1. China is advancing hydrogen metallurgy to decarbonize its steel industry, with a key pilot at HBIS Group's Zhangxuan Tech in Hebei province. This plant uses a 120-meter-tall furnace that injects hydrogen-rich gas to strip oxygen from iron ore, replacing carbon-intensive steps. Its first 600,000-ton production line began operating in December 2022 and reached stable production about six months later, claiming over 70% carbon emission reduction versus conventional blast-furnace steelmaking. [para. 1][para. 2] However, the plant does not currently use green hydrogen—the fuel needed for near-zero emissions. It relies on hydrogen-rich coke-oven gas (a byproduct of conventional steelmaking) because it is far cheaper. A 2024 industrial trial injected green hydrogen at 3,000 cubic meters per hour, but it was not incorporated into normal production due to high costs; workers stated directly, “Green hydrogen is too expensive.” [para. 4][para. 5]
2. Steel accounts for about 15% of China's carbon emissions, and roughly 90% of production still uses long-process steelmaking (coal and coke). China's crude steel output peaked in 2020 at 1.065 billion tons and has since been in uneven decline (illustrated by a chart showing output falling from 1.07 billion tons in 2020 to 0.96 billion tons by 2025). [para. 6][para. 7][para. 8] Chinese producers are pursuing multiple paths—energy efficiency, scrap-based electric-arc furnaces, hydrogen metallurgy, and carbon capture. The core challenge is no longer proving these technologies work but developing a viable business model. As Rizwan Janjua of the World Steel Association said, “The main challenge now is the business model, including how costs, risks and the green premium are shared.” [para. 9][para. 10]
3. Financial pressure is acute. Major steel companies tracked by the China Iron and Steel Association earned only 16.7 billion yuan ($2.5 billion) from core steel businesses in the first half of 2026, down 40% year-on-year, with an average profit margin of just 0.77%. [para. 12] Energy-efficiency improvements have yielded returns—a three-year program launched in 2022 covered over 70% of capacity, with 40.9 billion yuan of investment by 57 companies cutting energy costs by an average of 29 yuan per ton of steel (payback period 3.27 years). However, much of the low-hanging fruit is picked; as Shangguan Fangqin said, large-scale carbon reduction will require disruptive process changes. [para. 14][para. 15] Electric-arc-furnace (EAF) steelmaking, which melts scrap, is the most mature alternative, emitting only 0.4–0.6 tons of CO2 per ton of steel versus 1.8–2.2 tons for conventional methods. [para. 16][para. 17] Beijing set targets for EAF to exceed 15% of output by 2025 and 20% by 2030, but EAF still only accounts for about 10%, well below the global average of 30%. Economics are the obstacle—scrap scarcity, high electricity costs, and the scale advantage of blast furnaces make EAF 300–600 yuan more expensive per ton. [para. 18][para. 19][para. 20]
4. Hydrogen offers far greater emissions reduction potential. Baosteel completed a million-ton hydrogen-metallurgy project in Zhanjiang in late 2025, designed to produce 1 million tons of direct-reduced iron and 1.8 million tons of cast slabs annually, with 50–80% less carbon emissions. However, the fixed-asset investment exceeded 5 billion yuan. [para. 22][para. 23] Operating costs are even more constraining. Coke-oven gas costs about 12–15 yuan per kilogram (hydrogen equivalent), less than half the price of green hydrogen. Nationally, hydrogen cost an average of 26.2 yuan per kilogram on the production side at end-2025, and users paid 44.5 yuan. [para. 24][para. 25][para. 26] HBIS's Lin Zhangguo said industry deployment would increase substantially if delivered hydrogen fell to 15 yuan per kilogram. Shangguan estimated hydrogen metallurgy might not become economically competitive for another 10–15 years. [para. 27][para. 28]
5. Despite costs, China has built over 7 million tons of hydrogen-based direct-reduced-iron capacity (operating or under construction), according to Rocky Mountain Institute's Li Shuyi. This remains tiny relative to China's roughly 1-billion-ton industry—the key question is which projects can scale. [para. 29][para. 30] This is not unique to China; developers in Europe, North America, and Australia have slowed or canceled flagship hydrogen-steel projects. As Li said, “This isn't a technical problem. It is the gap between technical feasibility and commercial feasibility.” [para. 31][para. 32]
6. China's carbon market could eventually shift economics. Steel was formally added to the national emissions-trading system in 2025. With a carbon price around 90 yuan per ton, a conventional producer would face roughly 180 yuan per ton in carbon costs—but allowances are still largely free, so actual costs are lower. If prices exceed 150 yuan per ton and free allowances shrink, EAF steel could become markedly more competitive. [para. 34][para. 35][para. 36][para. 37] China lacks a mature market for green-steel premiums; as Shangguan noted, “Green premiums are inevitable…but who should bear them still requires a joint effort from upstream and downstream players.” [para. 38][para. 39] Meanwhile, Chinese steelmakers are simultaneously improving blast furnaces, increasing scrap use, experimenting with hydrogen, buying renewable electricity, and testing carbon capture. The period from 2030 to 2035 is a crucial window for testing competing technologies, according to Isadora Wang of Transition Asia, because new steelmaking facilities operate for decades—premature commitment to the wrong process could lock in costly assets. [para. 40][para. 41][para. 42]
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