EU mills and distributors are increasingly relying on each other amid limited export competitiveness and tighter import measures, while energy prices trump all other considerations for steelmaking transition investments in the bloc.
So concluded a panel of steelmakers’ representatives at last week’s EUROMETAL Regional Meeting Central Europe in Warsaw, attended by Kallanish.
Given the energy and carbon costs put on EU mills that foreign competitors are not burdened with, “we can forget about exports really, and being competitive exporting outside Europe,” exclaimed Jiri Mravec, head of innovation & transformation at Trinecke Zelezarny (TZ). “So without European customers, we don’t survive the next month … We are in this fight side by side and together. I mean, steelmakers and the whole downstream value chain, And in crisis, you find your friends.”
European customers will meanwhile shift towards domestic mill procurement due to the complexity of navigating the new trade barriers. This shift has been gradual so far because of the high stocks accumulated in prior quarters, said Tomasz Plaskura, chief marketing officer East Europe – ArcelorMittal Europe Flat Products.
“In terms of competitiveness, of course, it’s our primary objective to stay competitive in Europe in the entire value chain,” he noted, adding he agreed with the need to extend import measures downstream.
The Emissions Trading System (ETS) has so far meanwhile just been a stick rather than a carrot for mills. In terms of allowances, TZ is overallocated for its blast furnace alone, but when taking into account its captive power plant that utilises BF off-gases, it is short off allowances and burdened by the cost. “We are already having discussions on how do we put this in [our steel] prices in terms of some CO2 surcharge or something,” Mravec noted.
“If we just increase the price by €160, we are out of the market very quickly. So it forces us to decarbonise, but they force us to decarbonise in the times when we are poor … We don’t have the Ebitda margin to go to banks,” he added.
“If you plug in €200 per megawatt hour of electricity in the Excel, it will give you no ROI for any electrification business case, and no one’s willing to pay for the green steel extra premium, that I can confirm,” he continued. CBAM “has to be working really well” for mills to achieve the steel prices required to make the investment feasible.
Fellow Czech mill Nova Hut, currently a re-roller, faces the “unique situation” of needing to purchase ETS allowances for its reheating furnaces and also navigating CBAM to import the required semi-finished steel feedstock, said Nova Hut chief executive Radek Strouhal.
“It’s not very easy with the CBAM because we are approaching the suppliers asking about certification … During February, we received cross benchmark figures, so we were offering material in the last quarter, last previous year, and not knowing what will be the price, just estimating where the benchmark can be,” he continued.
The firm’s plan to install an EAF “is the only future we can have”, he added. However, it will need “predictable” electricity prices to operate. With EU gas prices shooting up in September, it would be difficult to imagine having to pay €200/MWh for electricity from the grid, he added. Nuclear power “is the only way”.
Competitive energy prices are “the only driver to keep those [steelmaking electrification] investments in Europe” as they form the business case, more so than subsidies, Plaskura said.
Mravec said TZ’s EAF subsidy application is “hitting the wall with financing”. The firm’s strategy is to operate an EAF alongside a BF to have flexibility. “I am 100% certain there will not be a successful hydrogen DRI in Central Europe. This is relevant for particular geographic regions where you can get so cheap renewable electricity that you produce so cheap hydrogen to be able to be cost competitive,” he concluded.
Author: Adam Smith
