CBAM risks political backlash, hits Asian suppliers: WoodMac
The Carbon Border Adjustment Mechanism (CBAM) could add $275/tonne of cost for some key finished steel exporters to the EU, while the increased domestic production costs could lead to a political backlash, according to Wood Mackenzie.
In 2022, the average import price of steel products covered by CBAM was around $1,450/t. The CBAM fees could increase the cost of delivered steel to the EU by about 56% for India and about 49% for China in 2034, by which point all CBAM costs are planned to have been fully phased in, the consultancy notes.
One initial response for exporters to the EU is likely to be a reorganisation of sales to direct lower-emissions steel to the European market, while higher-emissions production is diverted to markets without carbon fees. The EU plans to monitor and address these strategies, but it does not have a concrete action plan to prevent them, Wood Mackenzie says.
Steel producers with lower production carbon intensities or high domestic carbon price, such as in the US and UK, could be less impacted by CBAM, while Asian producers will need to consider diverting supply.
“In the early stages of CBAM implementation, higher prices in the EU will enable some low-cost foreign producers to maintain exports to Europe. Over time, however, the growing carbon cost will erode the competitive advantage of many non-EU producers, making the EU a less economically attractive export destination for higher-emitting steelmakers,” the firm observes in a report sent to Kallanish.
“Collateral damage should be expected, not only in the higher costs that will be inevitably passed on to European end-users, but also in the additional strains on industrial supply chains. The widespread use of steel products across a broad range of technologies in the energy sector, including wind turbines and electric vehicles, puts them at the centre of the transitioning world,” it continues.
“The CBAM is intended to ensure a fair transition in the EU and globally, but an unintended consequence could be to make the transition in Europe more expensive than elsewhere. In a high-price environment, an additional cost could result in political backlash,” it adds.
EU policymakers will need to monitor the effects of CBAM on energy, food, steel and other commodity prices, and intervene with subsidies to mitigate the impacts on businesses and consumers, Wood Mackenzie concludes.
Adam Smith Poland
Protectionism, geopolitics, economic challenges weigh on longs: Irepas
Driven by tightening monetary policies by major central banks, the long steel market has been slowing amid weak demand, putting immense pressure on prices.
The ongoing geopolitical and global economic challenges, as well as protectionism are squeezing emerging economies like Turkey, notes Kallanish.
Protectionism still prevails in the EU and US, and new sanctions on Russian semis and raw materials introduced by the EU, US and Canada will create more complications for steel exporters using Russian substrate, said Irepas chairman Murat Cebecioglu during the association’s Istanbul meeting this week attended by Kallanish.
“The EU has extended its safeguard measures for another year, proving that world trade is no longer as the Uruguay Round defined it. It will continue with its protectionist structure, exerting pressure on developing countries. The situation in Ukraine seems to be without end. The new restrictions on Russian-origin steel and raw materials, to be introduced by the US and the EU, indicate that we will witness more circumvention cases in the coming period,” Cebeciolu observed.
“Furthermore, the CBAM in the EU will replace the current safeguard measures in the region within 12 months. Direct and indirect subsidies and state aid will allow the US and European steel industries to remain profitable … The competition in open markets is very tough as Asian prices are very competitive,” he added.
“China and its exports have a major influence on the global market. So far, all the stimulus packages introduced in China have had no impact on its exports, affecting global steel prices. Egypt, the Gulf Cooperation Council member countries and Algeria have become exporters. Since these countries are not subject to protectionist measures for the time being, they are exporting anywhere they can, especially taking shares from Turkey, which is being squeezed by protectionism all over the place,” Cebecioglu continued. 
The future involves many unknowns. The Turkish government’s new orthodox monetary policy nevertheless offers hope. The domestic market is doing fairly well, but Turkish mills are being squeezed by electricity costs, making it impossible to compete in export markets against the oil and gas-rich countries’ steel producers, Cebecioglu concluded.
Burak Odabasi Turkey
CBAM unclear, hits downstream sector hardest: Assofermet
The definitive application of the Carbon Border Adjustment Mechanism (CBAM) could lead to an increase in steel import prices of around 15%, Italian trade association Assofermet warns.
“CBAM introduces a sort of new ‘environmental customs duty’ to discourage steel imports … We welcome a collective commitment to promote a sustainable economy and reduce the environmental impact of our industry but we believe that greater attention should be paid to the economic consequences of the CBAM regulations which, if not radically revised, risk undermining the competitiveness of an important part of the EU manufacturing sector,” Assofermet steel division president Paolo Sangoi says in a note sent to Kallanish.
“The cost of steel coming from non-EU territories could increase by up to 15%. This would have important repercussions on the entire Italian and European economy,” he continues, adding that the mechanism is extremely complex and its procedures remain unclear.
The CBAM mechanism currently applies only to some steel products, which impacts end-users and downstream companies, exposing them to unfair competition with importers of competing finished products who would face no restrictions or taxation, Sangoi observes.
The transitional CBAM period will expire on 31 December 2025. Until that time, buyers will have to fulfil only a part of the mechanism’s regulations. Assofermet hopes that before the start of the definitive period, on 1 January 2026, the EU will be able to modify the approach of the measure “to reconcile the just and necessary environmental transition with the inevitable economic consequences that will arise from the implementations of the EU Green Deal and Fit For 55”, Sangoi concludes.
According to European Commission data, in 2022 over 31 million tonnes of steel were imported into member states, Kallanish notes.
Natalia Capra France