Latest / The Manufacturing Podcast with Fexingo: Factories, Supply Chains, and Industrial Business / How a Japanese Factory Is Making Steel from Hydrogen
Transcript
- Lucas: So I finally got to stand inside a steel plant that doesn't burn coal. I mean, it still burns some — but the main reduction reaction is running on hydrogen. Luna: Wait — the blast furnace is gone? What are we looking at? Lucas: It's not a blast furnace at all. It's a direct reduction shaft, about 60 meters tall. They feed iron ore pellets in the top, and hot hydrogen gas flows upward. The hydrogen strips the oxygen from the iron oxide, and what comes out the bottom is solid sponge iron. The only byproduct is water vapor, not CO2. Luna: That's the dream, right? But we've heard about hydrogen steel for years. What makes this plant real? Lucas: What makes it real is that it's running. It's in Chiba, east of Tokyo, and it's a joint venture between Nippon Steel and Mitsubishi Heavy Industries. They started commercial operations in April, and as of July 1st, they're producing about 250,000 tons of crude steel per year. It's not huge — a typical blast furnace in Japan pushes 3 million tons annually. But it's the first operational hydrogen-based steel plant in the world. Luna: So this is essentially a proof of concept. But the carbon savings — what are they claiming? Lucas: They claim a 95 percent reduction in direct CO2 emissions compared to a conventional blast furnace route. Now, that's if the hydrogen is produced via electrolysis with renewable electricity. Right now, they're using a mix — some green hydrogen, some grey hydrogen from natural gas. But the plant is designed to go fully green as supply scales. Luna: That's incredible. And I'm thinking — if today was actually useful to you, the way these stay ad-free is listener support. You can help keep this kind of deep reporting going at buy me a coffee dot com slash fexingo. Lucas: Exactly. That direct listener support is what lets us spend a day at a hydrogen steel plant instead of just reading a press release. So genuinely, thank you to everyone who's chipped in. Luna: Okay, back to the steel. So 250,000 tons — that's less than one percent of Japan's total steel output. How do they scale this? Lucas: Scale is the hard part. The hydrogen for this plant is produced on-site via a 50-megawatt electrolyzer. To replace a single 3-million-ton blast furnace, you'd need roughly 12 gigawatts of electrolysis capacity. That's about six large nuclear reactors' worth of electricity. So you don't just need more electrolyzers — you need a massive build-out of renewable generation to power them. Luna: And that's not cheap. What's the cost premium on this hydrogen steel compared to conventional? Lucas: The plant isn't disclosing exact prices, but analysts estimate the cost is about 30 percent higher than blast furnace steel right now. That's the 'green premium.' The question is who pays it. Toyota has already signed a deal to buy 100,000 tons of this steel for its next-generation EV platform, which they're launching in 2028. So automakers are absorbing some of the premium, at least for flagship models. Luna: Toyota using green steel for EVs — that's a nice narrative fit. But for construction steel, which is where most of the volume is, I assume nobody's lining up to pay 30 percent more. Lucas: Right. And that's where policy comes in. The EU's Carbon Border Adjustment Mechanism, or CBAM, will start phasing in later this year. By 2027, steel imported into the EU will face a carbon price based on the emissions embedded in production. For Japanese blast furnace steel, that could add 40 to 60 euros per ton. That's roughly 5 to 8 percent of the current price. So the green premium narrows, and it can make hydrogen steel competitive, at least for exports to Europe. Luna: So the plant in Chiba is basically a hedged bet. If carbon pricing goes global, they're ready. If not, they're still a niche supplier to automakers. Lucas: Exactly. And they're already planning the next step. Mitsubishi and Nippon Steel announced last month they'll build a second facility in Kyushu, targeting 800,000 tons by 2029. That one will use 100 percent green hydrogen from offshore wind. So the learning curve is real. Luna: I want to ask about the iron ore. Direct reduction typically requires higher-grade ore, right? Like 67 percent iron content or above. Does Japan have access to that? Lucas: Good question. Japan imports essentially all its iron ore — mostly from Australia and Brazil. The ore they use for this process is from Vale's Carajás mine in Brazil, which runs about 66 percent iron. That's the high-grade stuff. But there's a geological constraint: high-grade reserves are limited. So another part of the puzzle is developing Direct Reduction technology that can work with lower-grade ore, say 58 to 62 percent. That would unlock the technology for places like India, where domestic ore is lower grade. Luna: Are other major steelmakers doing similar pilots? I know ArcelorMittal has a project in Germany, and SSAB is building in Sweden. Lucas: They are. SSAB's HYBRIT project in Sweden started pilot production in 2021 and aims for commercial scale by 2027. That plant is targeting 1.3 million tons annually. ArcelorMittal has a 100,000-ton pilot in Hamburg that uses hydrogen. There's also a project in China by HBIS Group that started a 1.2-million-ton hydrogen-based DRI plant in 2023. So Japan isn't alone, but they claim their process has the lowest energy consumption per ton so far — about 15 percent less than HYBRIT. Luna: Does the Japanese government have a national strategy for hydrogen steel? Lucas: They do. METI, the Ministry of Economy, Trade and Industry, included hydrogen steel in their Green Growth Strategy. They've allocated about 500 billion yen — roughly three point three billion dollars — in subsidies for hydrogen steel development over the next decade. The goal is to have 5 million tons of hydrogen steel capacity by 2035. That's about 4 percent of Japan's current crude steel output. Not transformative, but it's a start. Luna: Let's talk about the workforce. A hydrogen direct reduction plant looks very different from a blast furnace. Fewer workers, different skills. What happens to the people who currently work in the coke ovens and blast furnaces? Lucas: That's a serious transition issue. The Chiba plant employs about 120 people, versus roughly 500 for a conventional blast furnace of similar capacity. The new roles involve electrolyzer operations, hydrogen handling, and digital process control. Nippon Steel has a retraining program that's already moved 200 blast furnace workers into hydrogen plant operations across their pilot facilities. But you're right — on a national scale, this could displace thousands of jobs in a region like Kitakyushu, which is heavily dependent on steel. Luna: So the jobs question might be the biggest political obstacle, not the technology. Lucas: It's up there. The steel industry in Japan employs about 200,000 people directly. If hydrogen steel becomes the standard, you could see a 30 to 40 percent reduction in labor demand. The unions are aware, and they're negotiating for earlier retirement packages and guaranteed retraining. But it's a slow process. Luna: Is there any chance hydrogen steel never takes off at scale because of the infrastructure cost? Lucas: It's possible, but the regulatory momentum is strong. The EU's CBAM, Japan's carbon tax — which is currently 289 yen per ton of CO2, about two dollars — that's low, but it's scheduled to rise to 50 dollars by 2030. Plus corporate buyers like Toyota and Apple are demanding low-carbon steel for their products. So the demand pull is real. The question is whether the supply side can deliver the hydrogen infrastructure fast enough. Luna: And the cost curve. If green hydrogen falls to two dollars per kilogram by 2030, that would make hydrogen steel cost-competitive with blast furnace steel, even without carbon pricing. Are we on track for that? Lucas: That two-dollar target is ambitious but plausible. The cost of electrolyzers has fallen 60 percent since 2020, and renewable electricity prices keep dropping. But hydrogen also needs storage and pipeline infrastructure. The Japanese government is investing in a national hydrogen backbone — 2,000 kilometers of pipelines by 2035. If they execute, the economics could work. Luna: So that's the narrative: a single plant in Chiba, 250,000 tons, 95 percent less CO2, 30 percent cost premium, and a lot of uncertainty about scale. But it's running. It's real. Lucas: It's real. And it's showing that the technical path exists. The challenge now is economic and political. I walked out of that plant thinking: 'This is a glimpse of a future that's possible, but it's not inevitable.' And that's what makes it interesting. Luna: It's a good reminder that decarbonizing heavy industry is more about business model innovation than just a new chemical reaction. Thanks, Lucas. That was a great look inside a factory that actually represents a new paradigm. Lucas: Thanks, Luna. If you want to see photos from the plant, we'll post them on our website. And as always, if this show moves your thinking forward in some small way, consider supporting it at buy me a coffee dot com slash fexingo.