Day: 2 December 2021

The European hot-rolled coil steel to raw materials price spread fell 0.6% in November on a continued weakening in spot steel prices and weaker iron ore and coking coal costs, according to an analysis by S&P Global Platts Dec. 1.

Spot HRC prices continued to drop after earlier record levels, while ferrous scrap costs rose last month. Iron ore and coking coal inputs retraced from recent highs, pushing down the overall cost of pig iron produced in the Europe to the lowest since January, based on major steel feedstock cost references.

The Northwest European HRC-steel raw materials spot spread fell to Eur669.35/mt ($763/mt) in November, from Eur673.54/mt in October. The spread hit a record above Eur795/mt in August, according to Platts calculations.

As the spread continued to decline since August, stronger-than-average steel prices and logistical disruptions have kept indicative available margins well above typical steel industry conditions, as tracked by Platts.

In the third quarter, the European HRC spot spread averaged at a record Eur771/mt, up from Eur695/mt in Q2, on the back of higher steel prices.

Price declines for HRC in the spot market slowed down in November. On Nov. 30, HRC was assessed at Eur967.50/mt ex-works Ruhr.

Platts Northwest European HRC prices averaged Eur995.95/mt ex-works Ruhr in November, down 3.7% from October, while prices fell 6.2% in the previous month. Monthly average pricing hit a record high of Eur1,172.64/mt ex-works in July, according to Platts assessments.

Spot prices for commodity-grade HRC are not fully reflected in sales and deliveries by steelmakers due to earlier negotiated pricing terms, and long-term contracts.

Iron ore costs

Iron ore import prices in China, used as a benchmark for global contracts, fell sharply in November as China reined in pig iron production. Prices averaged $94.97/dry mt CFR China for Platts IODEX 62% Fe fines, down 22% from October.

Spot lump ore premiums in China fell back to 14.7 cents/dmtu, or around $9.19/dmt, last month from 19.22 cents/dmtu in October.

Atlantic blast furnace contract pellet premiums were stable month on month in November at $55.50/dmt, as assessed by Platts, tracking contract premiums agreed for the quarter. Premiums fell from Q3, when Platts assessed premiums averaged $76.66/dmt.

The basket of iron ore fines, lump and high-grade product prices fell, while scrap costs delivered in Northwest Europe rose in November.

Coking coal prices on a delivered net forward basis into Rotterdam fell 10% to $388.52/mt CFR Rotterdam in November, from October’s record levels.

Premium low-vol coking coal prices net forward to Rotterdam had more than tripled since April, while tight global spot supplies from the US, Canada and Australia continued to support market pricing referenced under contracts.

Regional northern European shredded scrap prices rebounded to Eur410/mt delivered basis in November, the highest in three months and 7.9% up from October.

China, US spreads

In China, the spread between HRC export prices and imported iron ore and coking coal costs weakened slightly to $341.39/mt in November, from $349.43/mt in October

China HRC spreads are still above levels in Q1 2021 and through 2020, which were below $300/mt.

Chinese HRC export and domestic prices fell in November, while major raw materials costs dropped by a similar margin.

US HRC to Midwest shredded scrap spreads fell further to $1,353.99/st in November, from $1,509.40/st in October. Weaker US flat steel prices continued to push the metric lower, from earlier record highs.

Platts Europe HRC to raw material price spreads are indicative operating margins that do not account for inland logistical costs, power, natural gas or other blast furnace and steel-making inputs such as ferroalloys, anodes and refractories. Costs to operate sintering and coke plants are not included.

There may be further upward pressure on typical operating break-even levels at regional blast furnace mills due to higher energy, carbon permits and logistics costs.

An HRC-raw material spread of Eur250/mt is close to operating breakeven for commodity grade steel, based on operating facilities at higher capacity utilization, according to steel industry sources.

Reference break-even costs may be rising from pre-pandemic norms, as plant operating and maintenance schedules were disrupted over the pandemic, and due to volatility in production rates. In 2019, the Northwest Europe HRC spread averaged Eur241/mt.

Break-even levels in Europe are partly dependent on the mix of logistics costs and raw material configurations.

Platts European HRC spreads are based on commodity-grade flat steel specifications. Contract steel sales may have additional grade and specification-based premiums, and terms may lag spot indexes.

Producers with higher grade steel portfolios may be less exposed to commodity-grade steel margins against underlying steel raw materials costs.

— Hector Forster

The EU’s prospective carbon border adjustment mechanism (CBAM) will increase prices of imported products but should not have a huge impact on prices downstream, says Yiannis Zachariadis, policy officer at the European Commission’s Directorate-General for Taxation and the Customs Union (DG Taxud).

“We didn’t find evidence that CBAM would in fact trigger a carbon leakage in downstream sectors,” he said during this week’s Euranimi online conference attended by Kallanish. “That of course is on the basis of the analysis that we made and on the basis of carbon prices as they stand at the moment.”

However, DG Taxud will monitor the steel market in the future should carbon prices increase considerably, also causing downstream product values to hike. The authority is beginning to consider how to address “the proportion of CBAM products in the downstream products”, Zachariadis added.

“We are not in an anti-dumping situation when we apply a major [tariff] in 15 months,” commented DG Taxud policy officer Roberto de Micco. “We apply a major in 15 years. In 15 years, everything will be different, so whatever evaluation of today’s impact of CBAM on prices is unreliable because it compares export prices with domestic prices, and export prices will be different in 15 years because everyone is increasing their prices due to carbon constraints. That is what the Paris Agreement wants and it is what we asked third country partners at COP26.”

CBAM is designed as a behavioural instrument to push third countries to also apply a carbon price in their own domestic markets. The Turkish and Russian governments are already considering applying a carbon tax. The price of steel products will anyway go up globally amid decarbonisation, De Micco said. “CBAM is helping but the process that is pushing the carbon price up is a climatic process,” he concluded.

Natalia Capra France

The EU’s carbon border adjustment mechanism (CBAM) will start to be gradually implemented from 2023, says Pasquale de Micco, policy officer at the European Commission’s Directorate-General for Taxation and the Customs Union (DG Taxud).

In the European parliament, a final position from the international trade committee (INTA) and all amendment votes are expected by February 2022. The leading committee for environmental issues, ENVI, should also adopt its position by May, while the plenary will finalise its position in June. “If everything works well as we are working very fast on this new instrument [CBAM], you can expect it to be approved next year.” de Micco said during this week’s Euranimi online conference attended by Kallanish.

CBAM is being introduced gradually with a prudent and slow approach to allow businesses that are subjected to the measure to adjust. Starting from 2023, there will be a phase of three years when the measure will only require importers to report their emissions and carbon prices in their own countries. No financial engagement is required during these three years. At the end of this period, a review of the data collected over the first three years will be implemented. From 2026 onwards, CBAM will be phased in at 10% per year until fully applied after 2036.

“CBAM’s only aim is a climatic aim,” De Micco said. “It is not a trade policy instrument. It has nothing to do with anti-dumping, anti-subsidy and safeguard measures; otherwise, it would have been in the hands of [EU trade defence body] DG Trade. The instrument is just a specific extension abroad of the full international relevant [climatic] rules.”

Countries that are excluded from CBAM such as Norway and Switzerland already pay the same carbon pricing as Europe on their own products, he added.

“As much as the European climate ambition increases, the gap with third countries increases as well, so we risk having higher levels of carbon leakage, which means European companies’ delocalisation abroad or higher imports of carbon-intensive products. CBAM has several flexibilities that take into account the decarbonising actions in third countries … The instrument is automatically adapted to the third countries’ engagement in decarbonisation,” De Micco explained.

The aim of CBAM is to prevent carbon leakage while also incentivising third countries’ producers to reduce their emissions and adopt a green policy frame, he added.

The CBAM design mirrors EU carbon pricing. It complies with the WTO, focusing on carbon-intensive sectors and complementing the EU emission trading system. The main rules are equal carbon prices and no double pricing. As EU businesses pay a carbon price on their production, the European Commission requires third countries’ producers to also pay the same price when exporting their products into the EU according to article 3.4. This creates a level playing field.

No double pricing means that if a non-EU producer can show that they already paid a carbon price on their imported goods, this will be automatically deducted at the moment of import.

Natalia Capra France

Service centre group Russel Metals has closed on its acquisition of the US-based Boyd Metals group of companies, Kallanish reports.

The $110 million deal adds to Russel’s portfolio five Boyd facilities in Arkansas, Missouri, Oklahoma, and Texas, which process carbon, stainless, aluminium, red metal, and tubular products. Russel is based in Mississauga, Canada.

“We are excited to have the Boyd business as part of our operating platform as we welcome Tom Kennon, Brian Newman and all of the Boyd employees to the Russel Metals family,” notes Russel president and ceo John Reid.

Laura Miller USA

Ardersier Port Authority (AP) plans to build a £300 million ($400m) electric arc furnace-based ‘green’ steel plant powered by offshore wind and energy from waste by 2027. It will utilise 1 million tonnes/year of domestic scrap, some of which will be generated by the onsite oil rig decommissioning facility.

This would make the plant the UK’s first greenfield steelworks since the Sheerness Steelworks, on the Isle of Sheppey, Sheerness, was commissioned by owners Co-Steel in 1972, AP points out.

“The energy transition from offshore structures to floating wind has an important missing factor: steel,” Ardersier Port owner Tony O’Sullivan says in a note seen by Kallanish. “Today, the UK exports ten million tonnes of scrap steel annually. By building a new renewable-powered electric arc furnace at Ardersier Port, the first new-build steel mill in the UK for 50 years, we will utilise a million tonnes of scrap each year. This will produce reinforcement steel for the UK construction industry, of which there is currently a shortfall, allow for the onsite construction of floating wind platforms, and enable us to export green steel to global markets.”

Scotland-based Ardersier Port’s new owners plan to turn it into Europe’s first fully circular “Energy Transition Facility”. The site used to be one of the largest oil rig fabrication yards in the world. Now, the owners are about to begin a £20m, nine-month ‘capital dredge’, to remove 2.5 million cubic metres of sand to open up the port once more.

Besides the steelworks, the site will include an oil rig decommissioning facility, waste from energy recovery facility, a concrete production plant, and a dedicated floating wind hub for concrete floating wind foundation manufacturing.

The steel plant will be the only place in the world where the scrap from decommissioning is processed into steel. AP expects to recover over 100,000 t/y of steel scrap from the decommissioning of ageing oil and gas industry assets.

AP has an agreement with BW Ideol to give it exclusive access to the port for the manufacture of floating wind foundations. “In comparison to steel foundations, floating wind offers a unique opportunity to combine both price competitiveness and local manufacturing, thanks to BW Ideol’s unique concrete floater solution,” says BW Ideol chief executive Paul de la Gueriviere.