Season 1: Finale: Highlights & Reflections

This is the Green Steel Challenge. I'm Astrid Corp and welcome to the finale of the first series of the Green Steel Challenge podcast. In this episode, Mike James and I will discuss the key insights and highlights of the last seven episodes and reflect on what we have learned and experienced. Welcome, Mike and James. Can you believe we have reached the last episode of our first series? I can believe it and it's been a whole lot of fun and extremely entertaining and informative on the way and I hope it's been the same for you, James. Absolutely. I think it's getting more interesting. I think the more we learn, we ask better questions and the more our guests have learnt about this process. I think the experiments that are going on, the investments that are going on make it increasingly interesting. We hope that people are starting to contact us to wanting to appear on the podcast, which is great. And we're obviously we're happy to incorporate as many of those as we can for series one. What we all may take away is then James. When you look back at the last sort of six or seven podcasts, there's a very strong European flavor. We covered long products and flat products, raw materials, engineering, venture capital. But all with a very strong European bent, even if some of the investments that we talked about were in North America. I remember when we did the last recap, we were generally in agreement that this was an industrial revolution. I think we had an interesting tension in these last episodes of whether this is a revolution or an evolution, and it may actually be a bit of both. And it's a classic issue in change management cases of how much do you have to change in order for there to be a necessary restructuring of what's going on. And I think we're trying to get our heads around collectively as an industry, how much of the industry do we have to change? I think the American steel industry went through a true revolution back in the 80s and 90s. There were new players, new managers, new processes, new business practices, new technologies, new everything. Obviously, what's going on in Europe, which is following that for different reasons, green reasons, carbon taxes, et cetera, et cetera. It's not going to be a completely different European steel industry at the end of this process in 2030. Somebody being beamed onto planet Earth will look at the European steel industry, and if they're wise enough to know the difference between a DRI plant and a blast furnace, they will notice some differences. But they were tend to go to the same locations as they did 20 years ago in Germany, France, Spain, UK. And they see the same players run by the same managers with the same kind of shareholders, making the same products, similar products, using the same business practices. So at the end of the day, it's still going to be producing steel largely like European steel has been made for the last 20 years. So whether that's a revolution is up for grabs, obviously there's massive change at the hot end, but the end result is almost the same, but carbon free. Now to some people, carbon free is everything to other people with a more economic technical bent for steel. We wonder what the utility of that really means, and whether that trillion dollars has been worth it. Carbon free will only be 2040, I mean by 2030 nothing will be carbon free as it is a long process. 50% reduction is better than no reduction. So yeah, the end of your day in 2030 is pretty early, Michael. I think you're right to the extent that in that time frame, there's likely to be very little visible change, but I think that the danger of imagining that we have the technological answers and be we know what the industrial structure is going to look like is complacency that we've got this in the cap that we just have to execute what we already know. We also know from all the years of experience of watching this industry and working in it, that it never works out the way you imagine it will. I think it was interesting that Thomas Hunzman on the engineering side said both that there would be dramatic changes in the front end, but that the industry needed no revolution in terms of the overall technologies, and that's what I meant about. I think we're on this edge of whether this is a revolution or an evolution, and it may be that while the technology is an evolution and perhaps necessarily so, the business structure, the value chain, the collapse of ironmaking in Europe will precipitate a revolution in the way business actually gets done in the steel industry. I like that. It's an evolution that probably, if you were betting person, will morph into a revolution. The structure of looking at this, I think, was put extremely well by Simon Fariat, Rio Tinto, the way that Rio Tinto look at the technologies at least, there's a lot more than the technologies, but the technology is key, is that they have these three so-called pillars, existing technology, which in Europe is primarily the blast furnace, and we were looking at 25 to 30% reduction possibility, maybe more with carbon capture, if that comes on stream. There's emerging technologies, and this is what most of our discussion has been with people like Gunnogorobler at Seltsukieta, and that's implementation of DRI plants to run off natural gas to start off with probably, and then hydrogen. These are existing technologies that are being developed to be completely net zero, green free, and then the third pillar is future pathways, and these are the unknown unknowns, and that is obviously where the real interest might come through. In Europe, we've definitely got the existing technologies, and the emerging technologies are all on paper. Some spades have gone into the ground, especially in Germany. There's all this talk about future pathways, so I think that structure of those technologies is easily understood, and I can see where different layers are coming in here. So yes, it's an evolution right now, probably will be through to 2030, but it must, absolutely must precipitate what will be a revolution. A point well made by John Lichtenstein, where the World Steel Dynamics report, I don't know whether they ended up calling this the report, giving the report this title, which was getting to the starting line, the race to the starting line in 2030, which is basically, at the moment, everybody is laying out their stall to get to net zero, but we really won't get serious, or there won't be any serious impact until after 2030. That came through in a lot of the conversations we had. I think you mentioned going to Growbler's project at Zelskitter. The thing that struck me about that conversation was how straightforward it was in terms of, you know, this is a blast furnace-based flat-roll steel producer and an EAR-based long-products producer, and through a very thoughtful planning process, they had committed to get rid of, over time, three blast furnaces replaced with DRI and electric arc furnaces, and maintain their size, their quality, their market position, and to a large extent manage the dislocation of employment over a ten-year period. Demographics. Exactly. We all know the average age of a typical integrated steel plant works in your favor, if in fact you've taken a planning window that's large enough to accommodate that adjustment. It was a very undramatic discussion of it. It's the largest capital investment that companies have ever made, but I think was it 2033 or 2034, they fully expected them to have deployed everything that they were planning to invest in. So that raises the question, well, is it enough? That's a classic version of the evolutionary process of converting the technology. Can it possibly be that easy? The questions behind what he was talking about, obviously, was the availability of power, electricity in the right kind of form in order to create the hydrogen that he's going to need in order to be properly net zero, why isn't everybody doing this? Was kind of the question I came away with from that podcast. As I understood, it is also easier for a company that is not. huge. So it's much easier for a smaller company. It's overseer, but it's easier to plan. Obviously, the investment is relatively smaller than if you go to one of the larger companies. I think from an investment basis, one of the questions you might ask in that context is whether or not it's risky enough. I mean, there's risk involved. Obviously, it's a massive undertaking, it's a massive change. They had stopped at the threshold of investing in thin slab casting, for instance. So it does it go far enough and how much further will they have to go in the 2030s in order to secure that position? In one of the podcasts, I heard that we are actually everything what's being done is not, or most of the companies, they are not at scale enough, and they mentioned pilot projects. Would you say what's else good at now is now doing is not really a pilot project. That's a proper, proper, organized process. Pilot projects are more like age to green, steel, Boston, metal. Well, they're like startups really as well. Yeah, I would take a pilot project is really trying to prove concept. Some of the carbon capture and storage projects are pilot projects. They're almost to industrial scale, but essentially it's to see whether or not the technology works. You know, if you look at all seven podcasts, one of the things that came across is the enormous amount of activity that is taking place in all kinds of different areas, whether it's Rio Tinto and their various experiments with different qualities of iron ore, or it was the Irina and the X-Carb Fund and their various different investments that they're making, and her extraordinary opportunity to see a broad range of technology, some old, some new, some recast in service of net zero, with an opportunity to invest in them and see whether or not they will scale to make a contribution to the steel industry's transition. But going back to your point that John Litch and Stein made about this race to the start line, I mean, we spoke to Amary Crossman from GMH, Mario Arvady from Arvady Group and Gunnogrobo from Saltskitter. These are the three European, three significant European players, different types of steel producers, special EAF based on integrated that are going along on this revolution, but all three of them spoke about an existential risk on one thing, and that's energy or hydrogen. And all of those, everything depends on that. So in my summary, when I first started out on this, I used to think that raw materials, primarily high quality iron ore that should require for old-school DRI production, and that's what you want to call it, was up there with one of the risks as to its availability. For me, that's dropped off. There's only two risks here, massive risks, and unfortunately, they're outside of the remit of any steel company. It's governmental, it's infrastructure, energy, slash, hydrogen. Everything else, I think, is detailed almost in getting this revolution well and truly underway. Yeah, no question, that energy came across as being the key to what happens in Europe. And to some extent, Georg's Marienhood in the worst position, in the sense that they're already electric arc furnace. Their specialty produces the only place in which they need to convert is their source of energy, and they need renewables and they need cheaper energy than is being made available to them at the moment. And Germany is a big problem because all the nuclear energy is switched off, and that's another point I wanted to make. It's important also to invest in nuclear startups because there are also so many startups around, and we are not living in Chernobyl at times anymore, so I would believe there are big opportunities out there. Yeah, I think, and I think our Vadim made the same point. There has to be a debate across the energy spectrum as to how this is going to be resolved. I mean, I think we continued in this clutch of podcasts, the same conversation that had started in the first half a dozen, which was Europe is not a good place to make iron, and that the value chain, or that we have become used to in steel, which is iron is made at the same location as the steel is made, is under threat of being broken up, and maybe that's what has to happen, and that iron will move to cheap energy locations such as the Middle East, North Africa, and that will be fed into Europe. That sounds like a much more sensible and viable solution than piping hydrogen, or moving hydrogen in the form of ammonia that we talked about in the podcast, so you end up with iron getting sold in some sort of cold form into the European industry and melted. Remember when we spoke to Thomas Hansman from SMS, he just returned from Japan, and the discussions there were, it's almost off the agenda that Japan will produce significance from out of hydrogen, and Europe is shall we shall we, is in that dreadful, never never place. Japan seemingly is not keen on producing hydrogen, and why should it be? It's pretty much the same as Europe in terms of its energy supply. So there's some of those fundamental questions have been asked probably more in earnest in Japan than they are here, and we look forward to talking to Japan in the next series, but just going back to the energy issue, arena, Gorbanova, ex-carb, arcelon, and I think we talked about 10 of her projects that arcelon, I've invested in, apart from Boston metals, I think every single one of them was an energy project, batteries, nuclear, solar, everything. So I mean that's where the smart money has to go, and I think the future pathways, and then innovation that we call it, it's going to be completely dominated by energy, and I just don't feel comfortable with the discussions I've heard across Europe that the legislators and the powers that be really, really understand that issues that heavy industry, steel industry, energy intensive users are really facing at this time. Well far be it from me to defend politicians, I can't believe they don't understand the fact that European energy is very expensive, but it is a global issue, and so you have in the United States, for instance, New Corps forming a partnership with Microsoft to look at energy, because the tech guys facing the same stuff, their server farms, and chip manufacturing uses an enormous amount of energy and water resources, and so you find high tech industry and a basic industry like steel coming together to try and solve the same energy crisis, which is essentially what it is. We're going to need multiples of how much energy we currently consume in the form of electricity, and a much more robust and smarter grid to distribute it into the 2030s. I think in Europe, the energy problem is a political problem in Germany for sure, I think in the rest of Europe as well. It is. It's a political problem because it's a social problem, because there's no agreement on what is an acceptable source of energy. Technology in this area is more important in coming to the rescue than possibly any other part of the steel industry process, so battery storage, managing the intermittency of renewables, small modular reactors, ultimately cold fusion, all of those technologies, which are off 20 years off, ultimately will be part of the solution, but how we have no idea of knowing at the moment. Go back to this issue of how much change do we need? It's a comfort to say that, well, we don't need that much change. We just keep bashing away at the technologies that we know in improving and so on. I think if there is a conceptual shortfall, it's how big of a change we need in the energy infrastructure and supply, and I think that was the message we got from Frau Glossmann from GMH, was getting across how big of a change is going to be required. Yeah, and I think this is Europe's weakness. The United States. States of America has a relatively homogenous energy policy across the states but the EU for energy is absolutely not a single market and it is Germany for Germany and France for France. So it is in a very awkward place especially when you've got a rusher on your doorstep as one of the key suppliers of one of the key suppliers of energy. So it's extremely difficult and you can't out but think in that anybody wanting to invest in an energy intensive DRI production in Europe will just think why would a greenfield site go into Europe when I can build it somewhere relatively local. It'd be in the US or North America or the Middle East transporting it to Europe is relatively easy. Seabam, the Board of Protection won't be an issue because it's going to be green in the Middle East or green in the USA. Again, we just keep coming back to this that new greenfield iron making sites in Europe. You just have to wonder about the economics and who's going to do that. It's a key area that we need to resolve. I wanted to go back to something else that Gunnar Grobler said. He was drawing from his experience in the energy industry and he said something to the effect of he was talking about partnerships and he was basically saying you have to find partnerships to make this work not just because the projects and the investments are very complicated but that you learn from those partners and you kind of reinforce your commitment to the change by finding those partners. One of the lessons that he said he learned from the energy industry was that those companies who fully committed to the change and found their transformation came out stronger. It was the companies that hesitated and waited that were presented with much more difficult transitions than they otherwise would have. And I think that's obviously reflected in the ways else get us gone about its transformation. But it reinforces the theme that we've had throughout this podcast that people have to talk to each other whether they're suppliers or customers or competitors in order to try and solve these problems. You and I both James have somewhat grandly consider ourselves a strategy consultant. Back in the steel industry and back in the day in 1990s a lot of steel companies in the western world really thought seriously about strategy and both you and I he got lots of interesting work on the back of that. That kind of declined in 2000s and 2010s and it became a lot more granular, a lot more accountancy based, a lot more CFO based rather than CEO strategic based and it's all about decisions for next week and the week after. But all of a sudden it's the strategic leaders like Salsike that will probably reap the rewards here. So I think long term clarity of thought is definitely coming back into it rather than the CFO being counting approach. I think not only strategy but also entrepreneurship is important. There has to be a certain risk taking because I think for a while the steel industry has been quite comfortable. Now we have to take risks. We have to accelerate and move fast. Risk is absolutely necessary as I understand. Entrepreneurs are the ones who drive revolutions and that's your new cause and STIs of the world that have done that. The European steel industry until now is pretty devoid of serious entrepreneurs but people like Arvady are flourishing where they can. One of the things that struck me or one of the questions that sort of raised in my mind over this last set of podcasts is whether or not those steel companies that also have a technology arm have something of an advantage or an insight into what is required to change their process and then I started to extend that to there is a lot of innovation that has been a lot of innovation from the Italian companies whether that's Danieli or Arvady, Marciagalia and Italy both in terms of the structure of its industry, a lot of electric arc furnaces because of its geography, it's in the south with a lot of sun and it's a relative closeness to North Africa and the Middle East. Italy may well become an engine of change in the industry and be more disruptive in the future than it has been in the past. There are still a lot of issues there, the energy is very expensive but as Arvady explained in an ingenuity and smart use of technology you can overcome some of the obstacles that are put in your way from a factor cost basis. I'm encouraged by what's going on in Europe in small pockets and I hope to see it extended further. We did ask actually Gunnar Gröbler whether or not the transformation at Zaltzgitter which puts Zaltzgitter in something of a lead in terms of its transformation whether this would be a platform for taking up a greater leadership role in Europe but it was not a role he was particularly keen on picking up so we are looking for champions to lead this change and I think Italy may well be a source of them. Okay so we've completed series one much last surprise and series two Becken so what do you think we should be focusing on Austrian James? Well once we in the first series mainly spoke to decision makers and leaders in the international steel industry we should focus in the second series startups which I think are very important talking about interpreneurorship also leaders of the whole value chain construction automotive industry and of course we keep talking to the international leaders of the industry because we haven't covered them at all yet we need to speak to the Middle East we need to speak to Asia Africa China is of course very important. Absolutely crucial yeah we expand and zoom in so we look at both specific technologies and we look at the broader picture still trying to get our heads around A what's happening B how's it going to happen and what are the technologies that are going to make it happen and energy I think as we've spoken about should also be included how and when we can to really understand whether we're going to achieve net zero we've got a lot of plans out there we've got a lot of targets and everything else and everybody is improving it's still astonishing to me that you can improve the emissions of a typical blast furnace by 25 to 30% and we didn't change anything the question becomes what north of we've been doing over the last 50 years but in now carbon has got a price exactly we'll admit less of it. Suddenly they find ways to optimize the blast furnace which is great I mean because we can't get rid of the blast furnace is right away so exactly as Thomas Hansman said there's 1400 of them around the world so it's they're pretty important when we embarked on this project it felt like we were talking about a future that was some way away as we get deeper into these conversations it's getting closer and closer. The elephant in the proverbial elephant in the proverbial room for me is we'll be talking to customers a lot of people mainly commentators like James and I although we're not specifically here behind this one think that there is something like a green steel premium out there and this is all about a value proposition I'm extremely looking forward to talking to construction automotive all the new sectors who will at the end of the day we'll be asking to buy more expensive steel on the back of a moral decision not because it's inherently more valuable because it's stronger or thinner or better or more stainless resistant or rust resistant it's all about their end users people in the street willing to buy a more expensive car or a more expensive house because it's carbon-free steel and I'm just absolutely intrigued to begin to get an economic appraisal of this whole massive investment. Do you think decarbonisation rests on the moral agency of your average consumer to a degree yes how much more will is a 22 year old kid willing to pay for a new car that's more expensive because it's not like an electric vehicle. There's real utility in that compared to an internal combustion engine, but for a car that's all intense and purposes is exactly the same, looks the same, feels the same, but it's carbon free and I feel good, I can sleep at night. What is the price on that? I think young people are prepared to pay a premium. If I talk to my kids, they're like 24 and 26 and their kids, you know, they don't even take planes anymore. They try to be like really conscious about their carbon footprint. Just to get a little bit of a handle on that, I don't think anybody has come close to get any kind of a number. And it has to come down to numbers at the end of the day. Of course. To be further explored, yeah. I think it is time to come to close. Thank you, Mike and James. Thank you. No problem. Why has to be spoke, as I said before, in the first series, mainly to decision makers and leaders of the international steel industry. In our second series, we will extend to the whole value chain, including customers, like automotive and construction startups, and we keep speaking to the leaders as well, of course. Guests will include Andrea Fudder of the Volvo Group, John Mellos of Biocarbon, George Adams of SA recycling, and Greg Murphy of Newcore, and many more. Please keep an eye out for the next series of the Green Steel Challenge, which will be released after summer break and of September. In the meantime, if you haven't yet listened to all of the first series yet, go for it. Stay in touch with us. If you have any comments or questions or maybe you want to appear, go to greensteelchallenge.com and send us an email. This podcast is produced by the Ville Corps Foundation and Kalanish.