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European steel and aluminum producers’ associations expressed concern July 14 at the spectre of rising costs as a result of the European Commission’s proposed Carbon Border Adjustment Mechanism which would involve phasing out free allowances for producers under the EU’s Emissions Trading System.

European steelmakers association Eurofer and European Aluminium indicated they considered the CBAM proposals incomplete — the package limits itself to covering products’ direct or embedded emissions, not including indirect emissions, and does not give clarity on which emission scopes will finally be included.

The EU is proposing to introduce a CBAM, or carbon tax, on imports of iron and steel, aluminum, cement, organic basic chemicals, fertilizers and electricity, to avoid the risk of carbon leakage, the EC announced as part of its ‘Fit for 55’ climate package July 14. It proposes to introduce CBAM progressively until 2026 against a corresponding reduction of free ETS allowances.

Costs eroding decarbonization funds

“What is immediately clear is that the phase out of free allocation will add to industry costs and actually reduce the financial resources available to invest in decarbonization technologies in the medium term,” a Eurofer spokesperson said.

Earlier this year Eurofer calculated that to be ‘Fit for 55’ by 2030, and achieve net-zero carbon production by 2050, the bloc’s steelmakers may need to invest as much as Eur144 billion ($170 billion), including in breakthrough technologies which could increase steel production costs and prices by between 35% and 100% above current levels. They would also need to have access to supplies of up to 400 TWh of climate-neutral electricity, seven times more than what the sector purchases from the grid today.

“The CBAM as yet has no anti-circumvention mechanism to prevent cost absorption and resource shifting, nor any mention of EU export rebalancing — this needs to be resolved if the system is going to work. This may be something to see during the reporting phase till 2026, as well as which scopes are covered,” the Eurofer spokesperson said. While recognizing the importance of the “landmark package of proposed climate legislation,” the steelmakers association considers that greater carbon leakage protection must be given if the green transition is to succeed.

In 2020, the EU imported 22.39 million mt of steel products, compared to regional production of 138.8 million mt of crude steel that year, according Eurofer and World Steel Association data.

European Aluminium, while supporting the principles of the EU’s “ambitious decarbonization roadmap,” is concerned about the negative economic and climate impact of including aluminum in the pilot phase, citing cost factors. It called July 14 for the new EU ETS state aid guidelines to be extended until 2030.

“Both the lack of strengthened carbon leakage protection measures and current CBAM design are not set to tackle the indirect carbon costs that Europe’s aluminium sector faces with regard to the EU’s electricity market design rules,” said Gerd Gotz, European Aluminium’s director general, in a statement.

“The fully electrified nature of aluminium’s primary production makes European producers the most exposed to indirect emission carbon costs,” Gotz said. “In Europe, electricity carbon costs evolve at the regional level due to pricing dynamics in interconnected regional power markets, representing up to 40% of total aluminium production costs.”

Electricity included

Electricity is also to be covered by the CBAM. However, the EU currently imports only 20 TWh of power — a tiny fraction of EU’s consumption of 3,400 TWh.

Europe has already lost 30% of its primary aluminum product plants since 2008. According to the aluminum producers association, cost impacts of the CBAM down the metals value chain could generate more carbon leakage in future. The association in recent days estimated CBAM could lead to additional costs for European producers of semi-finished aluminum products, sourcing primary aluminum from outside the EU, of more than 5% of the total value of products ranging from window frames to car parts.

In 2020, the EU imported 9.443 million mt of aluminum, more than three times the regional primary aluminum production of 3.33 million mt in the year, according to data from the association and International Aluminium Institute.

Both Eurofer and European Aluminium, however, said they would continue to work together with the EC on the CBAM’s design.

The steel and aluminum sectors are widely recognized to account for 8% and 2% of global carbon emissions, respectively. In the EU, steel production is estimated to account for as much as 25% of the regional industrial CO2 emissions.

WTO compatible

During the EC’s unveiling of the CBAM measures in Brussels, EC commissioner for economy Paolo Gentiloni said that the aim of the package is to put a price on carbon emissions, with the same price to be used for domestic production as for imports. As indicated by the European Green Deal, the CBAM would ensure that the price of imports reflects more accurately their carbon content. The package’s planned gradual introduction, with full compatibility with WTO rules, therefore aims to balance climate ambition with global cooperation, Gentiloni said.

“It’s a sort of premiere at international level … CBAM is not a tax, it’s an environmental measure but we also need taxes to positively influence our behavior,” the commissioner said.

— Diana Kinch, Annalisa Villa and Henry Edwardes-Evans

The EU is proposing to introduce a Carbon Border Adjustment Mechanism, or CBAM, on imports of iron and steel, aluminum, cement, organic basic chemicals, fertilizers and electricity, to avoid the risk of carbon leakage, the European Commission announced as part of its ‘Fit for 55’ climate package on July 14.

The EC plans to introduce the mechanism in a transitional phase until the end of 2025, to be fully in place in 2026, it said in a statement. The system will be based on trading in certificates based on actual or direct emissions, it said.

The progressive introduction of CBAM will be set against a corresponding reduction of free allowances allocated under the corresponding EU Emissions Trading System, it said.

However, CBAM should not apply to certain products including ferrous scrap, ferroalloys and certain fertilizers whose production does not entail meaningful emissions, the EC said in a regulation proposal document.

Purchase of certificates

From 2026, importers of iron and steel, aluminum and cement products and electricity will be required to purchase certificates corresponding to the volume of goods and the embedded emissions of the goods listed.

EU importers of goods will be covered by a CBAM register with national authorities, where they can also buy CBAM certificates. The price of the certificates will be calculated depending on the weekly average auction price of EU ETS allowances expressed in Eur/mt of CO2 emitted, in the week prior to purchase. The number of CBAM certificates that are required to be purchased will be adjusted to reflect the number of EU ETS allowances that are allocated free of charge to Europe-based producers.

No financial adjustment is foreseen for importers through 2023-2026 CBAM transition period.

“The CBAM should be based on a declarative system where an authorized declarant, who may represent more than one importer, submits annually a declaration of the embedded emissions in the goods imported to the customs territory of the Union and surrenders a number of CBAM certificates corresponding to those declared emissions,” the EC said in its regulation proposal document. “An authorized declarant should be allowed to claim a reduction in the number of CBAM certificates to be surrendered corresponding to the carbon price already paid for those emissions in other jurisdictions.”

The import of electricity should be included in the scope of this regulation, as this sector is responsible for 30% of the total GHG emissions in the Union, the EC said.

The ‘Fit for 55’ package aims to reduce the bloc’s carbon emissions by 55% of 1990 levels by 2030.

Direct emissions only

Embedded emissions are the direct emissions released during the production of the good and relevant input materials. The relevant input materials for each commodity will be set out in an implementing act.

For example, an importer of 10,000 mt of aluminum which has a direct carbon intensity of 1.5tCO2/tAl may have to purchase 15,000 CBAM certificates after the transitionary period has ended, according to S&P Global Platts analysis.

Under the proposals, there will be a transitionary period between 2023 and 2026 where importers will not have to make any financial adjustment. According to the document, the transition period aims to solely collect data and raise awareness of importers.

From Jan. 1, 2023 all importers of the aforementioned goods will be required to submit a CBAM report each quarter. The report will include the total quantity of goods and their country of origin, the total embedded emissions, the total embedded indirect emissions and any carbon price paid in the country of origin.

Importers failing to comply with the correct declaration of the CBAM report will face a penalty, according to the proposal.

Industry reaction

Market sources expressed their surprise at the scope of the CBAM only applying to direct emissions, and not including indirect emissions. “What a joke,” said one aluminum trader, while another described the proposals as an anticlimax.

The bulk of the carbon emissions related to aluminum are indirect emissions released by powering the smelter, typically by using coal power. Under this proposal, smelters that are powered by coal will pay the same CBAM costs as those powered by hydro power.

However, the proposal does include the statement that: “the scope of the CBAM may be extended to include indirect emissions in the future.”

— Diana Kinch and William Healy

The Internet-of-Things (IoT) platform “toii,” developed by thyssenkrupp Materials Services, has been adopted by two of its downstream customers, Kallanish hears from the distribution group.

Processing company Steel Service Krefeld is introducing toii.Lights to digitally network analogue machines and collect data for further processing. This means that the production status of all machines can be viewed at any time and operating and maintenance times can be optimised, tk Materials explains. Steel Service Krefeld sells machines, tool steel and metal powder for additive manufacturing.

The other company, GGK, relies on the tool for the production of plastic cable routing systems. The company produces over 3,000 different products at its Greifenstein site in Hesse, Germany, which are sold in 28 countries.

“We are delighted that toii is being used by two new external customers with very different requirements,” says Sebastian Lang, managing director of thyssenkrupp Materials IoT. “It is both an enabler of digital transformation in classic machinery and a scalable complete solution for networking the value chain in the digital factory.”

tk Materials IoT GmbH was founded in September 2019 as a spin-off from tk Materials Services. As part of the strategic further development of “Materials as a Service” the materials distributor and service provider keeps expanding its supply chain service business. This includes the development of innovative, data-driven business models.

Christian Koehl Germany

ArcelorMittal has announced that it has supplied steel for the manufacturing of pipes specifically designed to transport 100% concentrated hydrogen.

The pipes were manufactured by Greek Corinth Pipeworks using steel supplied from the Fos-sur-Mer and Bremen mills. The tubes were then used in a new 440km high-pressure network in Italy.

“While steel is the best material available to transport hydrogen, a key challenge is the effect that the gas has on the metal,” explains Frederic Bouchaud, ArcelorMittal account manager for oil and gas pipelines. “For this project we have created a robust new steel which will resist embrittlement and transport hydrogen gas safely throughout Europe. The result is a very wide, high-quality steel with low carbon content, excellent cleanliness, a homogenous microstructure, and low levels of sulfur and phosphorous.”

Finished pipes have an outside diameter of 26 inches (660 mm) and thicknesses of 11.1 and 15.9 mm. To meet these specifications, ArcelorMittal produced extra-wide 2,100mm coils. After forming by CPW, the pipes were laboratory tested at maximum pressure and 100% hydrogen.

The possibility to effectively transport hydrogen in Europe is central to the future development of greener steel in the continent, Kallanish notes.

Emanuele Norsa Italy

Decarbonisation, green capital expenditure (capex), and conservative investment by the mining giants are expected to support the iron ore and steel bull markets, according to Nicholas Snowdon, head of base metals and bulks research of Goldman Sachs, Kallanish learns at Singapore Iron Ore Forum (SIOF) 2021 held on 13 July.

Decarbonisation, required by governments, is expected to bring steel demand for new equipment, while output will be under pressure from the move towards net zero emissions. Output will be controlled despite rising global steel capacity and therefore, probable tight supply and new demand can support steel markets, Snowdon believes.

In terms of green capex, environmental policies will drive a capex boom on par with the 1970s and 2000s. Heavy investment is necessary for countries to achieve carbon neutrality. Commodity prices and capex hitorically have roughly the same trend, Nicholas stated.

Although iron ore bull market has entered its third year, global supply/demand balances suggest no material surplus until 2023/24. Meanwhile, the commitment of miners to long-cycle mining developments is falling. The combined mining capex of Glencore, Anglo American, Rio Tinto, and BHP has only recovered to a third of levels a decade ago, and is expected to maintain this level to 2025. Expectations of supply expansion are therefore weakened.

Several speakers also agreed that iron ore prices will continue to be high before next year. “China’s demand for high-quality iron ore that has over 62% Fe will be still strong in the fourth quarter,”said Tracy Liao, vice president of commodities strategy at Citi.

By Kallanish Team

ArcelorMittal`s Spanish Sestao plant is set to become the first global steel producer with zero CO2 emissions across its entire production process, Kallanish learns from the company. This will be possible by using green hydrogen and electricity from renewable energy sources.

The project is part of the memorandum of understanding that ArcelorMittal and the government of Spain signed on 13 June. The plan contemplates an investment of €1 billion ($1.18 billion) in the construction of a direct reduction plant with green hydrogen as well as a new hybrid electric furnace at the Gijón mill.

“This plan depends on supplying huge quantities of hydrogen at affordable prices, access to sustainable financing and a favourable legal framework that allows us to be competitive on a global scale,” company` ceo Aditya Mittal comments. 

The Sestao plant – which manufactures a wide range of flat steel products for the automotive, construction and general industry sectors – is estimated to produce 1.6 million tonnes of zero-carbon steel by 2025. This will be possible by modifying the metallic charge in the two existing electric arc furnaces, increasing the proportion of recycled scrap and using pre-reduced iron produced with green hydrogen in Gijón. The electricity supply in all steel installations of the plant is set be from renewable energy sources, ArcelorMittal explains.

Todor Kirkov Bulgaria

Acciaierie d’Italia, the largest Italian flat steel producer, is likely to close the year below its previous planned production output of 5 million mt, sources told S&P Global Platts on July 13.

The steel unions said that Acciaierie d’Italia is likely to produce 3.5 mln of crude steel this year. When contacted by S&P Global Platts, Acciaierie d’Italia’s spokesman said that the company targets an output of 4.5 million mt of steel by the end of 2021 and that to achieve this, “production will increase to 15,000 mt a day in the second half of the year.”

According to the unions, the company is producing around 10,000 mt of pig iron a day at the moment as only two blast furnaces — No. 1 and No. 2 — are working, while the No. 4 furnace was temporarily shut for maintenance in June. The No.4 furnace was supposed to restart production in the beginning of July but is still temporary offline due to ongoing environmental and technical issues.

The unions and the company spokesperson said that the blast furnace No. 4 was linked to the coke battery number 12, which was directed to be put on idle by Italy’s Transition Ecology Ministry until it met certain standards to make it environment friendly.

“The company appealed at a court in Rome against the minister’s directions and ask for three month extension to meet the environmental requirements, amid COVID-19-related lockdowns that delayed the requisite changes. The tribunal of Rome has already asked to the ministry to reconsider its order to idle Battery 12.” Acciaierie d’Italia’s spokesman said.

The company has a total of five blast furnaces, blast furnace No. 1 and No. 2 each have a designed production capacity of 1.8 million-1.9 million mt/year of crude steel, but they are not operating at capacity. Blast furnace No. 5, the largest in Europe with a production capacity of around 3.5 million mt/year, was idled in 2015. Blast furnace No. 3 has a capacity of about 2 million mt/year of crude steel, but was idled in 1994 and is set to be dismantled.

The steel unions have planned a strike for July 20 to demand more clarity and commitment from the government, union sources told Platts.

The Italian market consumes around 12 million-13 million mt of coils annually, market sources told Platts. In 2020, the country produced about 20 million mt of crude steel and was the second largest European steel producer, according to Federacciai, the Italian federation of steel companies.

Acciaierie d’Italia is the largest Italian flat producer, followed by Arvedi. Arvedi is set to produce 3.6-3.8 million mt of hot-rolled coils this year, close to its installed capacity, Platts reported earlier.

Arvedi has two electric arc furnaces at its headquarters in Cremona. The No. 1 furnace has 1.4 million mt/year of crude steel capacity and the No. 2 furnace was upgraded and expanded in 2020 to increase its capacity to 2.6 million mt/year.

The Italian coils market is going strong, with prices reaching historical levels in June. Prices were softening amid the summer holidays and attractive imports, but domestic prices were still high, Platts reported earlier.

— Annalisa Villa

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

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