Replacing 1 Blast Furnace Costs 6 Tril. Won

POSCO chairman Choi Jeong-woo fires Blast Furnace No. 3 of Gwangyang Steelworks in a ceremony to reactivate the furnace after a five-month repair on July 10, 2020.  

POSCO’s cost for replacing one blast furnace with a carbon-free facility by 2050 is estimated at approximately six trillion won. The company is currently running nine blast furnaces and the total replacement cost is estimated to be equivalent to its 30-year operating profit.

The South Korean government recently had a meeting with steel manufacturers and the Korea Iron & Steel Association to discuss how to achieve decarbonization. They focused on replacing the current production processes based on iron ore and coal in large blast furnaces with steel manufacturing based on hydrogen reduction, in which hydrogen and oxygen are used instead of coal to reduce carbon emissions by 25 percent and greenhouse gas emissions by 50 percent.

The problem is the cost. According to POSCO, the cost of the replacement with hydrogen reduction and renewable energy-based power supply will be 5.9 trillion won per blast furnace, including a sunk cost of about one trillion won related to shutting it down before the end of its service life.

In other words, the total cost will be 53.1 trillion won for the company that recorded an operating profit of 2,403 billion won in 2020 and the company will be able to change the processes only if it spends most of the profit for the purpose, which means POSCO cannot do it alone.

Things are not that different for the others using blast furnaces, such as Hyundai Steel. According to industry sources, it will take 110 trillion won for them to adopt hydrogen reduction-based electric furnaces. For reference, POSCO emitted 81.48 million tons of carbon and Hyundai Steel emitted 22.24 million tons of carbon in 2019, when their emission accounted for 21.5 percent of that of the top 500 companies.

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