Latest / The Emerging Markets Podcast with Fexingo: Developing Economies, Growth, and Investment / How Emerging Markets Are Building Green Steel Industries
Transcript
- Lucas: Luna, I want to talk about something I think gets overlooked in the emerging markets narrative — green steel. Not the sexy, headline-grabbing stuff like EVs or solar panels, but the literal backbone of construction and manufacturing. Luna: Green steel as in steel made without coal? Because that's always sounded like a pipe dream to me, given how energy-intensive the process is. Lucas: Exactly. Traditional steelmaking uses blast furnaces that burn metallurgical coal — coking coal — and it's responsible for about 7 percent of global CO2 emissions. But a handful of emerging economies are actually making real moves to change that. India, for instance, just launched pilot projects under its National Green Hydrogen Mission, aiming to replace some of that coal with green hydrogen in the direct reduced iron process. Luna: Wait, India? Their steel sector is dominated by large players like JSW Steel and Tata Steel. Are they actually putting money behind hydrogen, or is this more of a policy announcement? Lucas: It's real capital. JSW Steel announced a joint venture with a Danish electrolyzer manufacturer earlier this year to build a 500-megawatt green hydrogen plant in Karnataka. That's a serious scale — it would be one of the largest dedicated green hydrogen projects for steel outside of Europe. And India's government is offering production-linked incentives for both hydrogen and green steel, so the economics are starting to tip. Luna: So the domestic market is there, but what about exports? Because steel is a heavily traded commodity, and tariffs are a huge factor. Lucas: That's the second piece. The European Union's Carbon Border Adjustment Mechanism, CBAM, is phasing in now. It means any steel imported into the EU has to pay a carbon price equivalent to what EU producers pay under their emissions trading system. For Indian steelmakers, that's potentially a 20 to 30 percent cost add if they don't decarbonize. So green steel suddenly becomes not just an environmental play, but a competitive necessity. Luna: And Brazil has its own angle too, right? I know they have a different advantage because of biomass. Lucas: Big one. Brazil's largest steelmaker, Gerdau, has been using charcoal from sustainably managed eucalyptus plantations in its furnaces for years. That's actually carbon-neutral in principle, because the trees absorb CO2 as they grow. Gerdau now has about 15 percent of its output classified as 'green' by that method, and they're scaling it further. It's not hydrogen-based, but it works today, and it gives them a cost advantage versus Indian or Chinese producers under CBAM. Luna: So the market is starting to differentiate. That could shift trade flows — maybe more Brazilian steel goes to Europe, while India focuses on the domestic market and Southeast Asia. Lucas: Exactly. And look at the recent ETF performance. Brazil's EWZ is up 2.7 percent in the last five days, while India's INDA is down 2.6 percent. That's not all about steel — commodities and currency play a role — but the market is pricing in some divergence in export competitiveness. If green steel becomes a premium product, Brazil's biomass advantage might start showing up in earnings. Luna: That's a really specific data point. I hadn't connected those moves to the green steel story. But what about China? They produce more than half the world's steel. Are they doing anything on green steel? Lucas: China is the wildcard. They have a national target to peak steel emissions by 2030, but their current strategy is mostly about shutting down old, inefficient mills and consolidating production. There are pilot green hydrogen projects too, but at a much smaller scale than India's. The thing is, if China doesn't move, their steel exports could face huge CBAM penalties, which might actually accelerate their transition faster than anyone expects. Luna: So we're at a point where policy and trade incentives are forcing a technological shift. That sounds like a classic emerging market opportunity — high risk, high potential reward. Lucas: It really is. And on that note, I want to share something small but honest. This podcast stays ad-free and independent because of listeners who chip in a few dollars each month through buy me a coffee dot com slash fexingo. If walking through topics like this has made something click for you, that's literally what keeps us going. Luna: Yeah, I'd second that. It's just a genuine way to support something you find valuable. No ads, no sponsors, just a direct connection. Lucas: So back to green steel — another angle that I think matters for investors is the cost curve. Right now, green steel costs about 30 to 40 percent more to produce than conventional steel. But as hydrogen and biomass scale, analysts expect that premium to shrink to 10 to 15 percent by 2030. At that point, the carbon price makes it cheaper in regulated markets. Luna: And that's when you'd see real adoption. But are there any pure-play public companies focused on green steel technology? Lucas: Not many pure plays, but the big steelmakers are increasingly segmenting their green lines. For example, Sweden's SSAB has a joint venture with a mining company to produce fossil-free steel using hydrogen, but that's developed country. In emerging markets, I'd watch companies like JSW Steel in India and Gerdau in Brazil as the most direct plays. Also, some of the hydrogen electrolyzer companies, like Nel or ITM Power, indirectly benefit. Luna: So for investors, it's more about a thematic ETF or a tilt in a portfolio rather than a concentrated bet. Lucas: Right. There's the Global X Green Steel ETF, but it's very small. I'd say the smarter approach is to look at broad emerging market funds that have exposure to those steelmakers, but also a thesis on the transition. Like, if you're bullish on India's industrial policy, INDA might be a proxy, but be aware of the near-term headwinds from coal dependency. Luna: And the carbon border taxes are only going to tighten over time. So the steel companies that invest now might have a real moat in five years. Lucas: Exactly. And we haven't even talked about the scrap-based electric arc furnace route, which is another way to reduce emissions. Turkey is actually a big player in that — they produce a lot of steel from scrap using EAFs, which has a much lower carbon footprint. That's another emerging market story, but one for another episode. Luna: Turkey steel via scrap — interesting. So green steel is not monolithic. There are multiple technological paths, and different countries are placing different bets. Lucas: That's the key takeaway. It's not about one technology winning; it's about local advantages — biomass in Brazil, hydrogen in India, scrap in Turkey — meeting global regulatory pressure. The winners will be those that align their resource base with the carbon price trajectory. Luna: And for listeners, the question might be: which country's bet seems most credible right now? Lucas: I'd say India has the most ambitious government push, but Brazil has the most immediate viable alternative. But keep an eye on the hydrogen cost decline — if it falls faster than expected, India could leapfrog. That's the kind of dynamic that makes emerging markets so fascinating to follow.