G-Steel, GJ Steel targeted to reduce dependence on coal blast furnaces.
Bangkok, December 15 2021 – Nippon Steel is set to acquire two electric-furnace steelmakers in Thailand, G Steel and GJ Steel, next year, Nikkei has learned, in a move aimed at reducing its reliance on coal to produce the metal.
Nippon Steel has traditionally used blast furnaces to produce steel. The process involves heating iron ore with coke, a coal-based fuel, to remove the oxygen in the ore to extract iron. This is suitable for mass production but also emits vast amounts of carbon dioxide.
Electric-furnace steelmakers, meanwhile, use scrap salvaged from demolished buildings and junked cars to make steel. The process does not use coal and keeps CO2 emissions down to only a quarter those of the conventional steelmaking process in Japan.
Electric furnaces are seen as a "bridge" technology while the world awaits the development of next-generation steelmaking based on hydrogen. Hydrogen is seen as a significantly cleaner alternative to coke. But technical difficulties still stand in its way, such as maintaining the temperature inside the blast furnace.
Nippon Steel estimates that a hydrogen-based steel furnace could cost around 4 trillion to 5 trillion yen ($35 billion to $44 billion) to build and require around $4.5 billion in research and development. The cost of making steel could more than double.
The Japanese company hopes that buying the two Thai steelmakers will help reduce its own carbon footprint sooner.
Blast furnaces account for more than 70% of global steel output, and Nippon Steel produces more than 90% of its steel using blast furnaces. The steel industry accounts for about 20% of industrial CO2 emissions worldwide.
The acquisition of G Steel and GJ Steel will likely increase the Japanese steelmaker's presence in the fast-growing Southeast Asian market. Nippon Steel's overseas rivals are also turning to electric steelmakers, as the industry tries to find ways to grow and cut emissions at the same time.
G Steel posted sales of 20.6 billion baht ($617 million) for the year ended December 2020, while GJ Steel logged sales of 11.3 billion baht in the same fiscal year.
U.S. asset manager Ares Management owns almost 50% of G Steel and over 40% of GJ Steel through its investment fund. Nippon Steel plans to buy those stakes owned by the investment fund.
In addition, Nippon Steel is also planning to buy from other shareholders, which could push up its total investment to as much as 100 billion yen ($880 million).
A Nippon Steel spokesperson said the company could not comment on individual deals. A representative from G Steel also said it could not comment, while a GJ Steel spokesperson was unaware of any transaction.
Both G Steel and GJ Steel produce hot-rolled steel sheet, a general purpose product used in construction, among other purposes. Their combined share of the hot-rolled steel sheet market rivals that of Sahaviriya Steel, the Thai industry leader.
Steel consumption in Thailand totaled 21.4 million tons in 2019, according to the World Steel Association. Vietnam is the only country in Southeast Asia to use more steel in the same year at 27.3 million tons.