Lifetime and reinvestment cycles

Background

A steel plant requires reinvestment after 20-25 years to achieve its average lifetime of 40 years. Ideally, any BF-BOF plants should be shut down and substituted with low-emissions alternatives before they become stranded assets. The long lifetime, and its financial implications, have a crucial impact on the timing within which a transition can be achieved.

The initial construction and installation of a BF-BOF plant cost approximately USD 1–1.5 billion, or USD 200-300 million per million tonnes of capacity. The reinvestment after 25 years averages 25–50% of that number. To afford such investments, many owners depend on external financing or loans for some of these costs. Getting a return on the initial investments can take 15–20 years, given the rather small profit margin many steel companies operate under.

Many young steel plants, as well as those currently being constructed, are still repaying on their investments or have just finished repaying and achieved profitability. The average age of existing global BF steel and DRI ironmaking facilities is estimated at 14 years, meaning many of them are still financially-burdened. Based on the assumption that no plant owner will transition if it is not profitable or if it may risk bankruptcy, the challenge becomes how to convince plant owners to shut down their BF-BOF plants early when they are still in debt? It is difficult to argue that they can repay their debt with new, low-emissions steel plants, which themselves require funding high upfront costs. The accumulation of such debts may render investments futile due to very small profits.

Under current conditions, long lifetimes cause a very slow turnover of steel facilities. This reality is reinforced by steel overcapacity, which reduces the construction of newer, potentially low-emissions, plants. However, if existing BF-BOF plants are not shut down before their 40-year lifetime cycle ends, an estimated 10% of them will still exist in 2050, making the net-zero target impossible to achieve, and resulting in the continued emissions of large amounts of CO2.

Investment decisions can take several years and are generally made toward the end of a plant’s lifetime or the reinvestment cycle. At that point, it is the expected profitability of carbon-heavy versus low-emissions steel — as well as the existing technologies available — that determines if a plant owner continues with the current production route or switches track. In Asia, the majority of reinvestment or new construction decisions for young BF-BOF plants will need to be made between 2025 and 2035. An estimated 71% of all existing BF-BOF plants will reach the end of their lifetime before 2030, two-thirds of which are based in China. As such, it would be advisable to change the existing state of the system by 2030, making the switch to low-emissions steel routes more profitable and in-line with reinvestment cycles of the current fleet. Short-term plans may need to be considered, including how to reduce emissions of operating BF-BOF steel fleets, and whether limited maintenance plans can be implemented until carbon-intensive plants can be fully retired and substituted by green steel production.

Policy Action

Policy targets to reduce emissions before the end of lifetimes include:

• Incentivize or require early retirement of BF-BOF plants.
• Incentivize or require all steel plants to retrofit and refurbish with the best available technologies.
• Ensure new steel plants can easily be retrofitted and refurbished with expected future low-emissions and efficiency technologies.
• Incentivize fuel and material input changes, such as increasing the share of scrap, high-quality iron ore, and renewable energy used.
• Prohibit new investments in BF-BOF.

Examples and Case Studies

ArcelorMittal BF plant shut-down

Dongkuk Plant shut-down due to oversupply

Allegheny Mills shut-down

External Links

Global Blast Furnace Tracker (including expected relining dates)