According to a study published by consulting firm PwC Deutschland and previewed by the German business daily Handelsblatt, primary steel production in central Europe is set to lose competitiveness in the long term, while the future of the European steel industry is expected to increasingly focus on scrap-based production and high value-added downstream processing.
In the report, entitled “The end of the European steel industry... or simply a different one?”, PwC analyzes the cost evolution of various steel production routes through 2045 under three different scenarios for energy, hydrogen and CO₂ prices.
Gulf states and India to become more competitive than Europe in green steel production
The study's main conclusion is that the traditional blast furnace-basic oxygen furnace (BF-BOF) production route will no longer be economically competitive beyond 2040 under any of the scenarios analyzed. According to PwC, rising CO₂ prices under the EU Emissions Trading System (EU ETS) will double the cost of conventional steel production by 2045, while the Carbon Border Adjustment Mechanism (CBAM) will not be sufficient to offset the structural gap in energy costs between Europe and other regions of the world. As early as 2030, the natural gas-based DRI-EAF production route is expected to be around 30 percent cheaper in the Gulf states.
According to PwC, the competitive advantage in low-carbon primary steel production will gradually shift towards countries benefiting from structurally lower energy costs and greater availability of natural gas, green hydrogen and iron ore. In particular, the report identifies the Gulf states and India as the regions best positioned for future DRI production, while within Europe only Scandinavia could maintain competitive costs for green primary steel production. By contrast, the study finds no scenario in which primary steel production in central Europe remains economically competitive in the long term.
For Germany, this would imply a possible redefinition of the role of its steel industry. In recent years, the country has launched several decarbonization projects supported by approximately €5.9 billion in public funding, aimed at replacing blast furnaces with DRI plants and electric arc furnaces powered by renewable energy. However, PwC argues that these public subsidies alone may not be sufficient to ensure the long-term international competitiveness of the German steel industry.
PwC also points out that this transition is already underway. The report highlights several projects currently under development in the Duqm Special Economic Zone in Oman, where multiple DRI and HBI plants targeting international markets are being built. These include the five million mt/year Jindal Steel Duqm project, Meranti Green Steel's 2.5 million mt/year HBI plant, and Vale's mega hub integrating iron ore processing and HBI production. The report also notes that Thyssenkrupp Materials Trading has already signed an offtake agreement for one million mt of HBI per year from the Meranti project.
According to the consulting firm, the future European steel value chain should therefore be based on a different allocation of production activities. The most energy-intensive processes, such as the direct reduction of iron ore, could be relocated to countries with more competitive energy costs, while Europe would retain the higher value-added stages of production, including secondary metallurgy, specialty steel production, engineering and advanced downstream processing. In this context, PwC suggests that European steelmakers should become technology partners, investors or operators in overseas projects while securing long-term supplies of DRI and HBI.
The report also stresses that relocating the most energy-intensive production stages should not be viewed as deindustrialization, but rather as a new international division of the steel value chain.
Europe's steel future lies in EAF production and high value-added manufacturing
The study also places particular emphasis on the role of ferrous scrap. According to PwC, electric arc furnace steel production represents the most resilient option for Europe, thanks to the domestic availability of scrap and the competitiveness of the scrap-EAF route under all scenarios analyzed. However, the report notes that scrap alone will not be sufficient to fully replace the primary steel production capacity expected to disappear over the coming decades.
According to the authors, the future competitiveness of Germany and Europe will depend on their ability to strengthen knowledge-intensive activities, invest in research and the development of advanced products, and create industrial clusters capable of integrating companies, universities and energy infrastructure.
