Among the three big "D"s, Digitalization, Demographics and Decarbonization, decarbonization remains probably the greatest challenge facing the metallurgical industry. This is confirmed by a new study by the "HySteel" commission of the German Hydrogen Association (DWV), which uses three scenarios to show how the Green Transformation will impact the labor market in the metallurgical industry. The most important immediate finding of the analysis is that only a comprehensive transformation of the primary steel industry will guarantee job retention. If the transformation is carried out half-heartedly and only to a certain extent, the industry will be threatened with massive job losses, also and in particular along the downstream value chains.
It is important to note in this context that by "comprehensive transformation" the analysts mean that all blast furnaces currently operated in Germany would be replaced by direct reduction plants. This would result in CO ₂ emissions in the process approaching zero. To achieve this goal, however, there would be another option: instead of producing directly reduced iron in the form of sponge iron on site in Germany, this primary product could also be imported pressed as HBI - Hot Briquetted Iron. However, this would mean that the primary steel industry in Germany would only be concerned with further processing into steel in the melter or electric furnace. The major advantage of this "route" is that the billions of euros needed to build DRI plants would not have to be raised.
In the study, the advantages and disadvantages of DRI plants and HBI imports are weighed up in detail. The clear result: all steps of the value chain would be better left at the site. In overall economic terms and for reasons of future security and independence, comprehensive transformation is clearly preferable to partial transformation coupled with DRI outsourcing.
The first argument in favor of importing sponge iron is that it can be purchased cheaply abroad in regions with low electricity prices. In the case of domestic production of sponge iron via direct reduction, higher costs would be incurred due to the comparatively high producer prices for green electricity and hydrogen. Quoting from the study, "If DRI plants are built in Germany, hydrogen and electricity will be needed in large quantities at competitive conditions."
However, according to the study, the major advantage of domestic pig iron production is its independence from third-party suppliers. According to HySteel analysts, scarcity and risk surcharges must be expected in this context, because HBI is not yet widely available on the market for the time being. Other arguments in favor of "DRI at home" are the lower transport costs, an already well-developed infrastructure, such as the existence of ports for iron ore handling, and the elimination of the margin as a surcharge on the manufacturing costs of HBI.
However, according to the study, costs are also of decisive importance in favor of "DRI at home": HBI imports would first have an average advantage in prime costs of an estimated €50 to €150 per ton of sponge iron due to their cheaper production abroad.
However, domestic DRI production would more than compensate for this cost disadvantage through the loss of margin as well as cost savings elsewhere, so that "DRI at home" would still have a cost advantage of €70 to €80 per ton of sponge iron compared to "DRI abroad" despite the high green energy prices and despite the generally high location costs.
Important note in this context: the HySteel analysts assume competitive hydrogen prices in the study. Without them, the cost comparison could possibly be different. The HySteel experts therefore oracularly state:
"Energy costs on the one hand and the structure of an evolving HBI market on the other will ultimately be the key determinants."
The labor market is transforming along
In addition to shedding light on the cost side, however, the study focuses primarily on the implications for the labor market. How does the employment situation change with a full conversion of German blast furnaces to DRI technology versus only a partial conversion.
Around 380,000 people are currently employed directly or indirectly in the German steel industry: 64,000 in the primary steel industry, 230,000 at suppliers and service providers, and around 84,000 through induced effects.
However, if the industries dependent on steel are included, a total of 5 million people are dependent on the steel industry.
Against this labor market background, the experts run through three possible exemplary scenarios:
Scenario 1 "Base scenario"
Here, the study assumes a complete transformation, i.e. 100% of German blast furnace capacity is replaced by DRI plants.
This is determined in three waves: The 1st wave until approx. 2028 is already underway. Here, the experts already include very concrete data on the expansion of direct reduction facilities, e.g. from Germany's biggest steel producers ThyssenKrupp, ArcelorMittal and Salzgitter AG. Implementation of the 1st wave is assumed to be highly probable. The 2nd wave is scheduled to run until approx. 2033 and the 3rd wave until approx. 2036. According to the scenario, sponge iron production will then fully reflect the capacity of current pig iron production.
According to the study, the base scenario is expected to have almost neutral effects on employment and value added. It is true that the green transformation would lead to the loss of jobs in coke plants amounting to around 1,100 jobs and concludes that 1,080 fewer jobs would be needed in 2036, when all blast furnaces have been replaced by DRI plants. However, this loss would be offset by new jobs in hydrogen production and recycling activities.
In addition, the study expects an increase in employment for the start of the conversion to DRI technology, as the construction of the DRI plants will create jobs.
This scenario assumes a transformation or blast furnace conversion rate of 66% and thus relates to waves 1 and 2. The scenario assumption is that while all blast furnaces will be closed by 2036, there will not be enough DRI plants by then and thus total pig iron/sponge iron production will be only two-thirds of what it was in 2022. The occurrence of this scenario would be associated with job losses and thus value creation based on wages and salaries.
According to the study, a two-thirds transformation would result in a loss of between 12,000 and up to 101,000 employees. 12,000 in the primary steel industry directly, indirectly at suppliers and through income-induced effects. Up to around 100,000 employees if possible effects on downstream processing are included. If part of the pig iron production moves out of Germany due to a lack of production capacities, it is to be feared that other parts of the value chain will also move away. The average figure of 56,000 job losses is a realistic scenario for a transformation of only 66 percent.
In terms of value added, the study estimates a loss of €3.2 billion per year based on the average value.
Scenario 3 the "50/50 transformation".
Here, the study assumes a 50% transformation (wave 1 plus). As in scenario 2, pig iron production is completely discontinued from 2036. However, the production of sponge iron is just half the level of 2022. HySteel analysts also assume that a large part of the further processing will then have shifted or will shift to third countries, just like half of the pig iron production.
According to the study, this scenario is likely to result in job losses of between 17,000 and 177,000 employees. The somewhat more realistic median would therefore be 96,000 employees who would no longer have a job in the steel industry.
Around €5.45 billion in value added would be lost each year as a result. In 2022, total value added based on wages and salaries in the primary and secondary steel industry alone would amount to €21.3 billion.
Project manager Clemens Orlishausen from DWV summarizes the results of the study thus:
"The study results make it clear that green steel can be produced competitively and profitably in Germany in the future from a business perspective. For this to happen, the framework conditions must be designed accordingly so that we succeed in achieving a complete transformation, including the pig iron stage.
If, on the other hand, part of the value chain - the hot metal stage - is only partially transformed, there is a risk of considerable negative effects on employment and value creation in Germany. The HySteel Expert Commission will enter into dialog with political decision-makers on this issue and continue to campaign for the preservation of the domestic steel industry and well-paid industrial jobs in Germany."