The landscape of steel production in the European Union is undergoing a significant transformation. As electricity prices rise across the continent, the European steel industry is increasingly being shaped by energy costs, with lower-priced renewable energy sources becoming the primary driver of production decisions. According to Stanislav Zinchenko, CEO of consultancy GMK Center, EU steelmakers will increasingly relocate their operations to countries or regions where renewable energy is cheapest. This shift is expected to intensify competition within the EU, creating new challenges and opportunities for steel producers.
One of the central issues highlighted by Zinchenko is the growing disparity in electricity prices between EU countries. For example, in October 2024, average day-ahead electricity prices in Italy were approximately €55 per megawatt-hour higher than in France. Despite this price gap, Italy remains a key player in the EU's electric arc furnace-based steel production. However, the financial pressures caused by high energy costs are prompting steel producers to reconsider their locations and the feasibility of their current operations. The future of steelmaking in Europe will hinge on where mills can access affordable, clean energy, such as wind and solar power.
Energy costs are already a significant factor in steel production, with electricity accounting for an increasing share of total production costs. Zinchenko suggests that, by 2025, energy could account for up to 40% of the cost of producing steel in Europe, as the industry increasingly electrifies. The rising demand for energy, fueled by the push toward decarbonization and the shift to electric arc furnaces, has led to soaring prices, with energy now becoming the primary raw material in the steelmaking process, surpassing even scrap metal or direct reduced iron.
The increasing reliance on green energy sources, such as wind and solar, is expected to alter the European steel "map." As demand for clean energy grows, steelmakers will need to strategically position their mills closer to low-cost, renewable energy sources, often near coastal areas with access to ports for easy transportation of materials. This geographical shift will be essential in the competition between steel mills, with countries vying to attract investment in green steel technologies. Zinchenko predicts that by 2025, this competition will intensify as nations and companies battle to establish dominance in the green steel sector.
While some steelmakers may explore options such as investing in captive power generation or improving energy efficiency through technological advancements, these measures have limitations. Energy efficiency improvements can only go so far, and while captive power generation can offer some benefits, it requires significant upfront investment and infrastructure. More importantly, Zinchenko stresses that substantial investment in new clean energy generation capacity and transmission infrastructure will be essential to ensuring long-term sustainability. Without these investments, the steel industry will continue to face cost pressures that could undermine its competitiveness both within the EU and globally.
The EU steel sector is not only facing competition from within the bloc but also from steel imports, particularly from regions with lower production costs. This external competition, combined with internal energy challenges, is driving the need for stronger green steel strategies. To remain competitive, EU steelmakers will need to adopt innovative approaches to energy procurement, invest in green technologies, and explore new ways to reduce their carbon footprint. Zinchenko highlights that government policies, including investment in energy infrastructure and potentially energy subsidies, will play a crucial role in shaping the future of the steel industry.
Ultimately, the future of EU steelmaking will depend on its ability to transition to green energy solutions that can lower production costs and reduce carbon emissions. As the demand for steel continues to grow, especially with the increasing focus on renewable energy and green infrastructure, EU steelmakers will need to be agile in adapting to these new challenges. The shift to low-cost renewable energy will not only be critical for steel producers’ competitiveness but also for Europe’s broader industrial strategy, which seeks to ensure that the region remains a key player in the global steel market.
Zinchenko's outlook for the steel industry in Europe underscores the urgency of adapting to new energy realities. The battle for low-cost, renewable energy will shape the future of European steelmaking, as companies race to secure access to the best energy deals, modernize their production technologies, and position themselves for the green transition. Energy policy and strategic investments will be the deciding factors in which mills and countries emerge as leaders in the evolving steel sector. As Zinchenko concludes, the next few years will mark the beginning of a major shift in the industry’s geography and its competitive dynamics.
