The steel industry will reach an historic milestone in 2025, with Sweden expected to produce the world’s first truly zero-carbon emission steel. This breakthrough marks more than just a technological achievement – it is the dawn of a new era that will reshape pricing, markets and supply chains. For stakeholders across the steel value chain, this moment presents both unprecedented challenges and enormous opportunities.
As we prepare for the arrival of carbon emission-free steel, it is critical to understand the implications for pricing models, market dynamics, and the way supply chains will need to evolve. The key question for the industry is no longer whether zero-carbon steel will happen – it is how to adapt to a world where it becomes the norm. To succeed, stakeholders must adopt new strategies, embrace transparency, and collaborate more deeply than ever before.
Energy costs pose an additional challenge. In traditional EAF steelmaking, energy accounts for 15-20% of production costs but in new hydrogen-based DRI/EAF processes, this could rise to over 40%, reflecting the energy-intensive nature of hydrogen production.
Regulatory pressures, such as the EU’s Carbon Border Adjustment Mechanism (CBAM), which comes into full effect in 2026, further complicate operations. While CBAM incentivizes decarbonization by protecting low-emission producers from cheaper high-carbon imports, it also pressures steel mills to accelerate investments in green technologies to stay competitive in a changing global market. Rising energy costs and potential supply chain bottlenecks add financial strain, requiring steelmakers to adopt more agile production and procurement strategies.
Industries like automotive and construction face dual pressures to reduce carbon footprints while controlling costs. Green steel promises a lower-emission alternative, but its premium – which has consistently tracked at an additional cost of 20-40% across Fastmarkets’ global suite of green steel differentials – remains a stumbling block for many end users.
The solution lies in strategic partnerships between steelmakers and end users, with long-term offtake agreements that balance costs while ensuring supply chain sustainability. Certification standards, still evolving, will become critical to verifying claims and aligning procurement decisions with climate goals.
For middle players such as traders, distributors, and service centers, the green steel transition adds layers of complexity. Managing inventories that include traditional, low-emission and zero-carbon products introduces logistical challenges, while pricing volatility and regulatory compliance add further strain.
The EU’s upcoming Waste Shipment Regulation, which limits scrap exports to non-Organisation for Economic Co-operation and Development (OECD) countries, will increase competition for high-quality feedstocks within the EU. Middle players must adapt to tighter supply conditions, rising prices, and shifting trade dynamics to maintain their roles in the value chain.
As steel production increasingly pivots to hydrogen-based and EAF technologies, raw material producers face growing demand for higher-quality inputs like DRI-grade iron ore and quality scrap. To meet this demand, these producers may need to innovate by developing methods to improve the quality of lower-grade ores or increase the efficiency of extraction processes. The EU’s upcoming restrictions on scrap exports to non-OECD countries will further disrupt traditional supply chains. Scrap producers will need to adapt by enhancing the quality of their materials through better sorting technologies or exploring regional supply chains to comply with the regulations. Strengthening relationships with steelmakers and securing long-term contracts will be key to ensuring a steady demand for premium materials as steel mills shift toward low-emission production.
Green steel projects require enormous capital investments, often without guaranteed returns in the short term. For financiers, this raises questions about risk and reward, particularly as regulatory environments evolve. Financial instruments like sustainability-linked loans and green bonds are increasingly critical, and their effectiveness depends on the availability of consistent benchmarks for green premiums.
Financiers also face pressure to align with environmental, social and governance (ESG) goals, and the complexity of valuing decarbonization efforts presents both a challenge and an opportunity. Those who can effectively quantify and mitigate risks tied to green steel investments stand to play a pivotal role in enabling the sector’s transformation.
Collaborative initiatives are essential for navigating the complexities of green steel production. Multi-stakeholder efforts such as UNIDO’s (United Nations Industrial Development Organisation) Industrial Deep Decarbonisation Initiative, and the Climate Group’s SteelZero, bring together policymakers, producers and end users to align on decarbonization goals and drive systemic change.
These platforms help stakeholders address overlapping challenges, from standardizing low-emission certifications to developing frameworks for sustainable supply chain finance. By fostering collective action, they reduce uncertainty and promote scalable solutions.
The global push for decarbonization is colliding with escalating trade tensions. Tariffs on steel and its raw materials could undermine efforts to create open markets for green steel. The CBAM rollout might trigger friction with trading partners, with some viewing it as protectionist.
But this challenge opens the door to regional collaborations. Agreements between climate-aligned countries could streamline trade for green steel, providing a much-needed competitive edge for low-emission producers.
Decarbonization is as much about people as it is about technology. The shift to green steel production risks leaving traditional steelworkers behind, especially in regions dependent on emissions-intensive plants. Without investment in retraining and support, the transition could exacerbate inequality.
Yet, the human dimension also presents an opportunity. Companies prioritizing a just transition will attract ESG-driven investors, build stakeholder trust, and gain a competitive edge by integrating social considerations into their business models.
The road to decarbonization in 2025 will be defined by:
• The first zero-carbon steel production in Sweden, setting a global benchmark.
• The phased implementation of CBAM, reshaping trade flows and emissions accounting.
• The fine-tuning of international standards for low-emission steel, providing long-awaited clarity for buyers and sellers.
• Supply-chain disruptions in scrap and iron ore markets, necessitating greater agility and foresight.
• Gradual energy sector transformation in Europe to feed new DRI capacities.
Reliable market intelligence will be critical for navigating this new frontier. Clarity of pricing across the entire steel value chain – from raw materials and semi-finished products to finished goods – provides a foundation for informed decision-making. Fastmarkets’ robust pricing solutions, including green steel and green ferroalloy differentials, empower stakeholders to manage volatility, enhance transparency, and build confidence in their strategies.
With the right tools, insights, and collaborations, the steel value chain can transform the challenges of 2025 into pathways for growth and leadership in a decarbonized future.
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