its greatest advantage lies in energy resources, particularly low-carbon sources like solar and emerging nuclear power.
Governments in Saudi Arabia, the United Arab Emirates, and other countries in the region have been investing in these resources in recent years, as well as in low-carbon hydrogen production. In addition, consistent government support, especially for solar power and steel production, may enable investment and development to occur more swiftly than in many other geographies.
In the largest steel-producing country, legacy assets pose challenges
China is the world’s largest steel producer by far, producing over one billion tonnes of crude steel annually. China could become one of the leading low-carbon steel producers, given its proximity to Australia’s reserves of high-grade iron ore. It has also provided incentives for the development of low-carbon hydrogen.
However, a reliance on emissions-intensive blast furnaces and basic oxygen furnaces for over 90% of production and pressure to support its coal mining industry will pose challenges on the path toward low-carbon steel.
The rising demand for steel represents an opportunity and a challenge
The global steel industry is projected to grow by 15% to 30% by 2050. Steelmakers face the dual challenge of meeting this demand amid persistent market volatility, while simultaneously reducing emissions. Currently, the industry averages 1.9 tonnes of carbon dioxide (CO2) per tonne of steel produced, contributing approximately 3.6 billion tonnes of CO2 emissions, or about 11% of global industrial emissions. According to the International Energy Agency, average steel emissions intensity must decline to 0.6 tonnes CO2 per tonne of steel by 2050 to meet climate goals.
Achieving this target will require significant investment — estimated at between $2 trillion and $3 trillion globally — to build the necessary infrastructure. Companies that develop resilient, integrated strategies will be best positioned to capitalize on this investment and meet the growing demand for steel.
How steel producers can remain resilient in the long-term
Steel producers globally are pursuing opportunities to build long-term value and resilience across the value chain, including:
Suppliers. Key inputs, such as iron ore and reducing agents (for DRI), low-carbon energy, and transportation rely on development of a robust and resilient supplier base and present an opportunity for innovative investments and partnerships. Some steel companies are increasingly investing further up the value chain, such as in wind power generation, in their effort to expand low-carbon steel production.
Iron and steel production. Production is responsible for both the highest costs and the highest emissions. To ensure a sufficient supply of high-grade iron ore for DRI-EAF pathways, mining giants are investing in both enhanced beneficiation upstream and downstream technologies like electric smelting furnaces. Steel producers will rely on these enhancements and related innovations in technology to expand DRI-based production. Process outputs, such as heat, offer additional opportunities for both circularity and new value streams, as some companies have demonstrated.
Customers. Automotive, energy, construction, and technology end users are trying to pair high volumes with commitments to reduce emissions. These companies are signing low-carbon steel offtake agreements, investing in greenfield steel plants, and joining buyers’ clubs to ensure sufficient supply. Decoupled book and claim offers are a growing option that steel and iron producers are pursuing to meet this demand and fund their large-scale decarbonization investments, while overcoming physical supply chain constraints.
Funding and financing. Financing for low-carbon steel must often be drawn from both public and private sources. In Europe, for instance, $5.5 billion in public subsidies have been awarded to six major green steel projects, according to a 2024 white paper by Industrious Labs and Public Citizen, with a median subsidy of approximately $385 per tonne of iron capacity.
Other stakeholders that influence strategy and operations. Policymakers, regulatory bodies, communities, non-governmental organizations, activists, and market platforms like industry associations all simultaneously enable and challenge strategic industry goals, making education and engagement vital.
The scale of the challenges necessitates an even more holistic transformation. An integrated strategy requires a cohesive top-down view across all these elements — one driven by senior management and committed to performance and decarbonization milestones. Only then will companies be better positioned to anticipate shocks to their operations and the steel ecosystem and formulate strategies to address them.