BEIJING: The world's steel sector will need to prioritise decarbonisation to meet a challenging target of cutting carbon emissions by 75% to keep global warming to within 2 degrees Celsius, natural resources consultancy Wood Mackenzie said on Tuesday.

Slashing global steel emissions to 780 million tonnes of carbon dioxide by 2050 from 3 billion tonnes in 2020 would be very challenging for an industry that accounts for 7% of the world's greenhouse gas emissions, Wood Mackenzie said in a new report.

Mihir Vora, a senior analyst with Wood Mackenzie, said along with decarbonisation advanced economies will need to adopt more innovative new steelmaking pathways such as hydrogen use.

"The challenges to success are immense and overcoming them will entail immediate action from steelmakers, huge capital outlay, technical collaborations ... and government policy support," Mihir Vora told Reuters.

Demand for the key industrial metal is anticipated to increase 23% to 2.3 billion tonnes between 2020 and 2050, mostly driven by developing economies including India, Southeast Asia and South America, Wood Mackenzie said.

Conversely, consumption in China, which churns out nearly 60% of the world's crude steel, will slow over the same period after peaking in the near term. China's emissions need to fall 88% from current levels to meet targets, said Wood Mackenzie. To meet the 2 degree Celsius pathway, Wood Mackenzie said the steel sector should double scrap input, triple production and use of direct reduced iron (DRI), and capture and store 45% of residual carbon emissions.

It is also suggested reducing emissions intensity of global average electric arc furnaces by 70% and lowering basic oxygen furnace emissions intensity by 30% below current levels.

However, the consultancy said premium iron ore suppliers would benefit and forecast 35% growth in the pellet product market.

"Producing DRI requires very high grade iron ore feedstock," said Rohan Kendall, head of iron ore research with Wood Mackenzie.