Steel, like concrete, is such an integral part of our world that we rarely notice it. From wherever you are reading this, I guarantee that there is steel in your line of sight, and likely vastly more of it than you realize. Whatever device you are reading it on has steel inside of it. If you are looking at anything made of concrete, including buildings, bridges, and parking garages, there are steel reinforcing bars inside of it. Your kitchen has innumerable steel implements and steel inside the brushed aluminum or plastic facades of your appliances. Whatever vehicle you use to move around has steel in it.
Our cities would not stand up and we could not travel within or between them without the metal. The blessings of urbanization, including the lower carbon footprint per person that comes with urban densification, the knowledge working, the shared communities of practice, the economic specialization that has so improved our economies and our lives, and the much greater pool of diverse people to work, play and live among, all would be fantasies without steel. Moving people off of the land as we automate resource extraction and creating the calories we consume is the only reason we don’t have mass famine globally.
But of course that blessing comes with a downside. Global steel manufacturing produces about 7% of the CO2 emissions that cause global warming right now, and consumes about 8% of global primary energy as furnaces consume millions of tons of coal and natural gas to make iron and then process it into steel. And China’s massive infrastructure build-out over the past 30 years has caused steel production to double, with China becoming the largest steel manufacturing country in the world by a factor of ten, and making more steel than the rest of the world combined.
But there is good news in this necessary but challenging space. It’s actually fairly easy to decarbonize steel manufacturing, although the produced steel will cost more, and China is incredibly well positioned to do exactly that.
What does decarbonized steel require? Low-carbon electricity from wind, water, solar, and nuclear generation. Lots of HVDC transmission bringing that electricity to iron and steel manufacturing facilities. Green hydrogen and biomethane for direct reduction of iron ore using the HYBRIT process and related approaches. Electric arc furnaces making new steel instead of blast and open-hearth furnaces. And finally a larger and larger shift to scrapping existing steel and feeding it into electric arc furnaces.
But what about that rapidly rising demand? In my projection, it will flatten out in the coming decades at a level higher than today’s, but it’s not going to accelerate the way it has over the past 30 years. That’s because China is coming to the end of its massive domestic infrastructure build-out. It has built most of the cities required for its rapidly urbanized citizens, and has more housing and facilities for urban living than it uses at present, something referred to as ghost cities, but that should be better thought of as preparation for more urbanization. My projection for peak steel demand in 2060 is 300 million tons under the IEA’s projection for 2050, so as always note that my scenarios tend to differ from others, and it’s not like I’m likely to be around in 2070 for anyone to say that I was wrong. This is a crystal ball with big error bars.
Other geographies will follow China’s pathway, but at nowhere near the pace, because the conditions that allowed China to bloom, a western willingness to outsource manufacturing of vastly increased consumer goods, do not exist today. India developed its economy differently, and while it’s the number two manufacturer of iron and steel now, outstripping Japan and the US in recent years, it was already massively urbanized, had much more infrastructure and will take perhaps twice as long to build the remaining required infrastructure and replace inadequate buildings and the like. South America and Africa will develop more slowly, with very different characteristics of course. The underdeveloped world will need more steel, but it will be consumed more slowly than China’s frantic rush to the future.
The automobile and light road vehicle market is the second largest consumer of steel in the world, roughly 70 million tons in 2020. Patterns around this class of vehicle are changing radically however, and as affluence increases globally, that does not mean western patterns of car fixation will prevail. As the west has increasingly urbanized and gained access to transit, walkable and rideable cities have expanded in number, as electric personal vehicles, especially e-bikes, displace car use, as ride-sharing and car share programs increasingly provide cars when urban dwellers need them, and as the COVID-19 dividend of remote work persists, new car purchases in the west have been dropping, often by double digits. In some cases, such as the US, the 80% of the population experiencing stagnant or even declining real income since 1980 are finding new car purchases out of reach, or so straining for their budgets that they cause bankruptcies. In a recent review, I found that only Germany, of the western countries I looked at, actually had increased year-over-year new car purchases, and that was only at 1%.
But the developing world is not showing strong signs of following in the west’s footsteps. Much greater urban densities are the norm in the developing world, not the exception. 90% of Asians live in multi-unit residential buildings, not sprawling urban suburbs, and there’s little indication that is going to change. Vastly more people in south and east Asia have access to transit. Major South American cities such as São Paulo and Rio de Janeiro have strong transit systems. Singapore is working to have 80% of its citizens within 400 meters of a subway stop, and has capped the total numbers of cars and light vehicles at present levels. While China’s new car purchases grew 23% year-over-year and they are presently at one registered road vehicle, including cars, trucks, motorcycles, and buses, for every 2 of 10 people, there is no reason to believe that they will approach anything like the USA’s one vehicle for every nine of ten people. Growth in car steel demand, yes, albeit for electric cars, but nothing like the ratios of steel for cars to people seen in the west. And those new cars, of course, turn into scrap steel in 10 to 15 years.
One of the biggest consumers of iron and steel in the world, the fossil fuel industry, which is subsumed in the 55% of steel that buildings and infrastructure consume, will turn from a net consumer of steel to a supplier of scrap steel for decades to come. Peak coal demand occurred in 2013 with a brief return in the energy crisis of 2022. Peak oil demand is quite possibly before 2030, per analyses by Equinor, McKinsey, and the IEA. Peak natural gas is likely in the mid 2030s. With peak demand comes the start of decline and instead of new pipelines and refineries and oil tankers, we’ll see scrapping of these massive tonnages of steel. America’s pipelines alone have four years worth of steel demand for that country embodied in them.
The 50 years of work undertaken globally to reduce population growth are paying dividends. Peak population is coming, sometime between 2070 and 2100, per respected demographic institutions. That will bring its own challenges, and some countries are already facing them with aging work forces and often declining populations. But those are challenges that we are already building solutions for, and will have in hand when it becomes problematic. A steady or even declining global population will reduce demand for new steel.
One of the major wedges in controlling population growth, however, is increased affluence. More security and income, fewer children. That’s an empirically stable result globally, with even religious groups which push large families such as the Church of Latter Day Saints in the US seeing children per family drop by half since 1980. But more affluent people consume more steel. China took 850 million people out of poverty and out of lives in rural areas scraping calories from the land like bipedal locusts into having a purchasing power parity for the average person higher than that of people living in the US in 30 years. And steel demand reflected that. As people become more affluent, there is more steel demand.
But low-carbon steel made with green electricity, green hydrogen, and biomethane from iron ore mined with electric vehicles using the HYBRIT direct reduction process and similar carbon-neutral innovations is more expensive than iron ore yanked from the earth by diesel equipment and shoved into blast furnaces with massive amounts of coal. This is a necessary price the world will have to pay in order to put global warming and climate change behind us, and we will figure this out. China’s carbon market is already five times the size of the EU’s and more is being swept into both of them. Coal generation is being mothballed globally through regulation and cheaper renewables, and China’s massive growth of renewables will shutter its coal plants too. We are in the midst of an enormous global transformation.
In my projection, we’ll reach peak steel demand around 2060 and then it will be fairly flat through 2100. And peak new steel demand will likely occur perhaps a decade earlier, then decline. We will still be digging iron ore out of the ground for the rest of the century, as it’s required to provide the quality steel we require when combined with scrap in electric arc furnaces, but it will no longer be a growth industry. Steel’s maximum circular economy of perhaps 75% scrap to 25% new steel will have arrived. I suspect I’m being too conservative on the ratio of new steel to scrapped steel, and that it will end up being lower, but this seems like a safe projection for now. As always, my projections are Bayesian, in that they are informed by the best information available, but change when new data arrives.
Open hearth and blast furnaces will go cold and silent, and be cut up for scrap. Both electric arc furnaces and direct reduction of iron ore will begin to use solely low-carbon electricity, and their supply chains will be decarbonized. The resulting carbon curves will come in another assessment, but they are promising. Watch this space.
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