Key takeaways from EUROMETAL’s International Steel Trade Day

Key talking points at European steel distributors association EUROMETAL’s International Steel Trade Day held in Antwerp, Belgium, on Thursday November 10.

Decarbonization drive is reshaping steel industry
The green transformation has become the core element of the European mill strategy. Most European blast furnace-based steelmakers have been investing in green steel projects in the past years in order to cut emissions to comply with strict EU regulations.

Under the European Green Deal, the European Commission proposed a new EU target to reduce greenhouse gas emissions by at least 55% by 2030, compared with the levels emitted in 1990.

European steel distributors said that they have already seen interest for green steel purchases from their customers, especially in the automotive industry.

Tayfun Iseri, president of Turkish flat steel association Yisad, confirmed that European buyers are asking about carbon footprints before booking cargoes of Turkish hot-rolled coil.

“It is going to transform the way we do business in the next 10 years,” Iseri added.

“People are ready to pay more for a green steel,”  Laurent Taylor, commercial director of Steelforce, said during the panel.

However, Russia’s attack on Ukraine has impacted the process of green transformation, but it is still on the agenda.

European circular economy targets are expected to have more impact on the market in 2023 and the market needs to prepare for it.

“There is a general will to do [green transformation]. The problem is that it is highly inflationary. With the current [state of economy] the question is how we are going to pay for it? It is a real issue,” Julian Verden of Stemcor said during the panel discussion.

Market participants, however, said that the very concept of green steel lacks clarity. The term is vague: what steel can be considered green and what premiums should the market pay for it.

“It [green steel concept] is so vague right now, I’m not sure it can be implemented in 2026,” one of the distributors said.

Another problem is a lack of hydrogen to feed green steel production. Green hydrogen can be used as a reductant substitute in direct-reduced iron production, and is often cited as an effective, low-carbon alternative. A number of the European mills have started green steel initiatives with an aim to develop hydrogen-based steelmaking across Europe.
 
Hydrogen can potentially be produced using wind energy or solar panels, or be imported from outside Europe. However, launching hydrogen production on an industrial scale will be challenging in terms of sustainability because of the large amount of water needed to produce hydrogen. In addition, there are risks involved in the safe transport and storage of hydrogen, as well as in the extent of land use involved.
Other sources said that lack of clarity around green steel was typical for all new products and the market needs “to start somewhere with green steel introduction.”

“We are already seeing a priority for a steel [produced] with lower emissions and we believe that the demand [for green steel] will grow in the upcoming years,” Fernando Espada, president of EUROMETAL, said.

“We cannot stop [the green transition] and we should not stop it because we have a responsibility to this planet,” a distributor said.

CBAM is a new climate instrument, but implementation lacks clarity
The Carbon Border Adjustment Mechanism (CBAM) for imported products was proposed by the European Union to prevent carbon leakage within the EU Emissions Trading System (ETS), but market participants are still awaiting important details on how the mechanism will be administered.

CBAM seeks to mitigate the risk of carbon leakage – carbon emissions generated while producing goods in countries not covered by the ETS – by imposing a carbon duty on imports of some high-carbon goods from outside the EU, including iron, steel and aluminium.

The mechanism was designed to create a common and uniform framework to ensure a fair equivalence between the carbon-pricing policy applied in the EU’s internal market and the carbon-pricing policy applied to imports.

CBAM’s implementation will also involve phasing out the free ETS emissions allowances given to Europe’s industrial sectors, which can be offset against any carbon produced and has led to the current carbon trading system that determines carbon prices. 

“CBAM is no silver bullet. It should be part of a policy mix and combined with other instruments as well as with intensified sector and governmental discussions on the harmonization of decarbonization strategies,” Pierre Leturcq, director of studies at Brussels-based think tank Europe Jacques Delors, said at the conference.

One steel importer spoke about the current vagueness of the mechanism, noting that a lack of clarity from the European Commission gives little room for market participants to prepare for CBAM implementation. 

“Is the European Commission considering how CBAM can practically be administrated so that customs and the ports, the operations and the logistics companies, and the importers, can practically also manage this?” the source said. 

Leturcq said there are currently “deep divergences” in views on how CBAM will be administered, with negations currently underway that will likely result in a “clearer picture on how the system will work.” He added that discussion are scheduled to end on December 12. 

According to Leturcq, opinions are divided on whether CBAM revenue will be collected at the level of EU member states via a customs duties-type process or by a centralized CBAM agency. 

The discussions will also decide how carbon emissions values for imported goods will be calculated and verified, and how the certification process will be implemented. 

Leturcq said the need for a blueprint on the administration of CBAM was a “real issue.”

“But I think it will come very shortly, once the political process is over,” he added.  

Import is an opportunity, not a threat for the market
Panelists said that European distributors need to rely on imports to diversify supply sources in order to secure an uninterrupted supply of steel products for their customers.

“Nobody should buy 100% [of steel] from imports and nobody should buy 100% domestic material,” Taylor said.

“We all remember what happened last year when nobody could get material from the European mills,” Verden said.

According to market source estimations, European steel buyers get 20-40% of their supply from imports.

Total volume of carbon steel imports to Europe totaled 28.9 million tonnes in 2021, up from 21.3 million tonnes in 2020. In the first eight month of 2022, steel imports to Europe totaled 20.8 million tonnes, with Southeast Asian supplier increasing their market share.

Trade protectionism, however, is only expected to grow in the upcoming years, source said.

Notably, more European trade cases are likely in 2023 due to shifting trade flows.
Yuriy Rudyuk, a partner at the law firm Van Bael & Bellis, has said that a new wave of anti-dumping trade cases against hot-rolled flat steel products was highly likely, considering the persistently high import penetration into the EU market.

Published by: Julia Bolotova, Holly Chant