Will China’s greener steelmakers shape global low-carbon transition?

China's domestic decarbonization initiatives are gradually spilling over into foreign ventures

A production line for hydrogen-based steelmaking in Zhangjiakou, Hebei province. The facility, owned by Hebei Iron & Steel, is one of the first large-scale examples of this kind of steelmaking in China (Image: HBIS Group / Xinhua / Alamy)

In July, Hebei Iron & Steel (HBIS) signed a deal to sell 10,000 tonnes of “low-carbon steel” to an Italian client. With a 50% smaller carbon footprint than conventional products, the shipment was made in a “hydrogen-based” furnace at a steel plant in Zhangjiakou belonging to HBIS subsidiary Zhangxuan Technology. The plant is one of the first large-scale examples of hydrogen-based steelmaking in China. And it has the flexibility to switch to using “green hydrogen” made entirely using renewable power.

The deal signals growing recognition of Chinese low-carbon products in Europe and shows how producers are adapting to the EU’s forthcoming carbon emissions levy, called the Carbon Border Adjustment Mechanism (CBAM). Yet these are early pilots rather than industry-wide change, their scale tiny compared to China’s billion-tonne annual steel output.

Exports are only one dimension of China’s global low-carbon steel push. Leading Chinese steel companies are moving both up and down supply chains. Abroad, they are building low-carbon steel plants while also offering engineering services and investing in iron-ore mining and supply-chain infrastructure.

These efforts reflect an embryonic form of a broader shift. Domestic decarbonization initiatives are increasingly spilling over into overseas ventures, in countries where more abundant resources, such as gas and high-grade iron ore, as well as demand, are making low-carbon steelmaking more feasible at scale.

This outward shift comes amid intensifying climate regulation and trade barriers. CBAM, which entered its transition phase in late 2023, will begin imposing actual carbon tariffs on imported steel in 2026. Meanwhile, China’s national carbon market expanded this year to cover the steel sector, exposing domestic producers to compliance costs and emissions benchmarks at home.

Such rules raise the stakes for Chinese steel mills, already constrained by caps on crude steel output and a “no capacity-expansion” policy. Without credible cuts in emissions intensity, access to export markets will narrow. Meanwhile, global steel demand remains uneven, with growth in the Middle East, Africa, Southeast Asia and India partly offset by weaker consumption elsewhere.

Against this backdrop, China’s low-carbon steel trailblazers are pursuing a two-track strategy. Domestically, they are investing in technologies that cut emissions within the constraints of China’s energy resources. Overseas, they are seeking out locations where feedstocks for lower-carbon steelmaking are plentiful. These include natural gas now and potentially renewable energy for scaling up green hydrogen production further down the line.

Such approaches provide alternatives to coal and enable more economically competitive production. Many of these host regions – from the Middle East to Central Asia and parts of Africa – also offer more favourable geopolitical and trade environments.

Using energy and market advantages at home and abroad

China Baowu, the world’s largest steel producer, has been experimenting with low-carbon methods both at home and abroad.

In December 2023, a subsidiary, Baosteel, commissioned one of China’s first plants for making hydrogen-based direct reduced iron (DRI) on an industrial scale, at Zhanjiang steelworks, Guangdong province.

Baosteel’s Zhanjiang steelworks in Guangdong province (Image: Deng Hua / Xinhua / Alamy)

DRI is made using hydrocarbons such as carbon monoxide and hydrogen, as well as industrial off-gases like coke oven gas, to reduce iron ore in its solid state. These gases strip oxygen from the ore without melting it, leaving a porous, sponge-like product with high iron content. DRI is an ideal feedstock for steelmaking in electric arc furnaces (EAF), which are powered by electricity and can be mainly fed scrap steel.

Unlike the pig iron produced in blast furnaces, which relies on coal-based coke and emits large amounts of CO2, DRI can be made with natural gas, coke oven gas or hydrogen, greatly lowering emissions. Compared to conventional blast furnaces, the fossil-gas-based DRI process can cut carbon emissions by 50-60%.

The flexibility to use different gas sources also makes it an ideal technology to support the staged transition from fossil fuels, such as natural gas and coke oven gas, to green hydrogen and near-zero steel production.

Baosteel’s Zhanjiang DRI plant actually uses refined coke oven gas, a by-product of the coal-to-coke process, which contains over 60% hydrogen. This makes good economic sense in China, as natural gas is a relatively scarce resource.

If and when “green hydrogen” becomes available at scale, it could entirely replace fossil gases, including natural gas and coke oven gas, and the carbon reduction would approach 100%.

In June, the Zhanjiang DRI plant was further paired with an EAF for steelmaking. This DRI-EAF process allows for a significant reduction of up to 60% in emissions compared to a traditional blast furnace.

While Baowu is developing technical solutions under energy constraints at home, abroad it adapts to host countries’ energy structures and product demand. In May 2023, the company signed a joint venture with Saudi Aramco and the Public Investment Fund to build an integrated steel-plate manufacturing complex in Saudi Arabia. Like Zhanjiang, the facility combines DRI with an EAF to manufacture heavy plate steel, which is thicker and more robust than sheet steel.

Where Zhanjiang targets high-grade sheet steel for Baowu’s carmaker clients, the Saudi facility is oriented toward plate products for the oil and gas, shipbuilding, offshore and construction industries in the Middle East and North Africa. The project represents an investment of about USD 2 billion and will produce up to 1.5 million tonnes of heavy-plate steel per year.

The key difference between the Zhanjiang and Saudi plants lies in their choice of fuel. While Zhanjiang relies on coke oven gas, due to China’s resource constraints, the Saudi project will use natural gas directly, taking advantage of local reserves. Both facilities adopt the DRI-EAF route.

Learning and practising across borders

The low-carbon shift of another large Chinese state-owned steelmaker, Shougang, has occurred gradually across borders. In 2023, its construction subsidiary completed a large EAF facility, with an annual capacity of around 2.5 million tonnes, for Turkish steelmaker Tosyali’s steel complex in Algeria. This was the second such furnace it had built for the same client. These projects gave Shougang valuable engineering experience before the company had built or operated an EAF within China itself.

The following year, Shougang announced plans to build its own EAF at its plant in Tangshan, Hebei province, with an annual capacity of 1.3 million tonnes. Scheduled to come online in 2026, it will replace an older “basic oxygen furnace”, which turns hot metal from blast furnaces into steel.

Rolled steel in a warehouse run by steelmaker Shougang in Tangshan, Hebei province (Image: Zhu Xudong / Xinhua / Alamy)

The decision also reflected shifting domestic conditions, including national policy encouraging low-carbon steelmaking, and growing demand from foreign clients such as BMW for low-carbon sheet steel. In this sense, Algeria provided the technical confidence, while China’s policy signals, and market demand, created the space for Shougang to act at home.

By mid-2025, Shougang was extending the overseas model again, this time upstream in Central Asia. Its engineering arm, working with two Chinese strategic investment partners, broke ground on a low-carbon steel plant in Kazakhstan’s Jambyl region with an annual capacity of 3 million tonnes. The facility is designed around DRI feeding into EAF steelmaking.

Kazakhstan’s abundant high-grade iron ore – including new deposits such as the Lomonosovskoye mine – is a critical enabler, since the DRI-EAF method requires higher-quality feedstock. By tapping these resources, the Chinese ventures are not only meeting local demand but may also be lining up high-grade iron ore or DRI for export to feed China’s future lower-carbon steelmaking capacity; although no export deal is publicly available.

Taken together, the sequence shows how Shougang’s overseas ventures, domestic policy incentives and resource-oriented partnerships reinforce one another. The Algeria project provided engineering know-how. The Tangshan EAF is applying that to domestic decarbonization policy and client demand. And the Kazakhstan venture extends the approach to a resource-rich partner country while securing raw-material supply. The progression underscores how Chinese steelmakers are not only learning at home but also drawing on overseas projects to accelerate their transition pathways.

Adapting to context

Jinnan Iron & Steel, based in Shanxi province, has been experimenting with ways to reduce emissions using China’s existing blast furnaces. The company has been trialling injection of hydrogen into blast furnaces, in cooperation with the Central Iron & Steel Research Institute. This method does not replace coal altogether but substitutes a portion of the coke with hydrogen, lowering carbon intensity.

Such “retrofit” solutions are important in China, where most steel production still comes from large blast furnaces. These furnaces are costly and politically difficult to shut down, considering the jobs, taxes and liabilities involved. Hydrogen injection can deliver around 20-30% emissions cuts – less than the 60-90% potential achievable through DRI-EAF, but quicker and cheaper to deploy. For that reason, it is widely seen as a transitional measure, useful for gaining early reductions and hydrogen-handling experience while preparing for deeper shifts.

At the same time, Jinnan is pursuing a very different pathway overseas. In 2024, it joined with Brazil’s Vale, the world’s largest iron ore producer, to invest more than USD 600 million in an iron-ore concentration plant at Sohar Port in Oman. Raw iron ore would be shipped from Brazil to the facility, which is slated to start operations in 2027 and supply 12.6 million tonnes of high-grade concentrate annually. Most of this will be used to make iron ore pellets and briquettes suitable for the DRI-EAF route. The Oman venture also complements Vale’s plan to build a network of “green briquette” hubs in the Middle East, creating synergies between Brazilian ore and global steel demand.

The contrast between the two strategies highlights how Chinese firms are adapting to context. Domestic hydrogen trials may ease the transition for China’s current fleet of blast furnaces. Meanwhile, the Oman project positions the company in future-oriented supply chains for low-carbon steel.

A dual track born of necessity and strategy

The scale of China’s low-carbon steel projects, both at home and abroad, remains small compared to its coal-based capacity and annual crude steel output of over one billion tonnes. Despite policy targets, the share of EAF steel – the main low-carbon route – has stagnated in recent years at around 10%, while structural overcapacity in traditional blast-furnace production persists. These efforts are still like dots under a microscope. Though small, they are worth close observation in the hope they can trigger more green steel projects and drive a structural shift in the industry.

The experiences of Baowu, Shougang and Jinnan suggest that China’s steel decarbonization is no longer confined within national borders. Each company is experimenting with different technologies at home – hydrogen-based DRI, EAF for high-quality steel, or hydrogen injection in blast furnaces – and then extending those approaches to overseas projects where resources, financing and market demand make them viable at scale.

This dual-track approach reflects both necessity and strategy. Domestic constraints, from limited natural gas supply to strict capacity caps, mean some technologies can only be tested in pilot form inside China. Overseas, however, resource endowments such as Saudi Arabia’s gas reserves or Oman’s access to high-grade ore open the door to different pathways.

For Chinese firms, investing abroad is therefore not just about securing materials or markets, but establishing a position within the emerging global map of low-carbon steel. What began as policy-driven experimenting at home is now shaping the contours of China’s role in the global steel transition.

The challenge, then, lies in whether these projects can deliver in both climate and commercial terms. Hydrogen steelmaking and DRI-EAF processes remain expensive, and future demand for premium “green steel” is uncertain. However, China’s government has already issued guidance for greener outbound investment, calling on companies to align with international climate rules and adopt best practices abroad.

For steelmakers, this means turning broad principles into practical standards: ensuring transparent carbon reporting, linking financial support to measurable emissions reductions, and encouraging ventures that combine Chinese technology with host-country resources. By tightening the link between domestic policies and overseas project execution, China can reduce the risk of being seen as exporting carbon-intensive facilities, while strengthening its role in shaping the global transition to low-carbon steel.

Author: Shen Xinyi

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This article was originally published on Dialogue Earth under the Creative Commons BY NC ND licence. Read the original article.