WE CAN’T DO WITHOUT IT: THE ROLE OF STEEL IN A SUSTAINABLE ECONOMY
Ute Neuhaus: Steel to Zero – how steel will go green. The sustainability podcast by Waelzholz.
Original speaker Ute Neuhaus: My name is Ute Neuhaus, and I’m the host of our German podcast series. In order to make it accessible to an international audience as well, we’ve had the conversations professionally dubbed by native English speakers.
Ute Neuhaus: How can I do my laundry in a way that’s really sustainable? When thinking about this question, eco mode and laundry detergent with the Blue Angel label might come to mind – but green steel probably doesn’t. But it is precisely green steel that also has an impact on how climate-friendly the washing machine in our basement is. So exactly how important is green steel to the transformation of the industry? What will it take to become greener? And what role do retail consumers play on the path to these more sustainable products? These are the questions we’ll be addressing in the third episode of our sustainability podcast Steel to Zero.
Ute Neuhaus: My name is Ute Neuhaus and I’m looking forward to speaking with two guests today who not only share a long business relationship, but also their focus on sustainability. In the studio with me are Konstantin Eckert, responsible for steel purchasing at Miele, one of the world’s leading manufacturers of household appliances, headquartered in Gütersloh, Germany. Hello Mr. Eckert.
Konstantin Eckert: Hello Mrs. Neuhaus, glad to be here. Thanks for inviting me.
Ute Neuhaus: … and Dr. Matthias Gierse, Managing Director Sales and Purchasing at Waelzholz cold rolling mill in Hagen, which supplies Miele with special steel materials. Hello Dr. Gierse.
Dr. Matthias Gierse: Hello Mrs. Neuhaus, nice to see you too.
Ute Neuhaus: Sustainability has been the core of Miele’s corporate DNA since its founding until today. The company uses high-quality electrical steel strip, for example from Waelzholz, for the electric motors in its premium household appliances.
Mr. Eckert, in 2021 Miele sold more than six million appliances worldwide – many of which contain steel. Miele without steel – is that even possible?
Konstantin Eckert: The answer is simple: no, not possible. In fact, our entire product range, if you think of our washing machines, ovens, etc., depends on steel, uses steel, and would be impossible to make without steel. To give you an idea of how much steel Miele buys, in 2020 we purchased around 110,000 tons of metal. Now that may not be so much when compared with the automotive industry, but it’s a relatively large amount for us. If you think of it in terms of cars, it’s also a relatively large amount. A mid-size sedan weighs around 1.5 tons, which means that we purchased an amount of steel that’s equivalent to 70,000 vehicles lined up next to each other.
Ute Neuhaus: Indeed, and you use a special type of steel in the motors of these household appliances from Miele, namely electrical steel strip – some of which you source from Waelzholz. What’s so special about this particular material for Miele?
Konstantin Eckert: Miele stands out because we have a relatively high degree of vertical integration. You mentioned it – we build our motors ourselves. This means that we’re dependent on primary products of very high quality, which we then process ourselves. Miele – as I think everyone knows – has high standards when it comes to the quality of our finished products, and this, in turn, is directly linked to the upstream products mentioned. And it is precisely for these electric motors that we need electrical steel strip.
Dr. Matthias Gierse: Right, and we try to have a positive impact on the longevity and efficiency of these motors through the electrical steel strip we supply, with highly qualified products. More specifically, by reducing the thickness of the material, you can minimize eddy current losses, so less heat is generated when the motor is running. This increases the motor’s efficiency.
Another aspect is rolling to extremely tight tolerances. This then ultimately makes it possible to join the stamped sheets into stator stacks with exceptionally high levels of dimensional stability and precision, which also has a positive effect on the service life of the motor.
Ute Neuhaus: So in summary, the high quality of the steel increases the energy efficiency and also the service life of the household appliances. It wouldn’t be possible to manufacture them without this steel. And fortunately, steel can also be recycled. What’s the situation like at Miele – is the steel from your products reused?
Konstantin Eckert: This begins with the service life, let’s take a washing machine as an example. Miele is traditionally committed to offering washing machines with the longest possible service life. In fact, we’re the only company in the industry that tests its products for a lifetime of up to 20 years. This is also supported by the repairability of our products. We also offer a spare parts service, of course, even for appliances that were launched many, many years ago. And if, in the end, one of our customers does have to part with an appliance, we use our dealer network to ensure that the materials that can be recycled are recycled. And that includes, as you quite rightly pointed out, steel, of course.
Ute Neuhaus: Recycling is surely an important topic at Miele. Durability, of course, customers should use the products for a long time. But what about when you design new products now, what about the ability to recycle all of an appliance’s components?
Konstantin Eckert: This plays a pivotal role in the product development process at Miele, laying a foundation so that in the end, we create and build products that are made of materials that are recyclable.
Ute Neuhaus: Steel is indeed a versatile material – high quality, easily recyclable. It would actually be perfect if it weren’t for the significant carbon emissions generated during production – which also worsens the carbon footprint of Miele’s products. What are you doing at Miele to reduce your product carbon footprint?
Konstantin Eckert: This is something we have to do and want to do. So what does that mean in concrete numbers? We plan to reduce our Scope 1 and Scope 2 carbon emissions by 50 percent by 2030 compared to a 2019 baseline. We’ve been net carbon neutral since 2021 in terms of Scope 1 – i.e., everything that is generated by our own company in connection with the manufacture and assembly of our products – and Scope 2, i.e., all of the energy we procure from external sources. We’ve already managed to cut Scope 1 and Scope 2 emissions by 40 percent compared to 2019. But we aren’t done yet!
Ute Neuhaus: 40 percent since 2019 is already quite a lot. What specifically did you do?
Konstantin Eckert: We invested in the energy efficiency of our own sites, of course. We significantly expanded the use of renewable energy. And we are, of course, also working with our partner Waelzholz on the issue of Scope 3.1 emissions, i.e., in the supply chain.
Ute Neuhaus: That’s precisely what I’d like to come back to now: What does Scope 3 include at Miele?
Konstantin Eckert: Oh, we’ve already talked so much about Scope 1, 2, 3... so a company’s carbon emissions are sorted into these different Scopes in order to analyze where they come from, these carbon emissions. 85 percent of all carbon emissions attributed to Miele are generated by our customers’ use of our appliances over their lifetime. In terms of these carbon emissions, as we’ve already briefly touched on, we’re now in a very good position. Our appliances’ long service life pays off massively in terms of their carbon footprint. If you use a washing machine for only 10 years, you end up with a very different carbon footprint than if you use it for 20 years.
Ute Neuhaus: So if I understand you correctly, Scope 3 at Miele primarily means customers, the customer side, end consumers. On the other hand, steel is also part of Scope 3. That is, what you source externally. What’s the situation there?
Konstantin Eckert: So steel, at over 30 percent, is the product group with the highest share of carbon emissions among the materials we purchase. In other words, and this leads us to the answer to your question, green steel is a possible way for us to drastically cut our carbon emissions. And this is exactly the path we are going to take as a company. Working together with the industry, of course, because we’re dependent on our partners, our suppliers, to also provide this green steel to us. For example, we’re already using low-carbon emissions steel for our ovens, for one of the components. By using this steel for this part, we’ve cut the carbon emissions by 66 percent.
Ute Neuhaus: So what I take away from this is that green steel, or actually steel in general, already has an impact, meaning an influence, on how green Miele products can ultimately become. And that brings us to the steel value network. Dr. Gierse, what’s the situation with Scope 3 at Waelzholz?
Dr. Matthias Gierse: So at Waelzholz, Scope 3 emissions are generated by the purchase of our primary products, our raw materials, essentially hot rolled steel strip. We usually transform one ring of hot rolled steel strip, one coil of hot rolled steel strip, into a large number of different customer orders, in some cases with very different levels of vertical integration. This means correctly allocating the carbon footprint of the products we source, i.e., the Scope 3 impact, to each of these individual customer orders is a very challenging task in the first place.
In the case of hot rolled steel strip, emissions result from crude steel production. If we look at our carbon footprint, around 90 percent is attributable to Scope 3, i.e., carbon emissions from the value chain. We see that Scope 3, i.e., the purchase of raw materials, is by far the area with the greatest ability to move the needle on our path toward climate neutrality. We are testing material with reduced carbon emissions from different routings and, of course, sharing the processing results with our suppliers to help them continue on this path.
Ute Neuhaus: Yes, at Miele, we heard this earlier, the level of vertical integration is high. This means that green steel will also have a direct impact on Miele products becoming green. But that also means that you have to exert influence in this value network, in this value chain. Mr. Eckert, how are you doing this?
Konstantin Eckert: I’d like to touch on what you said at the beginning, just to emphasize the point once again. So, both Miele and everyone else, like the automotive industry, will have to purchase green steel if they want to address carbon emissions in their procurement portfolio and improve the situation over the long term, there’s no way around it. This will involve the steel industry undergoing a huge transformation. And what we’re doing as Miele is influencing the steelmakers and saying, “we want to go down this path with you toward green steel.” We also have to make sure that we build products that the market can buy and wants to buy, but personally, I firmly believe that this is the right path that the industry has taken.
Ute Neuhaus: That’s a very confident outlook, and the fact is, it’s no good if steel ends up being 66 percent green, it has to be completely green. Dr. Gierse, does Miele occupy a special position because of the high demands it places on product quality and also because of its requirements for green steel?
Dr. Matthias Gierse: Miele does indeed place very high demands on us, but that’s not really surprising, because our material quality ultimately has a direct impact on the sustainability of Miele’s products. But we’ve also placed high demands on ourselves – we want to achieve climate neutrality by 2045. We can make reliable statements about the carbon footprint of our products, and we see this as part of our responsibility as an industrial company, but also, of course, as a service to our customers. This means that today we can tell our customers the product carbon footprint for each item individually. Ultimately, we believe that it is very important for us to be transparent about the carbon footprint of our products so that, at the end of the day, everyone knows which figures we need to work on and in what form successful reductions can actually be measured.
Ute Neuhaus: What I’m taking away from this is that the path to climate neutrality can only be a shared one. Everyone in the steel value network has to work together, everything is interconnected after all. So, this partnership between Miele and Waelzholz specifically, is this the result of many years of collaboration or is it now simply a necessity?
Dr. Matthias Gierse: Both. We’ve been working together as partners for many years and we believe we also have the same understanding of social responsibility and sustainability. And there is no doubt that the steel industry needs to work together along the entire value chain. That’s why we’re extremely interested in participating in the transformation of the steel industry, which is already underway, and playing an active role in it. But business and politics must also pull in one direction to have a chance of even getting closer to the goals of the Paris Agreement.
Konstantin Eckert: I couldn’t agree more. We obviously have an obligation, but also an opportunity as a premium manufacturer, to play our part in driving sustainability forward on this front. There’s a saying at our company, from senior management, that goes, “we soon won’t be able to separate profitability from sustainable business practices.” These are two sides of the same coin.
My children – I have two – they will live on this earth a few decades longer than I will and I very much hope that we can still somehow slow down the rate at which things have been changing the last few years. I don’t want to imagine what the situation will look like in 30 years otherwise. And if we can’t get steel right, we’ll have a hard time with the rest. And one thing is quite clear – it won’t happen without green steel.
Ute Neuhaus: Mr. Eckert, you’ve just described it passionately and, let’s say, expressed your view as a family man, as a consumer, as the one who, ultimately, has to deal with the consequences. So now let’s talk about the consumers. How do they view green products, how sustainable are your customers, what are their demands?
Konstantin Eckert: I think it’s fair to say that when a customer chooses the Miele brand, there’s a conscious decision behind it – one that also includes a desire to buy sustainable products. And this desire is growing. People want sustainable and resource-friendly products, precisely in order to make their own contribution to protecting the environment and the climate.
Ute Neuhaus: Consumers, and this brings me to another aspect, are also prospective employees. Does this play any role in your recruiting activities, in the specialists you aim to attract? Do people who apply for jobs also ask questions about sustainability at Miele?
Konstantin Eckert: The answer is a resounding yes. So, generally speaking, we’ve seen that applicants and their needs when it comes to their new employer have changed a bit in recent years. There’s a significant focus on work-life balance, family life, etc., development opportunities, learning opportunities, but also, as you mentioned, Mrs. Neuhaus, the issue of sustainability. And we specifically promote the fact that employees can “change the carbon footprint of purchased materials” at Miele. Here they have the opportunity to actively make a difference. And that is something that excites or interests many prospective employees.
Ute Neuhaus: How do you promote this internally? Can you share some examples of what you do, specifically, in detail?
Konstantin Eckert: It starts with – here’s an example – days of action, such as a car-free day. It continues with employees who work as a team to address the sustainability of our company and play a very important role by showing us as a company where we stand, what our goals are, and where we want to develop as a company.
Ute Neuhaus: So the manufacturers of the final products, the consumers, and also the employees – everyone cares about greater sustainability, it’s a part of everyone’s mindset, you might say. This means that there’s also a lot of pressure on the steel sector. Dr. Gierse?
Dr. Matthias Gierse: Allow me to share two more figures about steel: according to the latest figures from Worldsteel, just under two billion tons of steel was produced worldwide in 2021. In the process, more than three gigatons of carbon was emitted, which is equivalent to about eight percent of the world’s total carbon emissions. These figures show that reducing the amount of greenhouse gases emitted during steel production is absolutely essential if we ever really want to achieve climate neutrality on a global scale.
This requires the creation of some key fundamental conditions, however, because it will only be possible to produce green steel in the future if certain basic requirements are met. And it goes without saying that policymakers must support this change. This needs to be backed by a broad base; the steel industry and the supply chain behind it cannot manage it alone. After all, we have to make enormous investments in steel production infrastructures; we’re talking about an investment volume of around one billion euros per million tons. German steel production stands at around 40 million tons. That translates into an investment of 40 billion euros that would be required for Germany alone to shift to green production.
This requires gigantic quantities of green hydrogen. The green hydrogen would then be used to replace today’s carbon-based process. So we need the producers of hydrogen, of green hydrogen, the green electricity required for this, and last but not least, of course, we also need a pipeline infrastructure that can then transport these hydrogen quantities. There will have to be international supply networks for this. At the end of the day, this will make production processes more expensive and will put the global competitiveness not only of the steel industry in Europe, but also of the suppliers behind it, under severe pressure.
Ute Neuhaus: High costs – high costs of everything, from investments in the facilities, to hydrogen production, to infrastructure... so yes, at some point it comes down to money, to competitiveness. And that raises the question, Mr. Eckert: How willing are customers to pay money for this?
Konstantin Eckert: So, in this context, you now have to specifically calculate what the benefits are of the long service life, the excellent consumption values – which isn’t just interesting from a sustainability point of view, but also very interesting from a financial point of view. I’m convinced that in two, maybe three years at the latest, carbon emissions will be pushed by the purchasing departments of this world with the same energy as the issue of the euro. The euro has always been the determining factor for us in purchasing, that’s what’s guided us, that’s what our goals are centered around. Carbon will become just as important. And we will – please excuse the expression – confront our suppliers with this. We will no longer only discuss costs. We will discuss carbon emissions in the same way, with the same energy, with the same investment of resources. And these two aspects will go hand in hand, I’m sure of it. This represents a shift in culture for us in purchasing, and it represents a shift in culture on the supplier side.
Ute Neuhaus: That means, to summarize, there will not only be a market for, let’s say, material properties, but also for carbon. When considering a cross-section of customers, how much demand is there for green products, and what can Waelzholz offer at the moment?
Dr. Matthias Gierse: There’s definitely demand for low-carbon emission steel products, and we can also see that the demand is gradually increasing. So, if we’re now talking about our customer Miele specifically, which is active in the consumer goods sector, the pressure there is usually greater than with customers who are tier suppliers to the automotive industry in the B2B sector, for example.
Personally, I’m firmly convinced that the demand for low-emission and, in the future, zero-emission steel grades will grow massively over the next few years. We’ve already processed the first low-emission hot rolled coils and found that from a technical and technological point of view, we have zero difficulties with these products and also achieve excellent results when it comes to quality. The reduction in carbon emissions is achieved by using scrap as a raw material, and scrap is a net-zero-emissions material. But you have to be very careful when interpreting these figures, however. We need to be aware of the fact that the amount of scrap available worldwide is limited and is 100 percent recycled.
So if we decide to use more steel produced using the EAF route, it wouldn’t lead to a global reduction in carbon emissions, it would just lead to a different allocation. So it’s essentially a zero-sum game, at least on a global scale. That’s why we won’t see any real reductions in carbon emissions until 2025/26, when production of direct-reduced iron will begin to increase. That’s still a very long way off. What will also most likely happen is that these direct reduction plants won’t be able to run on green hydrogen initially, because it simply won’t be available by then. These plants would then have to run on natural gas as a reducing agent, but even that cuts steel production’s carbon footprint by about 50 percent.
The path has been decided on, all the major European steelmakers are now moving down it, and at the end of the day, we have to ensure in purchasing that we secure the resulting quantities of low-emission steel and then also put it on the market.
Ute Neuhaus: We’ve already heard that there’s a cost of moving down this path. Sustainability has its price. So who’s going to pay it in the end? If we put ourselves in the consumers’ shoes once again, will Miele pass on the rising costs of green steel to the end consumer, to the people who buy its products?
Konstantin Eckert: Looking only at steel again, it might be interesting to take a look at the years ‘21 and now ‘22 as well. During these years in particular, we observed a development on the steel market that we haven’t seen before. We saw prices and manufacturer costs largely decoupling. In other words, the price of steel has increased massively, yet the manufacturer’s costs have not risen by the same amount. This is something that couldn’t be completely passed on to the customer in this form – so no, it won’t be completely passed on. At the end of the day, everyone in the value chain will have to do their bit, and the hope is that the steel industry has carved out one or two opportunities over the last two years to make even more rapid progress on this front.
Ute Neuhaus: Dr. Gierse, how do you see it?
Dr. Matthias Gierse: So the cost of raw materials and energy is inevitably going to rise, which will ultimately make the final products more expensive. I personally am convinced that in the medium to long term, we will have to pass this surge of costs through the supply chain, through the supply networks, and the end consumer will have to foot the bill. After all, we’re paying for our children’s and our grandchildren’s future here. It’s a huge job, a massive load that needs to be lifted, and we all have to shoulder it.
So when looking ahead, I’m personally confident that we’re going to make significant progress in the next five to ten years, that maybe by 2030, 2035, we’ll have actually taken major leaps forward. I’m personally convinced of it.
Ute Neuhaus: Okay, if I sum it all up now, on the one hand we’ve learned what the versatile material steel can do, and that excellent consumer products also require excellent steel. And that it’s essential for many areas of our lives and also, among other things, for the fact that the washing machine mentioned at the beginning of the interview can wash our clothes so economically and last for such a long time – maybe even for 20 years.
But only if steel goes green can the final products and the companies also become completely climate neutral. And Mr. Eckert, you summed it up perfectly when you said that sustainability and business success will be two sides of the same coin. This means that Steel to Zero is inevitable and the transformation has already begun.
We heard from market and technology leaders Miele and Waelzholz just how thoroughly they are preparing and how they are facing the challenges that lie ahead. Mr. Eckert, Dr. Gierse, thank you very much for your time and for the insights and perspectives you’ve shared with us today. I’d like to thank you both again very much.
Konstantin Eckert: This was a lot of fun, thank you very much.
Dr. Matthias Gierse: Thank you very much, I also enjoyed it very much.
Ute Neuhaus: We’ve all understood that green steel, this ambitious goal, can only be achieved by working together. To you, dear listeners, thank you very much for joining us again for the third episode of our podcast Steel to Zero.
Ute Neuhaus: Stay in the know with Steel to Zero, the sustainability podcast by Waelzholz. Listen now with just one click at waelzholz.com/steeltozero. And remember: Waelzholz with AE.