The global steel industry is navigating a pivotal and capital-intensive transition towards decarbonization. While technological innovation in hydrogen-based and electric ironmaking remains critical, the focus has sharpened on the demand-side dynamics that make this transformation financially viable.
Proactive offtakers in key sectors, such as automotive and construction, are moving beyond passive procurement to actively shape the market, providing the bankability required to build the green steel plants of the future.
This article is based on research from IDTechEx’s “Green Steel 2025-2035: Technologies, Players, Markets, Forecasts” report, which provides in-depth analysis of this evolving landscape, revealing how purchase commitments, coupled with policy and finance, are stimulating the green steel market.
Why Early Adoption by Offtakers is Crucial for Decarbonization?
The shift from carbon-intensive blast furnaces to greener alternatives, such as hydrogen-based direct reduced iron (H2-DRI) coupled with electric arc furnaces (EAFs), requires immense upfront investment, with individual projects often costing billions of dollars. For these projects to move from announcement to reality, producers need to secure long-term revenue certainty.
This is where offtakers play a fundamental role. Through binding, long-term offtake agreements, major steel consumers commit to purchasing future volumes of green steel, often at a premium to conventional steel. These agreements are the financial bedrock of the green steel transition.
They significantly de-risk investments for producers and are a critical prerequisite for securing the necessary project financing from private investors and financial institutions. As detailed in IDTechEx’s report, the success of emerging players like Stegra (H2 Green Steel), which has raised over €6.5 billion, is directly linked to its ability to pre-sell more than half of its initial capacity through such contracts.
Key Drivers
The convergence of regulations and ambitious corporate climate strategies propels the growing demand for green steel. On the policy front, frameworks like the EU’s Emissions Trading System (ETS) and the Carbon Border Adjustment Mechanism (CBAM) are increasing the cost of carbon-intensive production, creating an economic case for low-carbon steel.
The CBAM is notable as it aims to prevent the offshoring of production to other countries with looser regulations, thus reducing the risk of carbon leakage. Steel producers in China are already aligning to comply with the CBAM. Furthermore, EU regulations, such as the End-of-Life Vehicles (ELV) Regulation and the European Spent Catalyst Regulation (ESCR), may also stimulate demand for green steel.
In parallel, corporations are facing mounting pressure from investors and consumers to decarbonise their entire value chains, particularly their Scope 3 emissions, which include purchased materials. For an automaker or construction firm, steel accounts for a substantial portion of the embodied carbon. Committing to green steel offtake is one of the most direct and impactful ways for these companies to meet their net-zero targets.
Key Player Activities
The automotive sector has emerged as the clear driving force in the offtaker movement. The willingness to absorb a “green premium” is driven by the fact that even a significant per-tonne cost increase for steel translates to a marginal (1-2%) increase in the final vehicle price. This enables automakers to enhance their sustainability credentials with minimal impact on consumer-facing costs.
European OEMs, as well as Tier 1 and 2 suppliers, are actively procuring green steel. For example, the Swedish startup Stegra (H2 Green Steel) has successfully secured offtake agreements with a roster of automotive leaders including Mercedes-Benz, Porsche, Scania, and ZF.
Likewise, SSAB, a pioneer with its HYBRIT fossil-free steel project, has established partnerships with the Volvo Group. Established steelmaking giants are also making significant moves – ArcelorMittal is supplying its XCarb® recycled and renewably produced steel to General Motors, signalling growing momentum for green steel in North America.
While automotive captures the headlines, demand is broadening. In the construction sector, Stegra (H2 Green Steel) has secured agreements with building solutions provider Kingspan and ventilation firm Lindab.
A compelling circular economy model is also emerging in the energy sector, where utility Vattenfall is set to purchase fossil-free steel from its HYBRIT project partner SSAB for use in its energy infrastructure.
Machinery and industrial equipment manufacturers, such as JCB, Alfa Laval, and Lindab, are also interested in procuring steel for their products. Interestingly, even Amazon Web Services (AWS) has used recycled steel for data centre construction in Sweden.
Outlook: A Market Forged by Demand but Facing Headwinds
The path forward is defined by both immense opportunity and significant challenges. While offtaker demand, government subsidies, and green finance create a robust ecosystem, the supply side remains fragile.
Offtakers must navigate the risks of a nascent market, including potential project delays, price volatility linked to renewable energy costs, and a lack of universally accepted standards for what constitutes “green steel”, which creates a risk of greenwashing.
The structure of the industry itself may be poised for transformation. The concept of “green iron hubs” is gaining traction, where iron is produced using green hydrogen in regions with abundant renewable energy (e.g., Australia, Brazil) and then shipped as hot briquetted iron (HBI) to steelmakers elsewhere. This decoupling of iron and steel production could reshape global supply chains.
Despite these complexities, the trajectory is clear. The demand signal from offtakers has begun the industry’s gradual transition. The future of steel depends not only on the furnaces used to make it but also on the long-term contracts signed by forward-looking consumers.
IDTechEx forecasts that hydrogen-based green steel production will reach a significant 46 million tonnes by 2035. While this still represents only a fraction of the total required to meet the 2050 net-zero targets, it marks a definitive start.