PWC study sees fundamental shift in Europe's steel industry

A new study by PWC concludes that Europe's steel industry is facing a fundamental structural transformation driven by rising carbon costs, persistently high energy prices and increasing competition from low-carbon steel producers outside Europe. According to the consultancy, conventional blast furnace steelmaking will no longer be the most economical production route in any region from 2040 onwards.

The report argues that the combination of the EU Emissions Trading System (ETS) and the Carbon Border Adjustment Mechanism (CBAM) is significantly increasing the cost of conventional steel production, while new low-carbon capacity is expanding rapidly in regions with access to inexpensive renewable energy and raw materials.

Three scenarios for Europe's steel future

PWC identifies three possible development paths for the European steel industry.

In an import-driven transformation, Europe fails to lower industrial energy costs sufficiently, leading to a relocation of primary steel production to regions such as the Gulf states and India, while Europe retains mainly secondary steel production.

A second scenario foresees a balanced transition, with Europe expanding low-carbon steel production in Scandinavia while supplementing supply with imports after 2035.

The most optimistic scenario assumes European self-sufficiency, supported by competitive industrial electricity prices and strong industrial policy, allowing Europe to maintain most of its steel production domestically.

However, all scenarios reach the same conclusion: the traditional coke-based blast furnace route steadily loses competitiveness as carbon costs rise.

Green steel projects face delays

The study notes that almost half of Europe's announced green steel projects have already been delayed, scaled back or suspended, raising questions about the pace of the industry's transition.

According to PWC's cost analysis, the Gulf region could produce low-carbon direct reduced iron around 30% more cheaply than Europe by 2030, while hydrogen-based green steel from India could undercut conventionally produced European steel by around 15%.

The report argues that although CBAM equalises carbon costs, it does not compensate for Europe's structural disadvantage in industrial energy prices.

Secondary steel seen as Europe's competitive advantage

PWC identifies steel recycling and electric arc furnace production as Europe's strongest long-term competitive position. The report describes secondary steel as a cost-efficient and sustainable option, supported by the continent's large availability of steel scrap.

However, the consultancy also warns that scrap-based production alone will not be sufficient to replace Europe's declining primary steel capacity.

Industry should rethink value creation

Rather than focusing on energy-intensive primary steelmaking, PWC recommends that European steelmakers increasingly participate in global low-carbon value chains through overseas production, technology partnerships or long-term supply agreements.

For manufacturing activities remaining in Europe, the study recommends concentrating on high-value, knowledge-intensive products, where engineering, certification, precision manufacturing and system integration generate greater value than the raw material itself.

"The conclusion is clear: coal-based primary steel production has no future in Germany," the study quotes Alexander Schröder, Manager for Energy Transition and Decarbonisation at PWC Germany, as saying. He argues that companies in downstream metal-processing industries should begin adapting their value chains at an early stage.

Similarly, Andree Simon Gerken, Partner for Energy Transition and Decarbonisation at PWC Germany, argues that relocating energy-intensive primary production abroad "is not deindustrialisation if it is replaced by value creation based on knowledge, specialisation and systems expertise."

The study also highlights the need for industrial clusters with competitive energy supplies, efficient port infrastructure and close links between industry and research institutions to support Europe's future steel manufacturing base.