How Electric Arc Furnaces Transformed Steel and Set the Stage for Green Steel

The Mini Mill Revolution: A 70-year-old disruption story offers crucial lessons as the industry races toward zero-carbon steelmaking

The steel industry is experiencing its most significant transformation since the rise of electric arc furnace (EAF) mini mills in the 1960s and 70s. As global steelmakers pivot toward green hydrogen and renewable energy to slash carbon emissions, the foundational technology enabling this transition traces back to a revolutionary business model that Clayton Christensen famously chronicled in The Innovator's Dilemma. Recent developments suggest that mini mills' flexibility and environmental advantages are positioning them to lead the industry's decarbonization efforts.

From Disruptive Innovation to Green Steel Leadership

The U.S. is the third-largest producer of raw steel worldwide, after China and India, and is ranked sixth in pig iron production. In 2024, the industry produced over 79 million net tons of crude steel. But the path to this current production landscape was forged through one of the most dramatic industrial disruptions in history.

The mini mill revolution began modestly in the 1960s when Canadian entrepreneur Jerry Heffernan founded Premier Steel in Alberta. Unlike traditional integrated steel mills that required billions in capital and processed iron ore through blast furnaces, Heffernan's operation used electric arc furnaces to melt scrap steel directly, requiring only a fraction of the investment. The breakthrough came with continuous casting technology, which eliminated the energy-intensive process of cooling molten steel into ingots only to reheat them for further processing.

There were about 112 minimills or specialty mills in the US, which in 2013 produced 59% of US total steel production. This represents a complete reversal from the 1960s when integrated mills dominated the industry. The transformation was driven by mini mills' fundamental advantages: lower capital costs, operational flexibility, and reduced environmental impact.

The Electric Arc Furnace Advantage

Electric arc furnaces operate on a fundamentally different principle than traditional blast furnaces. Instead of burning coal to reduce iron ore, EAFs use high-voltage electricity to create an arc between electrodes, generating temperatures up to 20,000°C to melt recycled scrap steel. This process inherently produces fewer emissions and can be powered by renewable electricity.

Electric arc furnaces (EAF) use scrap metal directly as their primary raw material, thereby offering significant carbon footprint savings – up to 90% compared to traditional integrated steelmaking methods. This route is the fastest way to produce near-zero emission steel, as long as green electricity is used.

Recent technological advances are pushing EAF efficiency even further. Marking a major advancement in steel production, one of the largest steel producers in the U.S. is upgrading its Electric Arc Furnace (EAF) technology with Berry Metal's state-of-the-art solutions. These upgrades include non-water-cooled burner systems that eliminate safety risks while improving efficiency and reducing maintenance downtime.

Current Market Dynamics and Future Outlook

The mini mill model continues to evolve. Nucor posted net sales of $8.46 billion for the second quarter of 2025, up 5% from a year earlier and up 8% from Q1—helped by an 8% bump in average selling prices and a 9% increase in shipments to 6.82 million tons compared to Q2 2024. Nucor, which began as Nuclear Corporation of America before Ken Iverson transformed it into a steel powerhouse, exemplifies the mini mill success story.

The global Electric Arc Furnaces Market was valued at USD 1.48 billion in 2024 and is expected to grow to USD 1.6 billion in 2025, reaching USD 3.02 billion by 2033, with a projected CAGR of 8.23% from 2025 to 2033. This growth is being driven by increasing focus on sustainability and technological innovations.

The Green Hydrogen Revolution

The next phase of steel industry transformation centers on green hydrogen and direct reduced iron (DRI) production. H2-DRI-EAF involves the use of hydrogen (H2) to produce direct reduced iron (DRI), which is then processed in an electric arc furnace (EAF) to produce steel. In the BloombergNEF net-zero outlook, 64% of the total primary steel production projected for 2050 is associated with H2-DRI-EAF.

Several major projects are underway to commercialize this technology. The Swedish startup Stegra has raised close to $7 billion to produce zero-emissions steel using green hydrogen starting in 2026. The company's facility in northern Sweden will use renewable electricity to produce hydrogen through electrolysis, which will then reduce iron ore to create virtually carbon-free steel.

The Global Direct-Reduced-Iron (DRI) market size was valued at USD 30 billion in 2024, is projected to reach USD 32.4 billion in 2025, and is expected to hit approximately USD 35 billion by 2026, surging further to USD 64.77 billion by 2034. This explosive growth reflects the industry's commitment to decarbonization.

Global Implementation Challenges and Opportunities

While the technology appears promising, significant hurdles remain. 354.5 billion CNY is needed for EAF technology to reach the carbon peak target. 1.5 million employees are needed for EAF technology to reach the carbon peak goal. These massive investment and workforce requirements highlight the scale of transformation required.

Electric-arc furnaces must account for 53 percent of global steelmaking capacity by 2050 to stay on track for 1.5 degrees C warming. Under current plans, electric-arc furnaces would account for just 32 percent of total capacity by 2050. This gap indicates that the pace of transformation must accelerate significantly.

The economics of green steel remain challenging. Results show that renewable H2 use in integrated DRI steel mills for both heating and the reduction of iron ore can reduce direct CO2 emissions by as much as 85%, but would require an H2 procurement cost of $1.63 per kg H2 or less. Current green hydrogen costs are typically higher, though they are expected to decline with scale and technological improvements.

Lessons from the Mini Mill Disruption

The mini mill revolution offers several crucial insights for the current green steel transition. First, disruptive technologies often start in niche markets before expanding to challenge incumbents. Mini mills began by producing simple products like rebar before gradually moving into higher-value flat steel products that were the integrated mills' last stronghold.

Second, operational flexibility and lower capital requirements enabled mini mills to respond more quickly to market demands and technological changes. Today's EAF-based green steel projects are exhibiting similar characteristics, with shorter construction times and modular designs that can be scaled incrementally.

Third, the mini mill success required supportive policy environments and market conditions. Infrastructure spending from the Bipartisan Infrastructure Law (passed in 2021) and U.S. tariffs on imported steel are supporting prices for now, while longer-term growth could come from green steel and high-tech alloys for electric vehicles and renewables.

The Road Ahead

By using green hydrogen instead of coal, CO2 emissions will be reduced by 95% compared to traditional steelmaking. As renewable electricity costs continue to decline and hydrogen production scales up, the economic case for green steel will strengthen.

The steel industry's transformation from integrated mills to mini mills took several decades to complete. The transition to green steel faces similar challenges but operates under greater urgency due to climate commitments. The mini mill playbook—start small, focus on flexibility, leverage technological advantages, and gradually expand market share—appears to be guiding the industry's approach to decarbonization.

As governments worldwide implement carbon pricing and industrial policies supporting clean technology, the conditions for green steel adoption are improving rapidly. The question is no longer whether the steel industry will decarbonize, but how quickly the transformation can occur and which companies will lead the way.

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SIDEBAR: Steel Wars - Global Competition and Defense Implications

The steel industry's transformation occurs against a backdrop of intense geopolitical competition that has profound implications for national defense capabilities, particularly naval shipbuilding. China produced 76.0 Mt in December 2024, up 11.8% on December 2023, maintaining its position as the world's dominant steel producer with over 54% of global output.

The China Challenge

China remains the world's largest steel producer and exporter, but 2024 showed sharp contrasts between the domestic market and external supplies. The country's steel production decreased by 1.7% year-on-year – to 1.005 billion tons, the lowest level in five years. Exports, on the other hand, reached a record high of 110.72 million tons, up 22.7% from 2023.

This export surge has triggered global market disruptions and defensive responses from other nations. ArcelorMittal SA claims that China's exports destabilize the global steel market by driving down U.S. and European prices. The Biden administration responded by instructing the U.S. Trade Representative to increase tariffs under Section 301 of the Trade Act of 1974 on $18 billion worth of imports from China. This step includes raising the tariff rate on certain steel and aluminum products of Chinese origin from 0.0-7.5% to 25% in 2024.

Naval Shipbuilding at Risk

The implications for defense infrastructure are severe. The U.S. Navy established a goal in 2016 to build a fleet of at least 355 ships, a figure that was enshrined in U.S. law as a minimum requirement through the FY18 National Defense Authorization Act. The service's shipbuilding targets have fluctuated with the completion of various studies since that time, but the current goal is a fleet of 381 battle force ships.

However, achieving these goals faces significant obstacles. Currently, many Navy shipbuilding programs are experiencing schedule delays and cost growth. In early 2024, the Navy conducted a shipbuilding review that showed many programs were behind schedule. The review specifically highlighted the following ships, which have been delayed by varying amounts: The Ford class aircraft carrier CVN-80, the Enterprise, 18 to 26 months; The first Columbia class ballistic missile submarine, 12 to 16 months; The Virginia class attack submarines, 24 to 36 months.

Steel availability and pricing directly impact these delays. Since the reimposition of 25% tariffs on imported steel and aluminum by President Donald Trump in early 2025, the U.S. shipbuilding industry has found itself at a critical juncture. Senator Tim Kaine (D-VA), a member of the Senate Armed Services Committee, highlighted that 35% of the materials used in U.S. shipbuilding come from allies such as the UK, Canada, and European nations.

Industrial Base Vulnerabilities

The challenges extend beyond immediate costs. Apart from China, the largest and most productive shipbuilders in the world are all in Japan and South Korea, supplied by their own productive, efficient steel sectors. Their expertise and investment will almost certainly be crucial to the revival of the US maritime industrial base.

US Steel, after all, is the US industrial flagship firm, founded by Andrew Carnegie in 1903, and headquartered in Pennsylvania, the most consequential US swing state of 2024. In a Presidential election year, with the United Steel Workers of America vehemently opposed – if not many local affiliates – it was not surprising that such an iconic firm would be a lightning rod for protectionist impulses.

The Tech Solution

Some defense analysts see technology as a potential game-changer. Can the American military maintain deterrence in East Asia without fixing its shipbuilding? The U.S. Navy's fleet is rusting and shrinking, while China's grows. Last week, new data showed Chinese shipbuilding again accelerating relative to American, with 54 percent of global output, up from 35 percent a decade ago.

Into this tense moment steps a new generation of political and industrial leaders. Tech and finance executives now leading in the Pentagon are laying siege to underperforming shipbuilding programs. From industry, a new Silicon Valley-backed company seems to charge into the breach of maritime defense tech every day.

However, skepticism remains high. Traditional shipbuilders seem skeptical of new entrants who promise to transform the industry. None of them has yet built a ship.

Strategic Implications

The steel-defense nexus represents more than an economic competition; it's a strategic arms race where industrial capacity determines military capability. As China continues to flood global markets with low-cost steel while building the world's largest navy, American policymakers face difficult choices between free market principles and national security imperatives. The mini mill revolution that once disrupted traditional integrated mills now serves as both a model for adaptation and a reminder that industrial dominance can shift rapidly in response to technological and economic forces.

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