[SMM Hot Topic] POSCO's 2.5-Million-Ton EAF at Gwangyang Commissioned

IIn June 2026, POSCO held a completion ceremony for its Electric Arc Furnace (EAF) at the Gwangyang steelworks on South Korea's southern coast, approximately 360 kilometers from Seoul, and has initiated the full-scale production of low-carbon steel. With an annual designed capacity of 2.5 million tons, this EAF is the largest single facility of its kind in South Korea. This marks POSCO's first large-scale upstream steelmaking investment in over two decades, signaling the beginning of a structural adjustment to its blast furnace-centric production system. Against the backdrop of the EU's Carbon Border Adjustment Mechanism (CBAM) entering its definitive payment stage and the tightening of Phase 4 of the Korea Emissions Trading Scheme (K-ETS), the strategic significance of this project outweighs the sheer capacity itself.

Project Details & Commissioning Timeline

The special significance of this project lies in its time span: since the blow-in of Blast Furnace No. 5 at the Gwangyang plant in April 2000, POSCO had not invested in major upstream steelmaking capacity for over 20 years. This pivot to EAFs represents the first directional shift in its blast furnace-centric hot metal production system in half a century.

Regarding technical configuration, the EAF primarily utilizes steel scrap as its raw material, substituting the traditional iron ore-coke reduction route of the blast furnace through scrap melting. This shift achieves up to 75% CO2 emission reductions compared to traditional blast furnaces. The core equipment is supplied by Italy's Tenova, featuring the Consteel continuous scrap charging system and the Consterrer electromagnetic stirring system. POSCO also utilizes the off-gas generated during EAF operations to preheat the scrap, thereby enhancing energy efficiency. The completion ceremony was attended by South Korean Prime Minister Kim Min-seok and POSCO Group Chairman Jang In-hwa.

Key Timeline

Market Impact Post-Commissioning

In the short term, the direct market impact of this EAF is relatively mild; its value is predominantly structural and strategic. This can be analyzed through three key threads: raw materials, products, and regulations.

• Scrap Market — Gradual demand release, but with a cautious pace: In the initial stage of commissioning, POSCO plans to primarily consume internally generated scrap at the Gwangyang plant, keeping external purchases limited; the company estimates external scrap purchases in 2026 to be approximately 2 million tons. Because the green steel market has grown slower than previously expected, scrap consumption in the short term may remain relatively restrained. This means the EAF's upward pull on South Korean and regional scrap prices will be gradual, rather than causing a significant demand spike in the year of commissioning.

• Entering High-End Flat Products via Hot Metal Blending: POSCO's differentiated approach relies on "hot metal blending" technology, which mixes and refines molten steel from the EAF with hot metal from the blast furnace to lower carbon emissions while maintaining the steel quality required for high-end products. The company has designated high-grade EAF steel as one of its eight strategic products and established an integrated R&D, production, and sales project team, aiming to mass-produce automotive sheets and electrical steel by 2030. This directly addresses the growing demand for low-carbon steel from downstream automotive and electrical clients, distinguishing POSCO's EAF route from ordinary long-product EAF capacities.

• Regulation & Competition — Low-carbon capacity as a hedge for export competitiveness: The timing of the commissioning is highly aligned with tightening global regulations. The EU CBAM entered its definitive stage on January 1, 2026, requiring imported steel to incur fees for its embodied carbon emissions. This obligation ratio will increase annually from about 2.5% in 2026 to 100% by 2034 (corresponding to the synchronized phase-out of free allowances within the EU). For export-oriented South Korean steelmakers, low-carbon capacity acts as a hedging tool to maintain competitiveness in the European market.

Overall, the Gwangyang EAF will not significantly alter POSCO's production volume structure or overall carbon footprint in its first year—2.5 million tons represents a limited share relative to its total crude steel production. Its true significance lies in establishing a low-carbon product line and corresponding client relationships ahead of the commercialization of hydrogen-reduction steelmaking. It is a layout where the "option value" exceeds the "current capacity value."

Global Steel Decarbonization Background

The steel industry accounts for approximately 7%–9% of global CO2 emissions (World Steel Association data), making it one of the hardest-to-abate heavy industries. The root of the emission disparities lies in the steelmaking routes: the traditional Blast Furnace-Basic Oxygen Furnace (BF-BOF) process relies on coking coal as energy and a reducing agent, making it the most carbon-intensive route; whereas the Scrap-EAF route relies primarily on electricity, making it the most mature route with the lowest carbon intensity.

However, the practical constraint on route transition lies in the existing capacity structure. Within global crude steel production, the BF-BOF route still accounts for roughly 72%; scrap-based EAF accounts for about 21%, with the remainder being Direct Reduced Iron-EAF (DRI-EAF) and other routes. China, accounting for over half of global production with a nearly 90% blast furnace share, has become the critical variable determining the pace of global steel decarbonization.

Targeting the 2050 net-zero goal, mainstream pathways require the production structure to significantly tilt toward EAFs and hydrogen-based direct reduction. Yet, the transition is bottlenecked by a triple constraint: the supply and availability of high-quality scrap, the scaling up of green electricity, and the cost premium of low-carbon steel over traditional products. POSCO's "two-step" arrangement—using EAF as a transition and HyREX hydrogen reduction as the endgame—is a quintessential choice within this global landscape.

South Korean Steelmakers' Decarbonization Efforts

The decarbonization of the South Korean steel industry is not a solo endeavor by a single enterprise. As early as February 2021, six South Korean steelmakers, including POSCO and Hyundai Steel, jointly issued a 2050 Carbon Neutrality Declaration and established the "Green Steel Committee," comprising industry, academia, research institutions, and government departments. Since then, driven by the dual pressures of policy constraints (K-ETS Phase 4, South Korea's Nationally Determined Contributions - NDC) and external forces (CBAM), each company has formed decarbonization layouts with similar trajectories but different focuses.

The common logic for both companies is clear: currently employing "transitional technologies" such as EAFs and hot metal blending to reduce the carbon footprint of products, introducing hydrogen-based direct reduction around 2030, and targeting 2050 for a full transition. The differences lie in their entry points—POSCO is betting on its self-developed HyREX as the core for the hydrogen metallurgy endgame, whereas Hyundai Steel, under its Hy-Cube brand, aims to commercialize high-end flat EAF products (like automotive sheets) much earlier. The commissioning of the Gwangyang EAF is precisely a quantifiable, deliverable milestone in this overarching transition process.