Decarbonising Australia-China steel making with reorganised value chains

Summary

China is responsible for over half of global steel production, and consumes a little over 80% of Australia’s iron ore exports. Our techno-economic and life-cycle assessment (LCA) models consider how iron ore composition affects capital and operating costs, including energy use and iron losses, as well as emissions, in both conventional and a number of promising alternative green steel production routes. We find that: (1) China’s plans for decarbonisation, with reduced steel demand and increasing use of scrap recycling, put strong downward pressure on iron ore consumption. As a result, China’s ore consumption is expected to fall to about 950 Mt by 2035 and 650 Mt by 2050. A shift to green steel making further affects demand for Australian iron ores most strongly, as these ores as less suited to the H₂-DRI-EAF pathway, relative to high-grade ores from Brazil, Guinea, and elsewhere. (2) Australia’s competitiveness as a supplier of green iron into Chinese markets hinges on achieving green hydrogen production costs of A$0.50/kg hydrogen below Chinese production costs. At such a cost differential, our model suggests Australia would supply 320 Mt green iron to China in a 2035 scenario where China demands 100% green steel. This would grow to about 430 Mt if the cost differential is as large as A$1.25/kg H2. (3) The Electric smelting furnace (ESF) technology is pivotal for the use of Pilbara ores in green steel production routes. In a 2035 scenario where China demands 100% green steel, our model suggests

Australian iron ore consumption would climb together with ESF capacity, from 130 Mt in a scenario with 100 Mt of ESF capacity, to 420 Mt of Australian iron ore consumption in a scenario with an ESF capacity of 400 Mt or above. These results should motivate policy makers to help accelerate development of low-cost renewables and hydrogen, de-risk ESF demonstration and early deployment, and pursue targeted Australia–China supply-chain configurations that align competitiveness with decarbonisation.