Thyssenkrupp AG, the German industrial conglomerate, is facing a critical juncture in its push to produce "green steel," with the company now reexamining its ambitious plans to transition its steel production to hydrogen-based processes. The review comes in response to escalating costs and internal challenges, putting the future of the project in question and raising concerns about the feasibility of its decarbonization strategy.
Shares of Thyssenkrupp fell nearly 4% on Monday following reports that the company might halt its €3 billion hydrogen-based direct reduction plant, the centerpiece of its green steel initiative aimed at reducing carbon emissions. The plant, located in Duisburg, was intended to replace coal with hydrogen to produce steel more sustainably, aligning with Germany's broader climate goals.
Thyssenkrupp's leadership is reportedly rethinking the project under the guidance of CEO Miguel López, who initiated a comprehensive review of the company's green steel strategy. "We are continuously examining the best and most economically viable solutions under the given conditions in terms of technology and results," Thyssenkrupp said in a statement, signaling its cautious approach amid rising financial pressures.
The company's reassessment comes amid a broader shakeup in its steel division, which has been struggling with high energy costs, fierce competition from Asian producers, and reduced demand across Europe. The steel unit has also undergone significant management changes, with the recent resignation of its leadership team, highlighting the internal turmoil as it grapples with strategic direction and financial sustainability.
Thyssenkrupp Steel Europe (TKSE), the division at the heart of these changes, has already warned that the costs associated with the planned direct reduction site could exceed initial estimates. The German federal government and the state of North Rhine-Westphalia had pledged €2 billion in subsidies to support the project, emphasizing its importance to Germany's industrial transformation. If the project were to be shelved, Thyssenkrupp could be required to return substantial amounts of the funding already received.
Despite the concerns, Thyssenkrupp reaffirmed its commitment to pursuing a greener future. "Thyssenkrupp remains committed to its green transformation and climate-neutral steel production. There is no way around the decarbonization of CO2-intensive steel production in the long term," the company stated. However, the uncertainty surrounding the financial viability of the project has put its execution timeline in doubt.
One of the significant challenges facing Thyssenkrupp is the internal dispute over the required funding to keep its steel business viable. TKSE's largest minority stakeholder, Czech billionaire Daniel Křetínský, who holds a 20% stake, has been at odds with the parent company over financial strategies. This discord has compounded the pressures on the steel unit, already navigating a turbulent market landscape.
The decarbonization project, viewed as a flagship initiative for both Thyssenkrupp and the German government, is crucial to the country's industrial decarbonization efforts. However, the escalating costs and operational challenges pose serious risks to its realization. The project has also been impacted by the European Union's recent legal developments, with the Court of Justice of the European Union dismissing Thyssenkrupp's appeal against the prohibition of its planned joint venture with Tata Steel Europe. The failed merger had aimed to create Europe's second-largest steelmaker but was blocked by the EU over concerns of reduced competition.
The broader context for Thyssenkrupp's woes includes a challenging global steel market, characterized by high production costs in Europe, competition from cheaper Asian imports, and the need for substantial investments to meet stringent environmental regulations. These pressures have exacerbated the company's difficulties in maintaining profitability while pursuing ambitious sustainability targets.
Germany's Economy Ministry, which oversees the subsidies provided to Thyssenkrupp, has stated that it will ensure the company's adherence to its commitments. "The grant is tied to the necessary commitment of the recipient, and we will continue to monitor that the obligations are met," a ministry spokesperson said.
