Decarbonising Japanese steel involves navigating key challenges such as remaining competitive with China, securing financing for the transition, and developing strategies which account for Japan’s geographic lack of essential natural resources.

Transition Asia is working with technical experts to produce modelling and analysis that highlights these challenges and helps generate investor and government support in solving them.

We have modelled Nippon Steel’s options for H₂-DRI-EAF (in India) AND H₂-DRI-HBI-EAF (shipping HBI from India to Japan) and believe the joint venture with ArcelorMittal is a significant opportunity as the basis of a strategy that can compete with China.

We believe Nippon Steel and its investors are right to be concerned about CAPEX and would like do further analysis to support this lobbying. Preliminary analysis suggests lobbying for subsidies of $17.3bn should be nearer to $33.4bn.

• Transition Asia is a purpose-built organisation working with global experts to produce nvestor-focused steel technology transition analysis on Chinese and Japanese steel companies.
• Along with Transition Zero [1] and The University of Oxford [2] we have developed a DRI-EAF production model configured for discussion with and based on Nippon Steel’s outlook and possible strategy.
• The model is a work in progress that will be open source.
• To ensure Nippon Steel’s perspectives are considered, we would welcome early discussion on design and set up, and to exchange perspectives on addressing the key challenges companies face in the technology transition.
• It is follow up analysis to our insight on Japan and a new steel map [3].

Far from being an existential threat, this is an opportunity for Nippon Steel. One which is beginning to be seen in their business and corporate strategy. Our previous analysis shows India is competitive with China on H₂-DRI-EAF and would be for AM/NS.

The declining demand for steel in Japan as an economy that is post-maturity and flatlining on many metrics (like population and total emissions) has led Nippon Steel to seek a “Tectonic Shift to Secure Non-consolidated Operating Profit”. It has successfully engaged in joint ventures and acquisitions of overseas businesses to create a broader operational footprint. The analysis validates this strategy to look elsewhere for business opportunities and new technology.

Large scale renewable electricity for islanded energy systems is more credible and much cheaper in India than Japan at present. Even in Japan, a commitment to “green steel” from Nippon Steel’s current EAF plant in 2023 and investment in a new “large scale [hybrid] EAF” by 2030 capable of processing DRI could actually be consistent with overseas expansion.

Transportation is important and we are modelling this here. Whereas BF-BOF processes have led to highly integrated steel mills, DRI could be compacted at high temperatures into Hot Briquetted Iron (HBI) and stored and transported at the same kind of marginal costs as iron ore. This raises the tantalising strategic prospect that Nippon Steel could separate HBI production from EAF steelmaking and expand the latter for a green steel market in Japan e.g. HBI processing and shipping from Hazira to Japan.

In this context, we are currently modelling Nippon Steel’s options for H₂-DRI-EAF (in India) AND H₂-DRI-HBI-EAF (shipping HBI from India to Japan). The latter keeps islanded energy systems married to H2-DRI in India, and energy intense hydrogen electrolysis in particular, but transports HBI to EAF facilities in Japan.

Figure 1 – A waterfall of costs per tonne of DRI , India

Figure 2 – A waterfall of costs per tonne of EAF production, India

Figure 3 – A waterfall of emissions per tonne of DRI , India

Figure 4 – A waterfall of costs per tonne of EAF production, Japan (DRI produced in India)

Figure 5 – A waterfall of emissions per tonne of EAF production, Japan (DRI produced in India)

Figure 6 – A sensitivity analysis of costs per tonne of steel by location for DRI and EAF

Figure 7 – A sensitivity analysis of costs per tonne of steel against carbon intensity and price of electricity, by location, for DRI and EAF

Figure 8 – A sensitivity analysis of emissions per tonne of steel against carbon intensity and price of electricity, by location, for DRI and EAF

• CAPEX for electrolysers, DRI shafts and EAFs in both case studies falls out of this analysis
• The CAPEX for electrolysers is particularly significant
  • We have assumed that CAPEX for hydrogen production is in house and CAPEX for renewable electricity generation is external similar to Arcelor Mittal in Gijon or Voestalpine in Linz
• Scaling CAPEX to 40m tonnes of steel production annum on a greenfield basis would be of the order of $33.4bn
• While this would be all new technology at current prices this is significantly above the $17.3bn [4] call for subsidies from Nippon Steel
• We will undertake further analysis based on industry feedback

Figure 9 – Comparison of price of a tonne of steel and carbon intensity of Case Study 1 & 2

1. https://www.transitionzero.org/
2. https://eng.ox.ac.uk/people/alli-devlin/
3. https://transitionasia.org/research/
4. https://www.bloomberg.com/news/articles/2022-02-16/nippon-steel-s-net-zero-bid-hinges-on-17-billion-of-state-funds

Bonnie Zuo, Research Lead

Kenta Kubokawa, Japan Analyst

Lauren Huleatt, Programme Manager & Investor Lead