Day: 12 July 2021

Eurofer issued a statement this week ahead of the expected announcement by the European Commission of a set of new measures for the EU climate policies containing “concerning” proposals over the emission trading scheme (ETS) and carbon border adjustement mechanism (CBAM).

Later this week the EC is set to publish its Fit for 55 package, described as “one of the most significant – and largest – groups of measures the EU has ever released in one go.” The package will revise EU climate policies, Kallanish notes.

Within the package Eurofer expects a steep reduction of free allocations of ETS allowances. These would “increase the steel industry exposure to EU ETS costs” and “artificially drive up the carbon price.”

In addition to that, the EC is set to announce its CBAM plan, a system to protect the market further from carbon leakage. Nevertheless Eurofer noted that “at this stage it is unlikely that the proposal will include any solution for EU export competitiveness or provide any effective measures against circumvention practices by importers, such resource shuffling or cost absorption.”

“Higher climate ambition requires strengthened – not weakened – carbon leakage protection,” said Axel Eggert, director general of Eurofer. “Artificially higher carbon costs would hinder the steel sector’s ability to reduce emissions and meet our targets. Even before the current EU ETS revision, the sector was facing €30-45 billion in EU ETS1 costs between 2021-2030.”

Eurofer indicates that ETS allowances should not be limited further and indirect CO2 costs should be compensated until the first industrial decarbonisation projects have been upscaled properly. Further actions by Eurofer are expected once the full package of measures is published.

Emanuele Norsa Italy

Unprecedented high iron ore and pellet prices are forcing small secondary steel units (non-blast furnace producers) in India to shut down or reduce steel production. In West Bengal (WB), five such micro, small, and medium enterprises (MSME) have closed down, while 100-115 others curtailed production by between 15-50%, according to the Steel Re-rolling Mills Association (SRMA).

Pellet prices have surged from INR 4500/tonnes ($60.35/t) in May 2020 to INR 15,000/t ($201.13/t) in June 2021, resulting in a cost impact of INR 20,800/t in finished steel production. Despite such high steel prices, 50,000 secondary steel MSME’s plunged into loss, Kallanish notes.

“The induction furnace route steelmakers are also surrendering power requirements from the DVC and the WBSEDCL (West Bengal State Electricity Distribution Company Limited),” says SRMA chairman Vivek Adukia.

Various steel associations from steel-producing states have pleaded to the prime minister’s office and the steel ministry, to impose a 50% duty on iron ore and pellet exports for the last one year, but no action has been taken yet, Adukia adds.

Companies with captive mines and pellet making units are making a profit, but other small manufacturing units are struggling hard to manage hand to mouth raw material requirements. In the wake of unprecedented iron ore prices, associations are also pleading to the ministry to allow a consortium of smaller units (up to 5 members per consortium) to bid in auctions that will help reduce dependence on the open market.

Sayed Aameer India

Italian demand for merchant bar and beams is said to have cooled down in July due to the current high prices, distribution and production sources tell Kallanish.

July is seasonally one of the best months for Italian longs but as prices remain elevated the large distributors are refusing to restock and purchases only happen back-to-back. Agents however say that despite the calm, sales targets are being reached and volumes remain at good levels. Beam producers in particular have long lead-times stretching to the beginning of September. Demand for beams and merchant bars from other European countries continues to be strong. Italian steelmakers are shipping large volumes to Eastern Europe, Germany and France.

Domestic values for merchant bars remain at €470-490/tonne ($557-580) base ex-works, or €890-910/t ex-works including size extras. The first category of beams is at €600-610/t base ex-works, or €985-990/t ex-works. Offers from the distributors are at €1,050-1, 060/t on average for the first category. Values increase by €20/t for each subsequent category, sources say.

Natalia Capra France

Italian stainless scrap sales volumes this month are expected to be lower than June as some mills, particularly longs producers, will be purchasing less due to the summer closures in August, market sources tell Kallanish.

Traditional sellers have only implemented small contracts so far below 500 tonnes and are now negotiating with the large mills for July contracts. While small tonnage transactions were implemented at the beginning of the month, the market is said to be expecting increases for the large purchases this week due to nickel price fluctuations.

So far grade 304 has been sold at €1,500-1,550/tonne ($1,778-1,837) delivered in Italy but prices for large purchases are expected to push the current range higher this week. Sales for 316 are lower in terms of volumes compared to 304 as this grade is more expensive and in short supply. 316 has been sold so far at €1,960-2,080/t delivered, sources suggest.

Nickel prices for cash buyers were at $18,673/t on 9 July, Kallanish notes.

Natalia Capra France

The default emissions value within the Carbon Border Adjustment Mechanism, or CBAM, will be equivalent to the average emissions of producers of similar goods in the EU throughout the transition period, according to a leaked draft seen by S&P Global Platts.

During the transition period, importers of certain goods will have to purchase the same quantity of CBAM certificates per ton of goods imported — equivalent to the default value for the specified goods — regardless of the carbon intensity; those with an audited supply chain lower than the default value will receive a rebate.

The transition period will run for three years, from Jan. 1, 2023 until Jan. 1, 2026, and according to the proposal, will cover goods such as aluminum, cement and steel.

Once fully implemented, the CBAM will require importers to purchase CBAM certificates equivalent to the carbon emissions level of their goods.

Importers who do not have a carbon audited supply chain after the transition period ends will be required to buy CBAM certificates equivalent to a new default emission value.

The leaked draft, published by the French news website Contexte, says that after the transition period the default value “shall be set at the average emission intensity of each exporting country and for each of the goods listed.”

In a previous draft seen by Platts in June, the default value was defined as being equal to the 10% worst carbon emitters within the EU. The new, more lenient definition during the transition period will likely be welcomed by importers from high emitting regions. However, from 2026 they will be expected to buy a greater number of certificates than previously expected.

The price of the CBAM certificate will be the average ETS price of the week prior to purchase.

The European Commission is set to unveil the full policy on July 14 as part of a suite of policies known as Fit for 55. The CBAM has been designed to prevent carbon leakage as the commission tightens the emissions regulatory environment on the continent.

An EC spokesperson declined to comment on the draft proposals.

— William Healy, Diana Kinch

Six options have been considered for the European Commission’s implementation of a Carbon Border Adjustment Mechanism (CBAM), according to a draft circulated July 12 by Contexte, a French media organization. One of the options proposes a 10-year phase-out from 2026 of allowances that can be obtained for free by less-polluting EU steelmakers and aluminum producers under the EU Emissions Trading System.

The EC is set to make initial proposals for the CBAM July 14, for implementation in 2023, as part of a “Fit for 55” package of measures to slash the bloc’s carbon emissions by 55% of 1990 levels by 2030. The CBAM will target emissions in “hard-to-abate” sector including steel, aluminum, cement and electricity.

The first CBAM option considered is for an import carbon tax, paid by the importer when products enter the EU, according to the text of the leaked document. The tax would be collected by customs at the border, reflecting the price of carbon in the EU combined with a default carbon intensity of the products. Importers would have the opportunity to claim a reduction of the CBAM based on their individual carbon footprint and any carbon price paid in the country of production.

The second option reportedly involves the application on imports of a system that replicates the EU ETS applicable to domestic production. Similar to the EU ETS allowances system, this would involve surrendering “CBAM certificates” by importers, based on the embedded emission intensity of the products imported, and purchased at a price corresponding to that of the EU ETS allowances at any point in time.

The third option bases the carbon price of imports on actual emissions from third country producers rather than on a default value based on EU producers’ averages, involving the importer reporting the actual emissions embedded in the product and surrendering a corresponding number of CBAM certificates, according to the document.

Option four consists of surrendering CBAM certificates on imported products. This considers a 10 years transitional period starting at the earliest in 2026 during which free allocations of allowances under the EU ETS would be gradually phased out by 10 percentage points each year as the CBAM is phased in.

“The combined and transitional application of EU ETS allowances allocated free of charge, of indirect cost compensation of carbon costs passed on electricity prices and of the CBAM should in no case result in more favourable treatment for EU products compared to imported goods,” the text of the document says. “CBAM certificates differ from EU ETS allowances for which tradability is an essential feature and whose prices fluctuate on a daily basis.”

Option five would cover carbon-intensive materials that are part of semi-finished and finished products along the value chain. For imports, the CBAM would again be based on the actual emissions from third country producers.

Option six consists of an excise duty on carbon-intensive materials covering consumption in the EU of both domestic and imported products, besides the continuation of the EU ETS including the free allocation of allowances covering production in the EU.

All six options have been considered potentially effective in the aim to reduce carbon emissions in the EU and address the risk of carbon leakage, according to the document.

“While the objective of the CBAM is to prevent the risk of carbon leakage, this Regulation is expected to also encourage the use of more GHG-efficient technologies by third countries producers, so that less emissions per unit of output are generated,” it said.

Questioned on the proposals, an EC spokesperson said July 12 that the Commission “does not comment on leaks.”

Allowances in short supply

European Steelmakers’ Association Eurofer said July 12 it is “particularly concerned” at the EC’s apparent intentions for the EU ETS revision, and calls for the CBAM and ETS to be complementary systems. “The steep reduction of free allocation would markedly increase industry exposure to EU ETS costs. The ‘rebasing’ and Market Stability Reserve changes would artificially drive up the carbon price for the same level of 2030 climate ambition,” Eurofer stated.

“Artificially higher carbon costs would hinder the steel sector’s ability to reduce emissions and meet our targets. Even before the current EU ETS revision, the sector was facing Eur30-45 billion in EU ETS costs between 2021-2030,” Eurofer Director General Axel Eggert was cited as saying in the statement. He noted that this calculation is based on the current EU ETS allowance price of Eur55, which has the potential to rise to Eur100 per allowance due to current shortages in availability under the regime finalized in 2018.

— Diana Kinch and William Healy

Lead times in the European coil market appear to have reduced somewhat, from a certain mill.

A leading European producer was offering September production into the Iberian Peninsula from its Spanish electric arc furnace at €1,210-1,225/t effective. Another leading producer said it would soon start selling October production, despite previous talk that it had booked for the fourth quarter.

Argus‘ daily Italian hot-rolled coil (HRC) index slipped by €5.75/t today to €1,097.50/t ex-works. The daily NW EU HRC index nudged up by €0.50/t to €1,170.25/t ex-works.

In Italy material was widely available at less than €1,100/t ex-works from local mills, with €1,060-1,080/t targeted all around, although there were higher offers to certain customers depending on their previous purchases and delivery windows.

Demand has slowed considerably and is below some market participants’ expectations, with buyers stocked up until the end of September and most producers offering for October. Buyers are expected to resume purchasing from late August, after the annual maintenance stoppages in the country.

A French mill was heard to be offering at €1,150-1,170/t delivered Italy, while an Italian re-roller was offering pickled and oiled material at €1,200/t ex-works.

Import prices appear to have bottomed out for the time being. With Chinese futures on the rise, some competitive offers have disappeared from the market, especially from Asian suppliers, and some mills have limited allocations. Offers from Turkey stood at $1,040-1,050/t fob Turkey, but discounts were expected as buyers were bidding lower. Turkish S355-grade HRC was sold into Antwerp at €1,050/t fot, effective, for October delivery, equating to €1,010-1,020/t for commodity grades. An Indonesian producer was offering about €970/t cfr into Antwerp and was seeking orders. Indian material was offered at $1,000/t cfr and below, in the expectation that a 25pc duty would be payable with October-December.

These lower import offers also subdued purchasing appetite in the north, alongside the impending holiday season.

Some buyers were still paying high prices to secure material after being caught with insufficient volumes at the start of this year. In some instances they were paying levels proposed by north European producers of €1,200/t and more. But the bulk of the market is not paying this amount, with many participants expecting domestic mills to reduce their quotations in response to the lower import offers.