As the steel industry faces challenges due to sluggish demand, President Lee Jae-myung has indicated support for hydrogen reduction steelmaking, raising interest in whether the burden on POSCO Group will lessen. The industry is reacting that full support is necessary since hydrogen conversion has fallen behind Europe and China, and there is an urgent need for measures to reduce expenses such as electricity costs.
President Lee noted during the election that he would establish Pohang as a specialized district for hydrogen, steel, and new materials, and would support the hydrogen reduction steelmaking technology in the Gwangyang steel industry. On the 15th, he said, “The steel industry is very important, but it is difficult due to China. Since it has become hard to fend off China’s pursuit, we need to move ahead with a new method rather than the same approach. Whether it’s hydrogen reduction steelmaking or finding a new way to begin, the government will support industrial transition and restructuring.”
Hydrogen reduction steelmaking is a technology that produces iron using hydrogen instead of fossil fuels. While fossil fuels generate carbon dioxide when reacting with iron ore, hydrogen produces water, thereby reducing carbon emissions. However, the expense is significant.
POSCO, which is at the forefront of introducing hydrogen reduction steelmaking, plans to establish a test facility with an annual capacity of 300,000 tons by 2027 and develop commercial technology by 2030. The government also intends to invest 880 billion won by 2030 for the demonstration of this technology.
The industry believes that the commercialization timing of domestic hydrogen reduction steelmaking technology is delayed compared to competitor countries such as China and Europe, necessitating support. Major Chinese steel companies have been operating Direct Reduced Iron (DRI) facilities since 2022. DRI is a method of producing steel materials by reacting natural gas or hydrogen with iron ore.
Some Chinese steel companies, including Baowu Group, are operating a commercial demonstration facility with a capacity of 1 million tons. Germany, Spain, and France will also have their DRI facilities completed sequentially starting in 2026 with government support amounting to hundreds of billions of won.
The steel industry argues that support for research and development expenses aimed at new steel grade development or electricity expenses is also necessary. The electricity rate for large enterprises has risen by 16.6 won on October 16, 2022, followed by increases of 10.6 won in November 2023 and 16.9 won in October of last year. As of this month, the average industrial electricity rate, which primarily serves large corporations, is 173.8 won per kWh.
An industry insider said, “The transition to hydrogen is an unavoidable direction, but since it requires an expense of tens of trillions of won, it is burdensome for corporations to bear it alone,” and noted, “Support to get out of the current crisis situation in the steel industry is also essential.”