Is German steel giant stumbling over green steel? – Stainless Espresso

8 October 2024 – The board crisis at German steel giant Thyssenkrupp Steel Europe is barely halfway over when the Duisburg-based steelmaker’s prestigious green direct reduction plant project comes under scrutiny – there is even open speculation that the project will be scrapped. Is the Group now stumbling over green steel? And stainless steel prices have risen significantly in some cases since the end of the Chinese public holidays.

Stainless steel prices in China have risen

Stainless steel prices in China have risen significantly in some cases after the end of the Golden Week holidays. Grade 304 rose by more than 3.8% in some cases, 201 increased by 2.5%, grade 316L by more than 1.6% and 430 rose by up to 1.3% depending on the region. Stainless steel scrap prices also recorded significant gains of more than 3%.

Is German steel giant stumbling over green steel?

Once again Thyssenkrupp Steel Europe, once again crisis, once again miscalculated, misjudged costs or failed to recognise inflation. Now the supposedly green prestige project of Germany’s largest steel manufacturer is under scrutiny. The costs are exploding. The entire project is even being considered for cancellation.

German politicians, above all the Federal Minister of Economics Robert Habeck, are already in crisis mode. And the media are once again showing how they are trying to add drama to the story with large but poorly researched figures. There’s nothing else going on.

Time to shed some light on this.

Direct reduction plant: What is Thyssenkrupp Steel Europe planning?

Thyssenkrupp has been planning a so-called direct reduction plant, which can be operated 100% with green hydrogen to produce direct reduced iron (DRI) from high-quality iron ore, for some time. Important here: Can, not must. The plant can also be fuelled with natural gas or a colourful selection of not-so-clean and rather CO2-intensive hydrogen.

Cost of the DRI plant: 1.8 billion euros

According to tkSE from March 2023, this DRI plant was originally expected to cost around 1.8 billion euros and produce up to 2.5 million MT of direct reduced iron per year. Just around one billion euros were to be financed from tkSE’s own funds as of 2023.

German subsidies totalling two billion euros

The German federal government and the state of North Rhine-Westphalia had promised subsidies totalling around 2 billion euros for the project. Of the taxpayers’ money, 550 million euros are earmarked for the construction costs of the plant itself. The other 1.45 billion is intended to help cover the operating costs with green hydrogen over a period of 10 years and is subject to special conditions.

This means that the new Thyssenkrupp DRI plant will not cost 2 or even 3 billion euros, as is often claimed, but officially ‘only’ 1.8 billion euros, of which the Group will have to raise around 1.25 billion itself.

Did the steelmakers even have the funds for the DR plant?

Given the notoriously empty coffers of the ailing steel group and inflationary pressure, which is probably not entirely innocent in Duisburg, this was no easy task. Because, as we remember, not so long ago, parts of the tkSE Executive Board and Supervisory Board had resigned and left due to a dispute with the parent company. This involved a financing gap of 1.5 to 2.5 billion euros at tkSE, which the mother Thyssenkrupp did not want to finance.

Summarised:

DR plant:

• Total investment costs 1.8 billion euros
• German subsidies 550 million euros
• Remaining costs for tkSE 1.25 billion euros
• Own funds of tkSE 1.0 billion euros
• This leaves a shortfall of at least 250 million euros in tkSE’s calculation, which is at least not officially subsidised.

Green hydrogen subsidies:

• We have of course factored out the energy subsidies of €1.45bn for green hydrogen.

This could also explain the ‘impending’ additional costs in the hundreds of millions, in addition to the already missing funds from the aforementioned financing gap that tkSE needs to modernise its dilapidated plants.

Energy subsidies linked to green hydrogen

However, tkSE can only access these energy subsidies if the company uses green hydrogen in its production. And since, according to the International Energy Agency (IEA), final investment decisions have only been made for 4% of the green hydrogen projects that have been announced internationally, this means that perhaps 2 million tonnes of green hydrogen could be available by 2030 – worldwide, mind you. Not in Germany. And tkSE “only” needs 143,000 tonnes of green hydrogen per year to operate this one small DR plant, or just under 8% of the global capacity expected to be available by 2030.

Tenders for green and blue hydrogen

It is therefore hardly surprising that the Group’s corresponding tenders from February 2024 envisage a reduced use of hydrogen in 2028 and full operation with hydrogen only from 2029. From 2026, the plant will therefore only be operated with natural gas for the time being. It is also not clear whether the plant will produce DRI with clean hydrogen from 2029, as the tender explicitly includes renewable (green) and low-carbon (blue) hydrogen.

Blue hydrogen only low-carbon with the use of CCS/CCU

This is because blue hydrogen is produced from natural gas, the CO2 emissions from which are to be stored or processed using carbon capture and storage/utilisation (CCS/CCU) technologies in the ground and with massive energy input – which are virtually non-existent worldwide and even less so in Germany. In Germany, a corresponding law on the collection and storage of CO2 with CCS and CCU was only passed in May 2024.

1.45 billion in energy subsidies not available for years?

So everything points to the fact that these 1.45 billion euros in subsidies, which are tied by the EU to a so-called ‘conditional payment mechanism’ and can be called up over a period of 10 years, are not actually available to tkSE.

Justified criticism of plans for green steel

It therefore remains to be said: German politicians, and above all Robert Habeck, have a problem because they have to face justified criticism for once again blindly throwing taxpayers’ money at a company that has been failing for years. The Duisburg steelmakers, which once again failed to keep their own figures under control and were also unable to claim enough subsidies. And Brussels’ belief in a green hydrogen utopia, which had already failed when the first calls for a Green Deal with the homeopathically available magic raw material as fuel emerged.

A clear indication that the focus should finally be placed on the backbone of the European economy with its millions of small and medium-sized enterprises and not unilaterally squander billions of taxpayers’ money on a few large corporations.

Are you of the opinion that the whole story is completely different? Then, as usual, we would be delighted to receive fact-based information backed up by sources, which we would be happy to check and add if necessary.

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