How the Green Transformation impacts the labor market in the metallurgical industry

Among the three big "D"s, Digitalization, Demographics and Decarbonization, decarbonization remains probably the greatest challenge facing the metallurgical industry. This is confirmed by a new study by the "HySteel" commission of the German Hydrogen Association (DWV), which uses three scenarios to show how the Green Transformation will impact the labor market in the metallurgical industry. The most important immediate finding of the analysis is that only a comprehensive transformation of the primary steel industry will guarantee job retention. If the transformation is carried out half-heartedly and only to a certain extent, the industry will be threatened with massive job losses, also and in particular along the downstream value chains. 

The entire value chain should remain in Germany

In the study, the advantages and disadvantages of DRI plants and HBI imports are weighed up in detail. The clear result: all steps of the value chain would be better left at the site. In overall economic terms and for reasons of future security and independence, comprehensive transformation is clearly preferable to partial transformation coupled with DRI outsourcing.

The first argument in favor of importing sponge iron is that it can be purchased cheaply abroad in regions with low electricity prices. In the case of domestic production of sponge iron via direct reduction, higher costs would be incurred due to the comparatively high producer prices for green electricity and hydrogen. Quoting from the study, "If DRI plants are built in Germany, hydrogen and electricity will be needed in large quantities at competitive conditions."

However, according to the study, the major advantage of domestic pig iron production is its independence from third-party suppliers. According to HySteel analysts, scarcity and risk surcharges must be expected in this context, because HBI is not yet widely available on the market for the time being. Other arguments in favor of "DRI at home" are the lower transport costs, an already well-developed infrastructure, such as the existence of ports for iron ore handling, and the elimination of the margin as a surcharge on the manufacturing costs of HBI.

However, according to the study, costs are also of decisive importance in favor of "DRI at home": HBI imports would first have an average advantage in prime costs of an estimated €50 to €150 per ton of sponge iron due to their cheaper production abroad.  

However, domestic DRI production would more than compensate for this cost disadvantage through the loss of margin as well as cost savings elsewhere, so that "DRI at home" would still have a cost advantage of €70 to €80 per ton of sponge iron compared to "DRI abroad" despite the high green energy prices and despite the generally high location costs.  

According to the study, the base scenario is expected to have almost neutral effects on employment and value added. It is true that the green transformation would lead to the loss of jobs in coke plants amounting to around 1,100 jobs and concludes that 1,080 fewer jobs would be needed in 2036, when all blast furnaces have been replaced by DRI plants. However, this loss would be offset by new jobs in hydrogen production and recycling activities.  

In addition, the study expects an increase in employment for the start of the conversion to DRI technology, as the construction of the DRI plants will create jobs.  

According to the study, a two-thirds transformation would result in a loss of between 12,000 and up to 101,000 employees. 12,000 in the primary steel industry directly, indirectly at suppliers and through income-induced effects. Up to around 100,000 employees if possible effects on downstream processing are included. If part of the pig iron production moves out of Germany due to a lack of production capacities, it is to be feared that other parts of the value chain will also move away. The average figure of 56,000 job losses is a realistic scenario for a transformation of only 66 percent. 

In terms of value added, the study estimates a loss of €3.2 billion per year based on the average value.

Scenario 3 the "50/50 transformation".

Here, the study assumes a 50% transformation (wave 1 plus). As in scenario 2, pig iron production is completely discontinued from 2036. However, the production of sponge iron is just half the level of 2022. HySteel analysts also assume that a large part of the further processing will then have shifted or will shift to third countries, just like half of the pig iron production. 

Project manager Clemens Orlishausen from DWV summarizes the results of the study thus: 

"The study results make it clear that green steel can be produced competitively and profitably in Germany in the future from a business perspective. For this to happen, the framework conditions must be designed accordingly so that we succeed in achieving a complete transformation, including the pig iron stage.

If, on the other hand, part of the value chain - the hot metal stage - is only partially transformed, there is a risk of considerable negative effects on employment and value creation in Germany. The HySteel Expert Commission will enter into dialog with political decision-makers on this issue and continue to campaign for the preservation of the domestic steel industry and well-paid industrial jobs in Germany."