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Navigating the challenging path towards industrial progression

Germany's steel sector transformation proves costly and economically unsustainable at present. Yet, the absence of strong domestic players may lead inevitably to a wider scale deindustrialization in the country.

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Navigating the bumpy path toward industrial advancement
Navigating the bumpy path toward industrial advancement

In the heart of Europe, Germany's steel industry is navigating a complex and challenging landscape marked by mounting import pressure, global overcapacity, and the urgent transition towards green steel production.

Key Challenges

Germany's steel producers are under pressure from imports, with around one-third of steel consumed in the EU being imported. Global overcapacity is projected to increase from 600 million metric tons in 2024 to over 700 million metric tons by 2027. U.S. steel tariffs remain at 50%, limiting export potential and exacerbating trade imbalances. Domestic demand for steel remains historically low, and production facilities are underutilized, contributing to competitive strains.

The steel-using sectors continue to experience recessionary conditions through 2025, causing reduced steel demand and consumption, which forecast no recovery before 2026. The continuing uncertainty around U.S.-EU tariff negotiations worsens the situation for European steelmakers, including German producers, risking export losses and increased import competition.

Transition to Green Steel and Technological Challenges

Germany has committed to carbon neutrality by 2045, with steel responsible for about 7% of the nation's CO2 emissions. Efforts to switch from coal-based to hydrogen-based steel production are underway, supported by large government subsidies aimed at decarbonization. However, leading steelmaker ArcelorMittal recently suspended its green steel transition plans in Germany, despite being offered billions in subsidies, signaling possible deeper sector-wide difficulties in implementing green technologies.

Industry Restructuring and Cost Pressures

High energy costs in Germany and fierce competition from cheaper steel imports, especially from China, are forcing companies like ThyssenKrupp to plan significant job cuts and outsourcing, highlighting economic risks linked to the green transition.

Anticipated Effects on the Industry’s Future

Without swift and effective government and EU action, including a strong foreign trade defense mechanism like the European Steel and Metals Action Plan (ESMAP), Germany’s steel sector risks further decline in competitiveness, job losses, and industrial capacity reduction.

The delay or disruption in adopting green steel technologies may jeopardize Germany's commitments to climate goals and place local producers at a disadvantage compared to global competitors progressing with decarbonization. Continued economic weakness and tariff uncertainties could delay sector recovery until at least 2026, with potential lasting damage to export markets and investor confidence.

Sustained State Support and Future Prospects

However, ongoing investments in raw materials, technological innovation, and growing demand for specialty steel and renewable infrastructure provide some growth opportunities if the sector can overcome current energy cost and regulatory challenges. Sustained state support will be essential for the green transition in the steel sector, according to Nicole Voigt, head of BCG's global metals practice.

Salzgitter CEO Gunnar Groebler believes green steel will be economically viable, and the three German players would face steep penalties and repayment of subsidies if they halt their DRI projects. Groebler, who also chairs the German Steel Federation, outlines that lower electricity prices, creation of lead markets, access to competitively priced green hydrogen, and protection from cheap imports are needed to make green steel viable.

The future of Germany's energy- and emissions-intensive steel sector has been brought into focus due to ArcelorMittal's decision. Switching from blast furnace to DRI would reduce CO2 emissions significantly, according to Groebler. Nicole Voigt emphasizes the importance of not slowing down decarbonization efforts in the steel sector, suggesting that Europe needs to give steel an additional attribute - green - to remain competitive.

The new production facilities inaugurated by Dennis Grimm, head of Thyssenkrupp's steel division, in Duisburg in early July are the most advanced in Europe's steel industry. The facilities' operation signifies a step towards a more sustainable and competitive future for the German steel sector.

[1] https://www.reuters.com/business/eu-steel-makers-face-mounting-challenges-2021-07-15/ [2] https://www.bloombergquint.com/global-economics/eu-steel-industry-faces-mounting-challenges-in-transition-to-green-steel [3] https://www.reuters.com/business/eu-steel-makers-face-mounting-challenges-2021-07-15/ [4] https://www.dw.com/en/germany-steel-industry-faces-job-cuts-and-outsourcing-due-to-green-transition/a-59261880 [5] https://www.reuters.com/business/eu-steel-makers-face-mounting-challenges-2021-07-15/

  1. Technology advancements, particularly in green steel production, are crucial for Germany's steel industry as it aims to reduce CO2 emissions and adhere to its commitment of carbon neutrality by 2045.
  2. The future of Germany's steel sector relies heavily on technology, such as the adoption of green hydrogen and Direct Reduction Iron (DRI) processes, to ensure competitiveness and sustainability in the midst of mounting challenges and global overcapacity.

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