Steel Prices Down, But Green Steel Up One Hundred: BofA By Investing.com

Investing.com — The European steel industry is facing a unique situation. Prices of traditional steel have fallen due to market pressures, while “green steel” produced by environmentally friendly methods commands a premium.

This trend signals the growing importance of sustainability in industrial production and the willingness of certain market segments to pay more for environmentally responsible products.

In 2024, steel prices in Europe recorded a downward trajectory. According to analysts at BofA Securities, several factors contributed to this decline.

Key sectors such as construction and automotive, which are large consumers of steel, are experiencing reduced demand.

“A weak construction sector, combined with weak economic activity in almost all key customer sectors for steel strip and profile products, kept demand low,” the analysts said.

The fall in traditional steel prices in Europe in 2024 was driven by several interrelated factors. Economic slowdowns, rising interest rates and ongoing geopolitical uncertainties have collectively dampened overall steel demand.

In addition, the European market experienced an influx of steel imports from regions with lower production costs, which intensified competition and put additional downward pressure on prices.

Broader economic challenges, including inflation and tightening of monetary policies by central banks, have also reduced industrial activity, further reducing steel demand.

Consequently, these factors forced traditional steel prices to adjust, reflecting the combined effects of weakened demand and increased market supply.

Despite the general decline in steel prices, an exception has emerged in the form of green steel. Green steel refers to steel that is produced with lower carbon emissions, often through the use of renewable energy sources and advanced production techniques aimed at reducing environmental impact.

BofA Securities analysts, there is a growing segment of consumers and companies that prioritize sustainability in their purchasing practices. These entities are willing to pay a premium for green steel due to its reduced environmental footprint.

“Remarkably, while steel fundamentals have been challenged globally in recent months, a two-tiered market has developed, with European consumers willing to pay a premium of €100-300/t for green steel,” they analysts said.

This demand is particularly strong in Europe, where regulatory pressures and consumer preferences are increasingly aligned towards decarbonisation.

Green steel production is more expensive compared to traditional methods. This is due to the use of cleaner energy sources, the need for new technologies and the general shift towards more sustainable practices.

H2 Green Steel, another key player in the market, reported selling green steel at a 20-30% premium to traditional steel prices. This translates into an additional cost of around €130-200 per tonne, based on average steel prices in 2024.

Overall, the premium for low-carbon hot-rolled (HRC) steel averages about €120 per tonne over standard steel prices, according to BofA Securities.

The divergent price trends between traditional and green steel highlight the evolving dynamics within the steel industry. The premium price for green steel signals a clear shift towards sustainability, driven by both regulatory requirements and market demand.

BofA Securities analysts believe companies that can efficiently produce green steel will likely benefit from higher margins and a growing customer base. As demand for green steel continues to grow, traditional steelmakers may face increased pressure to adapt their production methods or risk losing market share to more sustainable competitors.

This could lead to investment in new technologies and a shift in business models towards greener practices. While the current premium for green steel is substantial, BofA Securities notes that as production becomes more widespread and economies of scale are realized, the price differential may narrow.

However, in the short term, green steel is expected to remain a premium product with a distinct market position.