Day: 21 July 2021

The “Fit for 55” package announced by the European Commission to achieve the goals of the Green Deal fails to set the right course for a climate-neutral steel industry, German mills find.

On the contrary, the plans for emissions trading increase the risk of international competitive disadvantages and thus carbon leakage, German steel federation WV Stahl says in a statement seen by Kallanish.

“The goals of the Green Deal can only be achieved with a strong industry. As it is now, the “Fit for 55” package does not take into account the requirements for transformation in the steel industry,” says WV Stahl president Jürgen Kerkhoff. The package “lacks sustainable support for the necessary investments in low-CO2 and also neutral processes in the long term.”

By converting to scrap-based electric steel production, the steel industry can make a major contribution to achieving the 2030 climate target and produce in a climate-neutral way in the long term, he explains. However, in the current proposal, the package “jeopardises these ambitions and must therefore be urgently revised in the further decision-making process”, Kerkhoff points out.

The steel industry is particularly critical of the fact that the free allocation of certificates in EU emissions trading is to be massively reduced. In sectors like steel, it is to be gradually halved by 2030 and completely abolished by 2035, to be replaced by a CO2 limit compensation. However, a climate tariff alone cannot prevent steel from being produced in other regions of the world with lower climate protection requirements in the future, Kerkhoff warns.

“Border adjustment is still untested and involves considerable risks. Foreign competitors could find ways to circumvent the tariff,” he concludes.

Christian Koehl Germany

Carbon prices in the EU are set to continue rising further in the coming years, mainly impacting the domestic metals industry, as the EU plans to further cut annual free carbon allocations, Fitch Ratings says.

As part of the “Fit for 55” package presented by the European Commission, carbon allocations are expected to be cut annually by 4.2%, instead of the 2.2% annual cut currently in place. This acceleration of free allocation cuts is set to bring prices to a new record, after the recent high of almost €58/tonne ($68) touched earlier this year.

In June a survey by the International Emissions Trading Association reported that members expected EU Emissions Trading System (ETS) prices to average at some €47/t in the 2021-2025 period. These would then increase further to over €58/t in 2026-2030. This survey did not however take into consideration the further cut in free allowances announced in July.

“The European steel sector faces over €50 billion in capex by 2030 to achieve emission-reduction targets, according to Eurofer. It will also incur high carbon costs at least until 2026 when the CBAM is in effect, and experience quicker free allocation cancellation. The proposal also means higher energy costs for European producers,” Fitch says in a report sent to Kallanish.

In addition to lower ETS allowances, the EU is set to introduce a Carbon Border Adjustment Mechanism (CBAM) from 2026. Most analysts, including Fitch, believe the announcement was made mainly to spur EU commercial partners to consider their own carbon trading system, in order to avoid being impacted by CBAM taxes after they become official.

Emanuele Norsa Italy

The Asia hot rolled coil market increased July 20 on an FOB China basis, in line with higher mills’ offers amid expectations of rising prices and reduced allocations for export due to output cuts in the second half of the year.

S&P Global Platts assessed SS400 HRC 3 mm thick at $927/mt FOB China, up $15/mt on the day. Platts assessed SAE1006 HRC at $955/mt FOB China, up $15/mt on the day.

Some export mills in eastern China raised offers to $1,000/mt FOB, after a suspension in quoting in the previous week, while some mills in northern China offered $1,030-$1,040/mt FOB.

Some major mill’s export allocations are tight, and they mainly exported to long-term buyers, market sources said. For SAE HRC, demand is slow due to competitive offers from Indian mills, but some buyers need to book SS400 from China and they had to catch up to chase the rising offers, said a Chinese trader.

Demand from Asia is overall weak, due to the slow season and a new COVID outbreak, although the costs equivalent to the domestic market for SS400 HRC has been about $950/mt FOB, said a second trader.

Meanwhile, there are rising market chatters about China that it might apply export duty on HRC and remove rebate on CRC and HDG since September. “They are market talks in different versions,” said a Chinese mill source. But sellers would ship the cargoes to the bonded warehouses after signing the contracts, said another trader.

In Vietnam, Formosa Ha Tinh Steel has started negotiated with local customers for sales for September shipment. With a reduction of $60/mt month on month, the mill was heard offering about $965-$975/mt CFR for SS400 and SAE HRC, according to local sources.

Meanwhile, Indian mills’ prices for SAE HRC remained competitive. One Indian mill was heard concluded deal to Vietnam at $930/mt CFR for SAE HRC and sold to South Korean buyers at a similar level. It’s also reported that one major Chinese mill had sold HRC at $1,000/mt CFR level in the previous week.

In Shanghai, the spot price of Q235 5.5 mm HRC was assessed at Yuan 5,860/mt ex-stock, including value added tax, down Yuan 40/mt day on day.

In the Shanghai Futures Exchange, the most actively traded October contract closed at Yuan 5,968/mt, up Yuan 42/mt, or 0.7%, over the same period.

Meanwhile, Platts assessed SPCC grade 1 mm thick CRC at $937/mt FOB China on July 20, up $14/mt on the week. Mills lifted CRC offers further in line with HRC and tradable level also increased.

In the Shanghai dealers’ market, Platts assessed the same CRC grade at Yuan 6,400/mt ex-stock, including VAT, up Yuan 100/mt on the week.

— Analyst Yuelin Dai