European economies see the first effects of rising interest rates

With nearly a year of interest rate increases behind us, it’s potentially time to ask (although perhaps prematurely): have the interest rate hikes had the desired effect? – Written by Seref Dogan Doğan

Strikes in the transport sector all over the world. Risks in the production supply chain are growing

Transportation is the single most critical element to functioning supply chains. However, the growing transport sector strikes globally pose a risk to the unfettered movement of goods around the world. – Written by Seref Dogan Doğan

Interest rate hikes fight inflation.Here’s how central banks have acted

Amid sharply rising global energy and food prices, inflation has threatened to spiral out of control worldwide, and this is prompting concerted action from major central banks. With inflation hitting multi-decade highs in most economies, central banks are responding by hiking interest rates at a similarly record-breaking pace.

For instance, the Bank of England recently effected its largest rate increase in 27 years, and the previously “dovish” European Central Bank raised interest rates for the first time in 11 years, bidding farewell to a “long chapter of negative rates.”

However, despite the increased synchronicity of central bank measures worldwide, there continue to be outliers. Japan, for instance, has chosen not to implement a rate hike – instead, the country is focused on protecting its currency against a surging dollar. Likewise, even in countries where interest rates have risen, central banks have acted uniquely and with varying levels of urgency. Below, I take a closer look at how major banks in different regions are responding to inflationary pressures below, why they’re raising rates, and what they’re doing differently.

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Rising interest rates

Inflation has been a key topic in economic discourse since mid-2021. Even before the cost-pushing trends caused by the conflict in Ukraine, there were strong signals that central banks would shortly act to reverse the quantitative easing measures implemented to prop economies up against COVID.

Now, with record inflation rates, banks are acting to put the brakes on and prevent entrenched inflationary pressures. By raising interest rates, they increase the cost of borrowing and this in turn reduces the purchasing power of consumers. With less purchasing power, demand for many goods and services should fall, ultimately resulting in lower prices.

As the IMF notes, central banks in emerging markets were the first to start hiking rates in 2021, before being followed by their counterparts in advanced countries. In a roundup of recent rate increases, Reuters reporting indicates that the US lifted rates by 75 bps on September 21 – and projections indicate more planned hikes, potentially bumping rates up to 4.4% by year-end.

The Bank of Canada has also aggressively tightened monetary policy, raising its policy rate to 3.25% – including a 100 bps raise at one point. There are further plans to raise policy rate by 50 bps to 3.75% in October. Meanwhile, the Bank of England has taken a more measured approach, delivering a 50 bps hike on September 22 – less than the 75 bps expected in the market. Nevertheless, money markets see sharper rate hikes on the horizon, with projections of a policy rate of 4.9% by June 2023.

Norway was the first major economy to start hiking rates in 2021, and on September 22 another 50 bps increase brought the country’s policy rate to 2.25%. Likewise, the Reserve Bank of Australia hiked rates for the fifth month in a row, delivering a seven-year high 2.35% policy rate.

Rate hiking action has been slower elsewhere, with Switzerland and the EU playing catch up. The Swiss National Bank only entered positive rates in September, with a 75 bps hike to 0.5% in its second rate increase this cycle. Similarly, the European Central Bank implemented a 75 bps hike in September, raising deposit rates to 0.75% while refinancing rates were up to 1.25% in the highest increase since 2011. Further hikes are likely, with the ECB signaling that rate rises may well continue into 2023.

Recession fears and deflation concerns

While conventional wisdom suggests that targeted rate hikes can help control inflation, central banks are wary of overshooting their inflation targets. As Euronews notes, “aggressive monetary policy is a tightrope walk: making money more expensive can slow down growth, weaken salaries, and foster unemployment.”

Why are small businesses losing confidence in national economies?

In a survey conducted in November 2020, McKinsey & Co. found that roughly 80% of European small and medium-sized enterprises (SMEs) viewed their economy as “somewhat to extremely weak”. While the sentiment varied across national economies, SMEs in Italy and Spain were the least optimistic, while Germany had the most optimistic.

Nearly two years later, many of the challenges that informed this SME stance are still unresolved or have worsened in some instances. Businesses across the EU continue to experience difficulties owing to congested supply chains, rising energy costs, and stretched finances.

Likewise, the industries most affected by the pandemic, including hospitality, cultural, creative, food and drinks – which account for a majority of SMEs – are still on a sluggish path to recovery.

Commentators in some quarters suggest that regulatory bodies, such as the European Commission, are not doing enough to help EU SMEs survive and thrive.

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Small businesses badly hit in Europe

I doubt that anyone can deny the overwhelming and far-reaching effects of the COVID-19 pandemic, especially in the SME sector. For a sector that is mostly labor-intensive and dependent on liquidity generated from a steady cadence of demand and supply, the SME sector was amongst the least prepared for the pandemic. Their higher focus on physical selling, coupled with the low rates of digitalization in the sector, meant that when COVID hit, it hit hardest for small companies, including those in Europe.

Explaining why this was the case, Anna Fusari, the European Investment Bank’s head of Banks and Corporates division in the Adriatic Sea region, noted the “thinner liquidity reserves” that SMEs often have. Additionally, “they have limited financial alternatives, and they mostly rely on support from local banks,” says Fusari. “In the majority of cases they lack assets that can be disposed of, or that can be used as collateral for new credit lines.”

While the EU swung into action in passing comprehensive financial and economic measures to broadly support businesses, including SMEs, the situation remains challenging for these companies.

Further, as Christine Lagarde, head of the European Central Bank, admitted in a 2021 speech at the “Jahresimpuls Mittelstand 2021” in Frankfurt, “[the] reality is currently hard for many [SME] firms and the future remains uncertain.”

Yet, this was before the crippling supply chain squeezes recorded from mid-2021 and the energy crisis that has plagued households and businesses since then. Since then, business has gotten much tougher for SMEs who have to contend with runaway business costs while demand has remained static or below pre-pandemic levels in the sectors hardest hit in 2020.

What does the future hold for EU SMEs?

SMEs are a critical component of any economy, particularly in the EU where they contribute 66.6% of jobs and 56.4% of total added value. As I see it, the EU must act with even greater commitment to ensure micro, small, and medium companies in the region experience relief from the highly volatile and uncertain business environment they have endured for the past two plus years.

While the EU has weighed in with unprecedented financial and economic outlays since the pandemic, the sentiment from SMEs is that the aid is either insufficient or only serves as a temporary salve to deeper injuries. Speaking to Financial Times in 2021, Maxime Lemerle, the head of sector and insolvency research at Euler Hermes, highlighted the risk of “zombified companies” that receive just enough liquidity that keeps them on the brink of failure. “These zombified companies in hospitality, retail, transport, leisure and events could go bust very quickly even if the support measures are wound down quite slowly,” says Lemerle.

Global cooperation will be needed to face the significant costs of weather and climate-related disasters

Climate change is an increasingly costly, and deadly, event in countries around the world.

As the World Meteorological Organization (WMO) reports, the past 50 years have seen some of the deadliest and most expensive disasters ever recorded. The period from 1970 to 2019 accounted for 50% of all climate-related disasters, 45% of reported deaths, and contributed 74% of economic loss ever suffered due to climate.

While the broad view of experts and regulatory agencies is that these weather and climate events are most likely to affect the most vulnerable, a term that would typically evoke images of at-risk people in emerging or developing economies, the spectrum of damage has also widened. People everywhere, from Russia to the US, Australia, China, India, and Chile, in urban and rural areas, are increasingly exposed to the debilitating economic and human costs of climate events.

While this reality underlines the global threat that worsening climate events pose, I believe it also indicates the global scale of cooperation needed to ameliorate the humanitarian, economic, and financial impact of these disasters on human populations.

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The exorbitant cost of climate-related disasters

In the 1970s, available records pegged the financial cost of climate disaster at a daily average of $49 million. Those costs have exploded recently, and as of the 2010s, the daily economic expense of weather-related damage was a mammoth $383 million per day. Worse, three out of the ten costliest weather events on record occurred recently, all in a single year, and together they account for 35% of total economic disaster loss from 1970 to 2019.

The cost of climate change isn’t only financial though. The top ten deadliest weather hazards between 1970 and 2019 also account for well over a million deaths, according to the WMO. Droughts caused the most damage during the period, causing 650,000 deaths, followed closely by storms which led to 577,232 deaths.

While some part of these events’ deadly aspect can be attributed to their force and wide-ranging impact, they are even deadlier for the multiplier effects they produce on affected populations. For many, climate-related disasters often spell the loss of livelihood, shelter, sustenance, security, and any semblance of normal life. In the event of such disasters, the most affected find their lives suddenly and violently thrown off track, sometimes permanently. Often, only those in countries with established and extensive welfare systems are able to return to a normal life.

In my opinion, one of the harshest outcomes of climate disaster is its effect on the ability to procure a livelihood and sustenance. Climate operates quite visibly and devastatingly on food systems, and these events are significant threat factors for global food security. Addressing this topic in a report on the impact of disasters and crises on agriculture and food security, the Food and Agriculture Organization (FAO) notes that “the growing frequency and intensity of disasters, along with the systemic nature of risk, are jeopardizing our entire food system.”

Global action necessary to stall climate-driven trouble

As Qu Dongyu, Director-General of the FAO, notes, “we are living at a time that demands ambitious collective measures.” The world can only move the needle on climate-related goals and effectively tackle the growing menace of weather disaster with comprehensive and broad-based action from all sides.

Climate is a global problem, and in my opinion, it will take only global action to address this threat. Dongyu frames the task facing the world aptly when he says “the ability of governments, international organizations, civil society and the private sector to operate and cooperate in fragile and disaster-prone contexts is a defining feature for meeting global targets and achieving resilience and sustainability.”

The world must act collectively and decisively in unearthing, fine-tuning, implementing and scaling plans to cushion the effects of climate change. Trade, agriculture, and disaster-readiness are low-hanging fruits that can provide immediate results, as the World Bank asserts.

Ultimately, it is undeniable that climate disaster risk is a growing threat factor for the entire world, and mitigating this threat will require broad global cooperation to secure the lives and livelihood of at-risk populations.

EU employment rate higher than pre-Covid days

After a brief COVID-induced slump, employment rates in the EU have trended upwards once more, according to Eurostat. While the EU employment rate fell to 71.7% in 2020, a drop of one percentage point compared to 2019, job markets in the region rebounded to 73.1% in 2021.

In a statement accompanying the release of the European bloc’s 2021 employment data, the EU’s statistics office noted that three member states – the Netherlands (81.7%), Sweden (80.7%), and Czech Republic (80%) – experienced particularly strong gains. And overall, 16 member states achieved or exceeded pre-COVID employment levels, which I believe indicates the incredibly resilient nature of the European job market.

Impact of the pandemic on EU employment

COVID-19 was a destabilizing event for most economies and a wide spectrum of industries. The EU employment landscape was no different. “The labour market was affected by COVID-19 restrictions in 2020”, says Eurostat, as lockdown mandates and dwindling demand in certain industries led to furloughs and layoffs.

According to bloc data, only four of 27 member states exceeded 2019 employment levels during 2020, and that by less than 0.5 percentage points. For the majority of states within the bloc, the year brought about a fall in the number of employed individuals, a common response to the pandemic pressures that reverberated worldwide.

However, certain member states experienced worse outcomes. Austria, Spain, Greece, and Ireland recorded the highest falls in employment, with rate falls of between two to three percentage points.

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EU job market recovery

The EU employment rate did not remain depressed for long though. As Reuters reports, the EU posted stronger rate growth in 2021, surpassing pre-pandemic levels and instilling greater confidence in the region’s labor market and the policies set in motion to manage market flux during COVID.

As I’ve stated above, the European bloc experienced majority positive growth in employment rates during 2021, with 16 member states showing greater growth than 2019. Interestingly, Greece – amongst the low-fliers in 2020 – experienced one of the highest results in 2021 with a rate growth of nearly two percentage points (pp) over 2019 figures. Poland (+3.1 pp), Romania (+2.0 pp), and Malta (+1.8 pp) also experienced solid gains compared to 2019.

The results were not all positive though. Eurostat says 11 countries showed worse growth rates than 2019, led by Latvia, Estonia, Austria, Bulgaria, and Slovakia, which experienced the largest declines. Regardless, it’s critical to maintain context, even with these worse than expected results. While some of these states may not have surpassed pre-pandemic levels, the majority showed recovery from the 2020 depression, and this is in line with the promising job growth in the EU market.

Resilience and robustness in EU market

In my opinion, the results reported by Eurostat indicate remarkable robustness in the EU market. Compared to other regions, such as North America, which experienced more drastic falls in employment rates during COVID, the single percentage point decrease recorded in the EU shows very little job displacement during a trying period for countries around the world.

The IMF also notes these “astonishing” results, which it attributes to job retention schemes and “a rapid and forceful policy response at both EU and national levels…” And, with increasing industrial and economic activity, the EU job market has seen markedly improved conditions, which I believe will help launch greater stability and more growth in the next reporting period.

Overall, the data indicates that the EU did much that was right during the height of the pandemic, and those efforts are bearing fruit now. As the IMF notes, the EU now enjoys, by virtue of these results, “a potentially crucial head start in navigating the structural transformations that lie ahead and in making sure that nobody gets left behind.”

How important is Russian gas in the conflict with Ukraine?

AAs the World Economic Forum reports, oil prices jumped above $110 per barrel in the weeks after Russia’s invasion of Ukraine. Likewise, natural gas prices more than tripled between mid-February and early March in reaction to the conflict, signaling how the war is affecting energy prices globally.
But in the case of the Russia-Ukraine conflict, energy sensitivities to the war go well beyond volatile price action.

Considering Russia’s status as a significant player in global energy supply and the lengthy profile of countries (including the EU and India) relying on its output, there are other nuanced issues at stake in the conflict.

I outline some of these below.

Effect of energy on economies

Energy, being a driver of practically all industry, is a critical global resource. However, the commodity’s volatility – resulting from sensitivity to global or regional disruptions, price seasonality, and industry concerns – makes it an economic wild card at times.

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The effects of this price seasonality often vary, but in most cases, it results in disruptions to local and global supply, sharp price hikes, or scarcity in the commodity. Countries are often keen to avoid this outcome, which is one of the reasons why the international community has not placed a coordinated embargo on Russian gas.

In the case of the EU and countries such as Germany, Poland and Bulgaria, these concerns are all the more critical due to their reliance on Russian energy. The EU gets 40% to 45% of its gas from Russia, while Germany, Austria, and Italy fulfill 55%, 80%, and 40% of their respective gas needs from Russia. These countries are largely paralyzed from taking concerted action due to their potential vulnerability to shocks resulting from energy disruptions.

Energy agreement disputes and potential shutoffs

Russia and its trade partners have experienced turbulent economic relationships in the past, particularly in relation to energy agreements. For instance, Russia and Ukraine had a 2008 dispute over a gas transit deal that resulted in Russian gas supply cuts to its neighbor in the dead of winter. Likewise, Russia shut off Ukraine’s gas supply after a 2014 payment dispute, indicating the superior bargaining power of the Russian government.

Russia recently activated these same measures against Poland and Bulgaria (which gets 90% of its gas from Russia) for their failure to pay for gas supply in Russian roubles as opposed to US dollars.

Russia continues to maintain a difficult, and often complex, relationship with its trade partners, especially in Europe and North America. Consequently, responding to the potential of Russian gas shut offs demands opening up alternative supply channels to blunt the effects of any Russian action. But that option will take time to implement, which is a distinctly limited resource in times of war.

Complex economic interrelationships

While the battle lines in Ukraine seem reasonably clear, the underlying economic relationships underpinning the conflict are much less so. For instance, the two main actors – Russia and Ukraine – continue to maintain energy relations as Ukraine is still a key player in the transit of Russian gas to Europe.

To add some economic leverage to its conflict against Russia, Ukraine has also now activated some of its control over that process, blocking Russian flows to Europe. As a result, natural gas prices in Europe have jumped even higher in the day after this action, adding further complexity to the conflict.

Even the US, which has expressly forsworn energy imports from Russia, is still partly dependent on the country for 16% of its uranium imports, emphasizing the complex interrelationships that underpin the train of events.

Why will the uncertainty in markets continue for a long time?

There are strong arguments that uncertainty has been the defining economic feature of the past three years. From the US-China trade war to COVID-19 and the supply chain crisis of 2021, markets have been constantly up or down with remarkably few (and generally short) periods of stability in between.

2022 has only continued that trend so far. As the New York Times reports, stock markets have experienced several wild swings this year alone, with the S&P registering record losses (including its longest losing streak since 2011) amidst intermittent rallies.

Likewise, global events such as the Russia-Ukraine war, rising inflation, and enduring COVID tailwinds are contributing to this uncertain state of affairs.

Consequently, market participants and stakeholders are reacting with increased caution. CNBC, citing an Allianz Life survey, reports that 43% of investors say they’re “too nervous” to invest within this market, especially considering the lack of clarity as to what comes next. Stakeholders and participants may have to wait longer for clarity though, because, as I argue below, the unsure state of the market is only likely to continue. Here are the top reasons why.

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Slowing global economic recovery

Mid-2021 produced higher than expected global growth figures, fueling an optimistic outlook for a global economic rebound. The pace of that growth slowed down before year-end though, due to chronic supply shortages and a resurgence of new COVID variants omicron and alpha.

This year has not brought any improvement in the situation. As the World Bank reports, global economies continue to experience decelerating growth due to the exhaustion of pent-up demand and unwinding fiscal support. Likewise, a sharp incline in global inflation rates has impacted consumer spending as greater income shares go to necessaries and less allocation to savings and investment.

Tightening monetary policy

I’ve mentioned tightening fiscal policy above, but it’s worth a closer inspection. Central banks in Europe, Japan, and the US intimated earlier in the year that they would be exploring a tighter monetary policy in a bid to combat rising inflation. Consequently, we’ve seen the Federal Reserve raise rates recently and the European Central Bank has given a clear signal on rate hikes in July.

As the New York Times reports, investors and industry are reacting to the news with caution as they consider the potential implications of these rate hikes and how they are likely to play out. Consequently, I expect decelerated borrowing activity while the industry gauges incoming measures.

Russia-Ukraine conflict

War is generally bad for stability, but in the case of the Russia-Ukraine war there are more reasons why this is the case. Russia is a major player in the global energy market, but its energy obligations to trade partners and general global supply are more susceptible to shocks due to the specter of war.

Global supply runs the risk of damage to critical Russian transmission infrastructure, such as the key pipelines running through Ukraine and other supply channels. Damage to these pieces of infrastructure may further congest an already inflated market, resulting in even higher prices and less of the product.

It’s unclear how long the conflict will last. Consequently, the energy sector will likely continue to experience elevated prices and uncertain supply.

COVID-19 tailwinds

Another important factor, which is largely being ignored for the moment, is the continuing effect of the pandemic on global trade. Enduring concerns over COVID variants, new and large-scale outbreaks in China, and attendant supply chain congestion are all contributing to a highly uncertain market state.

Considering that vaccine hesitancy is still wide-spread and vaccine penetration levels continue in the low figures (particularly in emerging economies), we’re likely some way off complete clarity in this area as well.

European countries adopt the first support measures for companies harmed by the Russia-Ukraine conflict

For companies still reeling from pandemic tailwinds and last year’s supply chain shocks, the Russia-Ukraine conflict couldn’t have come at a worse time.

While most organizations were focused on consolidating growth gained within the past year, new concerns raised by the war have forced boardrooms back into crisis mode as they grapple with rising energy and supply costs.

Likewise, further constrictions resulting from sanctions on Russian entities and individuals have impacted certain businesses, forcing them to either abandon or suspend ventures with Russian-linked partners.

As a remedial policy, the EU recently adopted new support measures to aid businesses that have been put at risk by the conflict and attendant sanctions meted on Russia. The measures, which went into effect on 23 March 2022, will provide financial aid up to €400,000 for some affected businesses and state guarantees on bank loans to qualifying companies.

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Support measures for war-impacted companies

According to Margrethe Vestager, European Commission VP of competition policy, the state aid measures are adapted under a Temporary Crisis Framework (TCF) that aims to mitigate the impact of the war and existing sanctions while retaining competition in the Single Market.

Three types of aid are available under the TCF:

  • Financial aid: Member states are allowed to establish schemes under which impacted companies in agriculture, fisheries, and aquaculture can receive an up to €35,000 grant. Companies in other sectors may receive up to €400,000, and in both cases, states may provide the grant in any form, including direct money transfers. Notably, the aid provided here is not linked to specific costs or liquidity issues.
  • Liquidity support: The TCF provides liquidity support in two categories. The first category includes state guarantees in subsidized premiums to support existing loans owed by affected companies. The second category offers subsidized rate public and private loans. In both cases, maximum loan limits will apply depending on each qualifying company’s operational needs, energy costs, turnover, and liquidity needs.
  • Energy assistance: Perhaps the most immediate impact of the Russia-Ukraine war is the current energy squeeze being experienced by individuals and businesses. The EU is a major energy trade partner with Russia, but that trade has mainly been suspended due to current diplomatic strains. These events hurt many companies, but the EU is providing some stimulus to subsidize rising energy costs. There are also caps to this aid, though. Companies can only receive 30% of eligible expenses, up to €2 million. If operating losses ensue, companies may receive additional assistance above the €2 million cap – up to €25 million for energy-intensive companies and a ceiling of €50 million for firms in specific industries, including aluminum, glass fibers, and basic chemicals.

Conditions attached to aid and duration

These measures carry additional conditions that states must apply regarding qualifying companies. The EC calls these “safeguards” designed to protect economically-viable businesses, ensure that aid reaches companies in need, and foster the long-term sustainability goals of the EU.

Accordingly, states should establish a link between the impact on affected companies, the scale of their economic activity, and the amount of aid they can collect. They might take each company’s turnover and energy expenses into account in this determination. Likewise, aid to energy-intensive companies is envisaged to mean companies whose energy expenses constitute at least 3% of production value.

Lastly, states are encouraged to consider tying aid to sustainability goals for the affected business, but in a non-discriminatory manner.

The TCF is slated to expire on 31 December 2022. Although, before expiry, the EC will convene to determine if there is a need to extend the framework.

Fossil-Free Steel: The New Era of vehicles that could cut global CO2 emissions by 7%

Globally, transportation is fingered as a major climate polluter with between 15-20% of total yearly emissions. Consequently, the sector has received significant attention in green research leading to breakthroughs in alternative fuels like hydrogen and the advance of electric vehicles.

But there’s one area that hasn’t received much attention until now: the steel that goes into vehicles. Steel is a critical resource in today’s modern economy. It’s not just a vital element in the production of vehicles – it’s in everything from bridges to buildings, energy installations, consumer goods and more.

Yet, the steelmaking process requires considerable energy and is notoriously dirty, making the industry a major climate concern. Thankfully, a Sweden-based consortium has made significant advances in cleaning up steel production by pioneering fossil-free steel. What is fossil-free steel and what kind of impact could it have on the climate march? Here are my thoughts.

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What is fossil-free steel?

Fossil-free steel is created with sustainable practices that do not rely on fossil-fuel energy and which avoid the dirty byproducts of traditional steelmaking.

Traditionally, steel is made from iron ore which is converted into iron pellets that constitute the key ingredient in steel production. Under the process, iron ore is converted into iron by removing the oxygen in the ore. The procedure relies on a blast furnace powered by coke and coal.

However, the process is energy-intensive and the “coking coal” burnt during the conversion releases vast amounts of carbon into the atmosphere.

In contrast, fossil-free steel uses a procedure dubbed HYBRIT – Hydrogen Breakthrough Ironmaking Technology – to convert iron ore into sponge iron using green hydrogen rather than coking coal. The conversion process relies on sustainably-powered electric arc furnaces which remove oxygen from iron ore using electrolysis with water as a byproduct.

The procedure was created by a joint venture between mining company LKAB, steelmaker SSAB, and energy company Vattenfall.

Potential impact on global emissions

Considering that steelmaking contributes 7% of global yearly emissions, I believe there’s great potential for fossil-free steel. Research from the Carbon Brief, cited by Forbes, puts that number at 9% of global emissions from 553 conventional steel plants, meaning fossil-free steel could make a serious dent in total transport pollution.

LKAB President and CEO Jan Moström notes that fossil-free steel “is a crucial milestone and an important step towards creating a completely fossil-free value chain from mine to finished steel.”

Currently, there’s evidence that fossil-free steel is comparable to traditionally-made types in all respects, including strength and durability. SSAB delivered the first shipment of the green steel to Swedish automotive company Volvo which has in turn unveiled the world’s first fossil-free steel vehicle – a mining load carrier.

Considering that the International Energy Association forecasts global steel production to grow by 33% by 2050, this new innovation may be significant in the race to net-zero.

However, as I see it, there are still a few rough spots to work out. SSAB says their steel won’t be ready for industrial-scale use until 2026 at the earliest. In addition, price will be a significant concern as fossil-free steel production costs an estimated 30% more than conventional steelmaking. Even though fossil-free steel is more energy-efficient, needing 41% less energy than traditional steel, the technology will need to become cheaper before mainstream adoption.

Nevertheless, fossil-free steel is a welcome development in both the transport and steelmaking industries.