CBAM is step forward but not enough to rebalance global markets, European IREPAS conference attendees say
CBAM, a carbon tariff for all carbon-intensive products imported into the European Union, was passed by the European Commission in December 2022 and its transitional phase began in October 2023.
Starting in October 2023, buyers of goods originating outside the EU must purchase certificates which equal the total emissions in the production of the goods.
There is no limit to the number of certificates that can be purchased to avoid restricting trade.
The cost of these certificates are calculated by the European Commission on a weekly basis according to the average price of the closing EU Emission Trading System (ETS) carbon dioxide (CO2) allowances for each week.
Impact of CBAM
CBAM can help to address imbalances related to European companies who are constrained by carbon taxes attempting to compete with countries who are not subject to any regulatory strictures, Louis Redshaw, Founder of Redshaw Advisors, told IREPAS attendees.
CBAM will help reduce carbon leakage, Redshaw said.
Carbon leakage was described when, for reasons of costs related to climate policies, businesses were to transfer production to other countries with more relaxed emission constraints, in turn resulting in an increase in their total emissions.
By placing a fair price on the carbon emitted during the production of all carbon-intensive products entering Europe, European mills, who currently need to pay for carbon credits equivalent to their carbon emissions, will be on a more equitable basis with importing countries who do not currently have the same taxes in place.
Some European market participants, however, were skeptical about how effective CBAM would be in rebalancing the playing field.
Carbon credits
European companies must buy carbon credits, normally from the government, to produce steel. When a company buys a carbon credit they can generate one ton of CO2 emissions.
The development of carbon credits turned carbon dioxide into a commodity, which could be monetized like any commodity.
Currently, the top 10% of the lowest emitting steel producers in Europe do not pay for carbon credits, while the remaining 90% of European steel producers have to pay varying amounts for carbon credits to offset their carbon emissions.
Pre-CBAM, European domestic mills were burdened by the cost of climate policies which non-EU countries were not, making them uncompetitive.
“CBAM will help to make competition fair. If importers are not taxed similarly to European mills, the European steel industry will die,” Redshaw said.
The greater a producer’s emission, the more they need to pay for carbon credits, thus incentivizing them to invest in decarbonizing processes.
By ensuring all countries importing steel into Europe have to pay similar amount, sustainable goals do not stop EU countries from being competitive or profitable.
Market responses
Many conference attendees felt that CBAM could help support European mills remain competitive when faced with so many economic challenges.
Some non-European exporters who were already providing CBAM certificates to buyers in Europe importing their stock, reported high levels of bureaucracy involved with submitting the correct information quarterly.
“It will help to put a fair price on the carbon emitted. Steel producers in Egypt who export to EU have already been asked to fill in necessary paperwork for CBAM. This is a very bureaucratic procedure and may become a burden in the future for producers,” a producer source from Egypt told Fastmarkets.
“CBAM will help support European mills and global targets towards becoming more sustainable,” a second producer source from Egypt said.
Skepticism
Some sources, especially in Europe, did not think CBAM would either encourage global decarbonization or significantly rebalance global markets.
CBAM has put a cost on carbon, but it is not enough to counter the other factors which have resulted in a lack of balance in the global markets, these sources said.
These factors included foreign country subsidies, lower gas and electricity costs, lower labor costs and lower or no regulations in the construction sector, the sources added.
These more skeptical market participants felt that by just putting a price on ‘carbon’, other key areas which required addressing were not being considered.
“Europe has been affected and limited by its own desire to become carbon efficient and this has been a contributing factor to Europe losing market share of steel production, weakening domestic demand and becoming uncompetitive domestically,” a German trader said.
Europe is currently trying to decarbonize, digitize and remain profitable, sources said. But, at least in the short term, the goal of decarbonizing is at odds with the goal of profitability, Fastmarkets heard.
“European producers don’t just have to deal with the carbon issue, they also have to deal with high energy costs because of high taxation on energy and renewable energy transformation and high energy costs and importing expensive raw materials and finding the money to invest in decarbonizing technology,” a producer source from Spain said.
Whereas there is a lot of pressure from every side to transition to low-carbon environment in Europe, this is not the same in non-EU countries.
In other countries, for example China and Algeria, where the steel industry is buoyed up by subsidies, carbon tariffs like CBAM will not incentivize them to decarbonize.
“China will just pay the increased costs with the massive government subsidies they receive. They will continue to emit just as much carbon and will continue to have far lower costs,” a trader at the conference said during a panel discussion.
“Even with CBAM and all countries importing into Europe having to pay for the cost of their carbon footprint, they still remain more competitive because of cheaper energy costs and cheaper labor costs,” a second producer source from Europe said.
Costs, low margins depress EU rebar market outlook
French rebar buyers anticipate no market improvement in the near term and throughout the whole of the fourth quarter, Kallanish hears.
Current market activity is characterised by a lack of momentum, shown by orders with reduced volumes.
This week at the Irepas event in Paris, various European rebar makers expressed their apprehension about diminished sales and significantly declining earnings last year. Two sources anticipated negative results for this year as well.
The forecast for rebar sales and pricing through year-end appears to be unfavourable. There are expectations mainly from buyers of a decline in prices in the upcoming months, linked with decreased domestic scrap values and the subdued performance of international markets.
In France, there was a brief period of somewhat higher sales during the summer, but there is no optimism for the future, with distributors noting that sales are still sluggish and customers are reluctant to commit to large quantities.
The overall volume performance for the year has been relatively stable, with slow purchases occurring back-to-back amid uncertainty. However, downstream financial results showed weakness, with margins facing significant pressure and profit close to zero.
Buyers insist on taking a cautious approach, and the market has only slowly resumed activity after the August break.
Rebar prices remain stable month-on-month in France, averaging at €610-620/tonne ($681-692) delivered, according to industry sources. In September, scrap prices in western Europe experienced an on-month decrease of €25-30/t, reflecting the downturn observed in the Turkish market.
The domestic construction sector is in the middle of a recession, as confirmed recently by national construction body Fédération Française du Bâtiment (FFB). However, sentiment among French construction companies improved slightly in August. According to L’Institut National de la Statistique et des Études Économiques (Insee), construction companies active in both structural works and finishings reported a slightly more positive business climate and an improved attitude towards their future (see Kallanish passim).
Natalia Capra France
Italian rebar producers seek increases
Italian rebar producers are looking to implement price increases of €20-30/tonne ($22.1-33.2) in an effort to halt the price decline and regain some lost margins. Increased costs of production, especially in terms of energy, have put significant pressure on their financials.
According to buyers who spoke to Kallanish, the outlook for the end of the year remains pessimistic, with ongoing low downstream orders and reduced consumption. Buyers have no confidence that the latest hike attempt will be sustained. The distribution sector is adopting a cautious approach. Sources indicate prices for domestic rebar have remained steady in comparison to last month, but a price decline is expected.
Transaction values in the domestic market last week ranged from €290-300/t base ex-works, or €550-560/t ex-works effective. This includes an average of €260/t for additional size extras. Domestic mesh is at around €400/t, excluding transportation costs.
There is an additional charge of €300/t for size extras. Mills are requesting €320-330/t ex-works for rebar. Some steelmakers temporarily halted sales last week due to uncertainty surrounding pricing decisions. The market continues to underperform, with buyers reporting an influx of much cheaper long products from Turkey.
Natalia Capra France
German rebar benders face diminishing profitability
Distributors and benders of rebar in Germany have had reason to complain about deteriorating prices throughout the whole year, especially on the selling end to builders.
A manager at one renowned bender group has now pointed out to Kallanish that many companies of its kind could also see their financial cushion diminish in the remainder of the year. “There is an essential difference in that the older jobs that generated some profit are now completed,” he explains. “Now, we will be handling orders from the second half of 2023,” when sales prices sunk to the level of rebar intake prices, and in some cases undercut them.
His group informed customers during the summer that it would not be able to work with sales prices of less than €700/tonne ($775). It asked customers “not to perceive this letter as a sign of weakness, but as a proof of trying to work as partners on the same footing.”
This calculation would apply a rebar intake price from mills of around €620/t delivered, where prices landed in May/June. Overall, values have hardly budged since.
According to benders, the price deterioration downstream is harder. Another manager, who has not read the former group’s letter, but agrees with its content and message, says: “I myself went down in an offer as far as €640 on the sale side – and I did not get the award. Someone else was cheaper.”
On the brighter side, the former group’s manager notes that some types of jobs are increasingly available, even if not profitable. According to him, job offers from big projects are coming in. But this is good news only for big benders that handle volumes of 3,000 tonnes and more. “And still, these jobs are not profitable either,” he bemoans.
Christian Koehl Germany
Feralpi to start producing coiled products in Germany
Italian rebar maker Feralpi will begin tests by year end of the new rolling mill at its German Feralpi Stahl plant in Riesa, Saxony. This plant will produce coiled rebar weighing up to 8 tonnes for the construction market. The coils will be made through a completely electrified production process that has zero direct emissions, Kallanish learns from the company.
In its 2023 earnings report, the steelmaker confirms the investment despite the market experiencing a contraction at a European level, with a notable slowdown in the German economy.
Last year, Feralpi’s investments in production and logistics amounted to €169 million ($183m). In Germany, a new scrap yard was recently inaugurated, which has significantly improved the efficiency of the scrap treatment process, resulting in enhanced productivity and quality, the firm notes.
In 2024, the new spooler plant in Italy will become operational at the Feralpi Siderurgica plant. This will enhance the product range available to customers. Later this year, a new garret line will start operating at the Caleotto specialty steel plant, which will produce 19-32mm coil, enhancing flexibility.
Last year, Feralpi reduced by 24% scope 1 and 2 emissions. It has vowed to cut by 50% core boundary scope 1, 2 and 3 emissions in the production of hot rolled products, as well as scope 3 non core boundary emissions by 25% by 2030.
“The steel market in Europe is going through a complex period, recording a decline of around 10 million tonnes between 2022 and 2023 … In this context, Feralpi firmly maintains its market shares despite the increase in energy costs and the scarcity of scrap weighing on the electro-steel sector. We want to be ready and technologically advanced when the consumption recovery is also accompanied by ever greater attention to the quality of the product and the production process from a green perspective,” says company president Giuseppe Pasini.
Feralpi Holding maintained consistent production in 2023 at 2.42 million tonnes and generated revenue of €1.7 billion, down 27% on the exceptional result of €2.3 billion in 2022. The company’s global presence was reaffirmed as it generated 61% of its revenue from international markets, slightly lower than the previous year’s 63%.
The decrease in revenue can be attributed to rising production costs, specifically the increase in raw material expenses. This led to a significant increase in the proportion of raw material costs in the overall production value, which rose from 50.9% to 63.8%. The higher production costs caused a substantial decrease in Ebitda, which dropped to €83m from €501m in 2022.
Natalia Capra France
Feralpi’s new rebar mill in Germany will work with zero direct emissions
The unit was expected to address the need for long steel materials produced with reduced carbon emissions.
“For the first time in Germany, [rebar] in coils weighing as much as 8 tonnes will be produced for the construction industry, using an innovative, fully electric process with zero direct [carbon] emissions,” Feralpi said.
The construction of the new rolling mill is part of the company’s 2021-26 industrial development plan, which was intended to reduce its environmental effects through electrification.
According to Fastmarkets’ information, the new facility will have capacity for about 500,000 tonnes per year of rebar.
The company added that the technical investment related to its industrial development plan reached €169 million ($183.3 million) in 2023.
As well as the new rolling mill, the funds were invested in a new scrapyard in Germany, and technical improvements to existing facilities in Italy.
According to Feralpi Group, the investments helped the company to address the “need to offer low-emissions steel for both the infrastructure and mechanical engineering industries.”
Currently, the demand for carbon-reduced and green steel was stronger in flat steel products such as hot-rolled coil, trade sources told Fastmarkets. Such products are more expensive due to the premiums charged by producers, with the automotive industry being the main consumer.
Fastmarkets’ weekly assessment of the green steel domestic, flat-rolled, differential to HRC index, exw Northern Europe, was €170-250 ($184-271) per tonne on July 25, stable week on week.
And the assessment of the flat steel reduced carbon emissions differential, exw Northern Europe, was €40-60 per tonne on July 25, unchanged since May 30.
Regarding carbon-reduced and green long steel products, the practice of charging premiums was not widespread, trade sources told Fastmarkets. The construction sector was usually the main consumer of long steel products such as rebar and wire rod, but many companies in this field were not ready to pay additional costs.
Premiums have been charged sporadically for particular investment projects that required carbon-reduced and green steel products.
“We still need to educate the market about the advantages of green long steel products,” a producer source said.
Ambitious green goals
Feralpi Group planned to decrease its emissions of CO2 and other climate-affecting gases by 50% by 2030, the company said, adding that this referred to the Scope 1, 2 and 3 emissions related to its hot-drawn products. This goal has already been approved by the International Science-Based Targets Initiative SPTi.
In 2023, Feralpi Group reduced its Scope 1 and Scope 2 emissions by 24% year on year, the financial report said.
Challenging environment for steel products
In 2023, Feralpi Group produced 2.42 million tonnes of steel, down by 1.06% from the previous year.
But revenue dropped to €1.73 billion, compared with €2.40 billion in 2022. The decrease in revenue resulted in a significant reduction in earnings before interest, taxes, depreciation and amortization (EBITDA), which fell to €83.2 million compared with €501.7 million in 2022.
Feralpi noted that several factors weighed on the reduced steel demand, including the shift in consumption from goods to services, the weakening of European industry, and the more difficult conditions for investments.
Turkish rebar export prices inch down amid weak European demand
Platts assessed Turkish exported rebar at $575/mt FOB, down by $2.50/mt July 16 as Turkish mills returned from the Democracy and National Unity public holiday July 15 to weak demand from the buy side.
Throughout the day, multiple sources indicated a range of workable levels and reported varying mill offers.
Tradable values were indicated ranging from $570-$575/mt FOB while mill offers were heard at $575-$585/mt FOB, with most reported at a range of $580-$590/mt FOB. A bid was reported at $570/mt FOB.
“It’s a bit early to comment,” a Turkish-based trader said, adding that for any activity to take place “usually takes one to two weeks after the vacation or a faster scrap market.”
The trader saw near-term sentiment as bearish amid slow trading.
A Turkish mill source reported that mills were able to offer at $575/mt FOB, indicating that achieving $570/mt FOB would be possible, but other mill sources did not repeat this level.
Another mill source from Marmara reported a bid level at $570/mt FOB, while offer levels were minimum at $580/mt FOB, adding that no rebar deals have been heard in recent days.
“From last week nothing has changed,” another trader said, adding that rebar tradables were at $580/mt FOB.
“It seems that the mills are currently observing the market and their product sales.” an EU-based trader source said, adding that the August cargoes have not been completed for Turkish mills, indicating that there may still be ongoing negotiations and transactions.
In related markets, scrap import prices to Turkey remained stable July 16. Platts assessed Turkish imports of premium heavy melting scrap at $390/mt CFR Turkey on the day. Platts assessed the daily outright spread between Turkish export rebar and import scrap at $185/mt July 16, narrowing by $2.50/mt.
Platts is part of S&P Global Commodity Insights.
Semra Ugur
French longs prices rise slightly
Long steel prices in France are experiencing slight increases or remaining flat, depending on each segment, with activity still subdued, as reported by various distributors and buyers. There is however a slight increase in apparent demand for rebar and beams, due to the Olympic Games in the Paris area and a technical restocking, Kallanish notes.
Prices have been raised this month by both Spanish and local longs producers, which is reflected in contracts. The increases in prices, on average €10/tonne ($10.8), are relatively moderate, sources point out. Stockists are making some purchases ahead of the August mill stoppages, while the distribution sector remains cautious in its buying approach. According to two sources, construction volumes continue to be low, with no sign of improvement.
The average delivered value for domestic rebar stands at €625/t this month. Merchant bar prices are experiencing slight increases in deals compared to last month, with prices at around €660-670/t delivered.
Sections are seeing renewed apparent demand, which is bolstering prices. Producers have successfully boosted values by approximately €20/t since the start of June. The estimated range for the first category of sections is around €760-770/t delivered.
Spanish producers have contributed to the price hikes in beams and merchant bar by also increasing their offers in France. According to reports, their willingness to compromise on prices has faded compared to recent months.
With the production disruption at Liberty Ostrava, sales opportunities in Europe have opened up for mills in the region. One producer confirms his longs order book has been satisfactorily filled.
The French construction crisis is continuing, as reported by national construction federation Fédération Française du Bâtiment (FFB). By the end of April, year-on-year, new building permits and new residential construction fell by 10.2% and 10%, respectively. In the first quarter, there was a significant decline in sales within the private property sector, with a drop of 29.9%. Similarly, sales of private properties experienced a sharp decline of 25.9% compared to the previous year.
Natalia Capra France
Italian mills cut rebar prices again
Italian longs producers cut prices this week, amid the weak construction season and tepid global market recovery.
Argus‘ weekly Italian rebar assessments declined by €15/t to €575/t ex-works, while the drawing-quality wire rod index softened by €10/t, to €650/t delivered.
Italian producers dropped rebar prices to €580/t ex-works, including extras for sizes, with levels of €560-570/t ex-works available for larger orders, probably in attempts to spur buying interest ahead of the Easter holiday. Demand remains low as customers still doubt prices have reached the bottom, market participants said.
Indications for Italian drawing quality wire rod stood in a wide range of €640-670/t delivered locally and to nearby markets depending on tonnages, but producers were yet to start offering April material. In Spain offers were €10/t below these levels last week, but given high pressure from imports it was possible to obtain lower prices for sizable tonnages in Italy and Spain. Workable levels for high-carbon wire rod remained at €750-780/t delivered in Italy late last week.
Offers to nearby markets were scarce as some mills closed their March order books and were about to start their April campaign next week. But indications for rebar were pegged at €585-590/t ex-works, although given lower local prices discounts were deemed available. Despite a slow recovery seen in the construction sector across Europe, Italian mills were mainly focused on the central region while they faced high competition with Turkish suppliers in the southern countries.
Although inflation rates fell below 3pc, it was unclear if interest rates might decrease, but any cut would only be slight, a German market participant said. Construction activity is not expected to improve substantially, with fabricators maintaining cut and rebar prices in the range of €650-690/t delivered in Germany. Rebar prices from Germany mills were indicated at €640-650/t delivered for smaller tonnages and at least €630-640/t delivered lower for larger lots, with €620/t delivered available in some cases. Some German buyers were still receiving tonnages booked late last year for the first quarter as they had to postpone these deliveries after slower than expected construction demand.
In Poland rebar prices fell to €650/t delivered and below locally, with €630/t delivered available to nearby markets last week.
Offers of Bulgarian rebar lowered to 1,215-1,230 lev/t (€621-629/t) delivered last week under pressure from cheaper imports.
Some European buyers have resumed purchases of rebar and wire rod from overseas suppliers in recent weeks, suggesting prices may be close to reaching a floor. Sales were reported mainly from Turkey to Balkan markets at $580-595/t for small lots of rebar, with latest bookings heard to Serbia and Albania last week. “In Serbia no-one wants to buy a kilogram, as they are scared of further price drops,” a buyer said. Drawing quality wire rod was also heard booked from Turkey mainly to Spain at €590/t cfr or slightly below for late March-early April shipment in the past two weeks, with this quarter’s quota filled and it is estimated that Turkish allocation for the next quota period will be exhausted promptly in the first few days of next month.
Egyptian mills were offering rebar at $580-590/t fob and were said to be focusing on other markets, such as the Americas. There was talk that GCC rebar might have been imported to Europe recently, probably because of a prolonged downturn in Asia and other markets, but no details have emerged.
Argus Media
Seasonal slowdown keeps Polish rebar prices flat; market hoping for demand rebound in September
Rebar offers from three local producers were broadly stable week on week at 2,660-2,680 zloty ($653-658) per tonne CPT (about 2,630-2,650 zloty per tonne EXW).
Transactions were scarce, however, with tradable values reported at 2,600-2,650 zloty per tonne ex-works, depending on the tonnage. Mills in the region were able to offer rebar from stock with quick shipment, market sources said.
Sources said they expect rebar prices to stabilize in the coming weeks and were cautiously optimistic about a pick-up of construction activity in the residential sub-sector in September.
“Demand is still weak, partially due to the vacation season, but also because construction activity is still very slow. The only hope is that new construction projects will start from September and boost demand for rebar,” a trader in Poland said, with the Polish government launching a support program for the nation’s “first home buyers,” offering housing loans with a fixed 2% interest rate over 10 years, with the difference to the actual interest rate covered by the state.
That program, available for young people only for their first house or apartment purchase, is supposed to stimulate residential construction, sources said.
“Right now there are so many applications… for this kind of mortgage, the banks cannot cope, a second trader source said.
“In the past six months or so, there have been very few residential projects in Poland, so soon there could be a shortage of apartments,” the trader added.
Fastmarkets’ weekly price assessment for steel reinforcing bar (rebar), domestic, exw Poland, was 2,600-2,650 zloty per tonne on Friday, stable week on week.
In the secondary market, rebar prices were reported at 2,750 zloty per tonne CPT, also stable week on week.
Imported rebar offers to Poland were scarce due to the seasonal summer slowdown.
A Ukrainian supplier was offering rebar for September delivery, however, at €570 ($623) per tonne DAP border (about €600 per tonne CPT).
And Moldovan rebar was on offer in Poland at €610 per tonne CPT.
Published by: Julia Bolotova
