İron and steel industry has historically been a traditional, labor-intensive, and operationally costly industry. It is in dire need of innovation due to economic inefficiency, changing consumer culture, and the implementation of various regulations such as carbon credits, and carbon border adjustment mechanisms. A new feasibility for change is around the corner.
Every year, approximately 2 billion tons of steel are produced worldwide, resulting in over 2.6 billion metric tons of CO2 emissions with the current inefficient production methods.
Consumer expectations, economic inefficiency, and environmental awareness collectively demand more efficient and environmentally friendly solutions. This includes reducing carbon emissions, ensuring transparency and traceability throughout the entire supply chain, and increasing economic feasibility while reducing environmental impact.
The magnitude and complexity of the problems require a multi-faced approach. This is motivating startups to test risky and new business models, processes, and technologies in the industry
The objective of some of the established companies in the industry is to formulate strategic collaborations with startups and share risks of "the new" in several focus areas. The focus areas include accelerating the transition from raw material production to value-added service provision, experimenting with new business models, and testing technologies that increase economic efficiency while reducing environmental impact.
Let's look at some examples that prove these are not just concepts but reality.
H2 Green Steel Story – the Quest for Earth’s Sustainable Future
H2 Green Steel - accelerates the decarbonization of the steel industry through the use of green hydrogen. Established in 2020, the startup utilizes green hydrogen, obtained through expensive methods, for steel production. H2 Green Steel charges its customers 25% to 30% more for steel. With the gradual increase in carbon taxation in advanced markets from 2026 to 2030, the new carbon pricing is making H2 Green more competitive.
Companies like Porsche, planning to use CO2-reduced steel from H2 Green Steel in sports cars from 2026,(Porsche plans to use CO2-reduced steel from H2 Green Steel in sports cars from 2026), and KIRCHHOFF Automotive signing pre-purchase agreements with the facility in Boden for near-zero emissions steel supply, are eager to seize this opportunity. (KIRCHHOFF Automotive and H2 Green Steel in €130 million deal for supply near zero emissions steel)
Here is some data from venture capital and private equity investments, confirming the new production feasibility.
- In February 2021, H2GS initiated a €50 million Series A investment round for the Boden project.
- In May 2021, the startup closed a $105 million Series A investment round.
- In October 2022, the startup completed a €260 million Series B investment.
- Also in 2022, it secured €3.3 billion in credit facilities from the Swedish Export Credit Corporation (Svensk Exportkredit) and five commercial banks.
- In September 2023, it received an additional €1.5 billion in investment from a group of investors led by Altor, GIC, Hy24, and Just Climate.
With the new financial feasibility, startups like Boston Metal are also making their mark in the industry. Boston Metal's MOE provides a wide range of raw material supplies by directly converting low- and medium-grade iron ore powders into high-purity molten iron.
By developing its electrolysis solution, Electra enables the recovery of valuable metals from mining sector waste, turning liabilities into assets.
A similar initiative, SteelTrace, provides tracking services for steel throughout the supply chain, while Formetrix supplies special steel alloys for industrial component production.
Startups like S1Seven offer blockchain solutions for steel producers to conduct their operations with transparent supply chain records, ensuring necessary transparency for quality certifications and accreditations.
The solutions provided by startups are not limited to new technologies. Formerly founded in 2016 under the name Schrott24 with a B2C focus, transformed into Metaloop in 2022 with a B2B focus, Metaloop offers a comprehensive value proposition including live matching, logistics support, trade finance, and risk management services in the global metal scrap market.
Wayland, Addiguru, Makerverse, among others, have developed additive manufacturing services that offer rapid spare parts and prototyping capabilities for emerging markets like space technology, electric vehicles, and energy storage.
Startups like Sortera and Machina Labs accelerate industry R&D efforts with artificial intelligence.
Findings and Recommendations
The future of the iron and steel industry is being tested and reshaped with new startup technologies and business models, especially in advanced markets like Europe and Australia where economic feasibility is fast emerging.
Major steel producers are choosing two different paths: either making strategic investments with startups to produce new solutions in their markets or becoming financial investors of new solutions in advanced markets.
For instance, large steel producers like Severstal and ArcelorMittal evaluate acceleration programs such as SteelTech (Severstal launches Steeltech Accelerator with global venture alliance) and XCarb, and funds to accelerate startup development (ArcelorMittal launches XCarb™ Innovation Fund Accelerator Programme for breakthrough climate tech start-ups in India)
Borusan amidst challenging competition due to carbon border adjustments, chose to be a financial investor to the new value unlocked in advanced markets. (Borusan’dan (BRSAN) satış kararı)
For large companies, getting involved in risky innovation processes with startups is not an easy choice. Corporate culture is more decisive than any strategy.
New regulations entail more than just sanctions and additional taxes. Impact funds and carbon credits support iron and steel companies wanting to evolve their main value propositions with stakeholders like startups and renewable energy firms.
Culture evolves in harmony with its environment.
The cornerstones of this new culture are dedicated to innovation. For corporations, this means autonomous venture builder structures independent of corporate hierarchies, and companies collaborating structurally with startups and startup accelerators, enabling them to assess strategic opportunities as well as financial investments. (Beyond the Walls: Why Corporations Embrace External Innovation Hubs and Venture Builders)
Tracing back all the innovative and strategic investments in the iron and steel industry, we can probably say that the new values being tested and implemented will make a major difference in the competition.
At Workinlot we design process frameworks that enable companies to collaborate with technology firms and startups. To ensure these designs are optimally developed, we provide iterative project management support in partnership with the organization.
Through this collaborative and iterative knowledge transfer, we have helped establish corporate venture capital funds, open innovation platforms, and venture builder structures.
Let's connect and collaborate to identify and validate new opportunities.