Historically, steelmaking has been a dirty process, but new
technologies are changing this
·
Green steel is made using electric furnaces powered by renewable
energy as opposed to coal
·
Many steel companies are transitioning to green steel and could
be a smart investment
As more industries work to become more environmentally friendly,
it was only a matter of time until the trend came to steelmaking.
Historically, making steel is a dirty job that adds pollution to
the air. But thanks to technology, a cleaner version of steel, green steel, is
now available. Let’s explore what green steel is and the stocks to consider investing in to profit from this transition.
How steel is manufactured
Steel is made from melting iron and carbon together in a blast
furnace or electric arc furnace to turn both ingredients into molten steel. The
blast furnace generates the high temperatures needed to melt iron ore and
carbon. In turn, the carbon used to produce steel is released in large amounts
as carbon dioxide into the air. Between 1.5 and 3 tonnes of carbon is released
into the air for every tonne of steel produced.
The blast furnace process, also known as the Bessemer process,
results in ground, water and air pollution that contaminates the site and
lowers air quality for the employees, nearby residents and the environment.
Great strides have been made over the decades to reduce the amount of
contamination and pollution produced by steel mills, but it's almost impossible
to overcome the waste generated by steel manufacturing.
Steel manufacturing is a vital part of the economy with its
products underpinning the infrastructure needed for the construction of just
about everything people use daily. Fortunately, green energy generation
technologies are making it easier for steel manufacturers to move away from the
processes that pollute and towards ones that get the job done just as
effectively without adversely affecting the environment.
What is green steel?
The most commonly accepted definition of green steel is steel
made with a lower carbon footprint. Efforts are being made to reduce the number
of waste products that are generated by the smelting process, but the most
significant impact comes from using wind and solar to power electric arc
furnaces instead of using blast furnaces. One steel manufacturer, EVRAZ North
America, has successfully used solar power to generate enough electricity to
power its Colorado facility. The company is also constructing a solar power
plant.
Another variation of the green steel concept is capturing the
carbon dioxide emitted during the process and combining it with slag for a
usable steel product. Slag is a waste product that is removed from molten steel
during the manufacturing process. Making slag usable creates a new revenue
stream for steel mills. Other strategies to reduce the amount of slag are being
developed but are not ready for widespread use.
How green steel minimizes carbon
footprint
In 2018, the steel industry was responsible for 1.8 million tons
of carbon dioxide emissions around the globe, or 8% of all carbon dioxide
released into the atmosphere. The U.S. steel industry has been making strides
to reduce its carbon production and emits less than other countries. Reducing
carbon emissions from steel plants means less carbon dioxide entering the
atmosphere, which drives down the impact steel production has on the planet.
Many industries have been moving away from using coal as an
energy source, but the steel industry has held onto its use due to a lack of
viable alternatives. Now, advances in generating energy from renewable
resources have been proven effective in producing steel, freeing the steel
industry from using coal. Not only is renewable energy economical, but it also
reduces the overall carbon footprint of a mill.
A steel plant that moves to green energy sources isn't pulling
coal from the ground and burning it for fuel. This reduces the amount of carbon
released into the air.
Stocks to invest in for green
steel exposure
Green technologies are making solid strides in replacing older
technology, and while clean tech is better in the long run, companies are
making this transition slowly as it represents an overhaul of infrastructure.
Buying stocks in these companies, especially from ones actively adopting green
technologies, exposes a portfolio to an industry that is a historically solid
performer and will most likely continue their track record as they shift.
The following are a few stocks worth considering for green
exposure. Understand that these are long-term investments due to the time it
will take to transition to green steel and the headwinds of a possible global recession this year.
U.S. Steel Corp (NYSE: X)
U.S. Steel struggled for many years as the steel giant was
involved in business segments that were losing money. Additionally, China began
producing steel and undercut prices, shrinking the profit margins of U.S.-based
steel companies.
Over the years, U.S. Steel has been on a mission to sell many
underperforming assets. While the company is still working on this, they have
also begun to invest in electric arc steelmaking.
Over the past year, shares of the company have traded as high as
$38.45 and as low as $17.05. This has more to do with the belief in a slowing
economy than the long-term outlook for U.S. Steel. Most market analysts
consider this stock a hold until more details emerge about the company's turnaround
plans and the economy as a whole.
Nucor (NYSE: NUE)
Nucor has been around for over 100 years but didn't get involved
in the steel industry until 1969. Since then, the company has become the
largest steelmaker in the United States.
This is primarily due to their electric arc furnaces, which
allow the company to better handle upswings and downswings in demand. The
company is a dividend aristocrat, meaning it has increased
its dividend for 25 consecutive years.
Steel Dynamics (STLD)
Steel Dynamics was founded by a former Nucor employee and
follows many of the same strategies for running a steel business. This includes
using electric arc furnaces and keeping low debt loads.
The advantage investors have in this firm compared to Nucor is
that Steel Dynamics is a much smaller company, which means its growth rate
could outpace Nucor. Of course, there is a downside to this, the main one being
there isn't a long history of reliable performance showing that the company can
profit regardless of the condition of the economy.
Rio Tinto Group (NYSE: RIO)
Rio Tinto is a company that explores, mines, and processes
mineral resources, including copper, gold, diamonds, iron ore, lithium,
aluminum, salt, and more. Iron ore is its connection to the steel industry.
The company has been performing well, primarily due to higher
commodity prices. If prices drop, Rio Tinto could feel the squeeze on its
margins. However, the company has a long history, and with its exposure to so
many minerals, it should be able to handle most economic issues.