Nippon Steel Corp., Japan’s top producer, is shifting its focus to recycling the metal as ambitious net-zero emission targets intensify a race to develop cleaner steel.

Taking steps toward decarbonization is one of the pillars of Nippon Steel’s mid-term business plan starting April, Executive Vice President Katsuhiro Miyamoto said in an interview last week. As part of its efforts, the company is working on research to build much larger electric-arc furnaces, which are used to make steel from scrap, to mass produce the metal, he said.

Steelmakers are under pressure to respond to net-zero emissions targets set by governments in Europe, China and Japan, which is aiming to become carbon neutral by 2050. A United Nations report released Friday totaled up new national climate commitments and concluded that the effort “falls far short” of what’s necessary to slow global warming.

“Since the government presented the policy, we will incorporate measures for zero carbon in the business plan,” Miyamoto said. “First, we must allocate our resources to research and development.”

The world’s third-biggest producer has been making steel from mined iron and coal in more polluting blast furnaces for more than a century. While electric furnaces release only a fraction of carbon dioxide compared with blast furnaces, it’s still a challenge to make high-quality steel because scrap contains impurities.

Steel is the biggest polluter in the manufacturing sector in the country, and the Japan Iron and Steel Federation has said the industry aims to become carbon neutral by 2050. The federation’s chairman Eiji Hashimoto, who is also the president of Nippon Steel, has warned that domestic producers will face a “crisis of survival” if they fall behind in the global competition to develop cleaner steel.

In addition to making more high-quality recycled steel, streamlining operations at aging facilities in Japan and expanding outside the shrinking domestic market will be the focus areas in Nippon Steel’s mid-term business plan, Miyamoto said, adding that the company will give more details on the plan by the end of this month.

China’s robust demand and economic stimulus across the world is tightening global steel markets and that is likely to continue this year, Miyamoto said.

Still, domestic demand and exports will decline in the long term as Japan’s population shrinks and more countries try to make steel for their own market, said Miyamoto. The country’s crude steel output will fall further to 80 million tons eventually, he said, compared with ¥98.4 million last fiscal year.

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