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Global public opinion seems divided on whether or not to impose a “carbon tax” on the metal and mining sector. This goes double for steel. Depending on which side you’re listening to at a given moment, you’ll get very different opinions on the matter. Many economists, environmentalists, and the general public welcome the idea. The steel sector, of course, is firmly on the other side of the fence.

Historically, the metals mining sector has opposed carbon taxes. This is largely due to fears that it will inflate the final selling price. However, a growing section of economists believe that a carbon tax would be highly effective at reducing carbon emissions. As per World Bank’s figures,  27 countries have enacted carbon taxes so far. That said, only seven of them were mining countries.

Why the Tax on Steel?

Steel serves as one of the most widely-used building materials in the world. The process depends upon coking coal. So, for every ton of steel produced, nearly two tons of CO2 gets released. Altogether, this accounts for around 7% of global greenhouse gas emissions. These figures relate to BOF operations only.

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Tata Steel plant in IJMuiden, Netherlands

MyStockVideo/Adobe Stock

Where Does the US Stand on a Steel Tax?

Of late, US lawmakers have been working on a bipartisan energy and climate bill. According to reports, it may include a tax on carbon-intensive products entering the country. Last month, US Senator Joe Manchin, D-W.Va., began talking to both Republican and Democratic lawmakers about the possible impacts of such a bill.

According to this report, the discussion was occurring at the same time the European Union (EU) was working to implement a carbon border adjustment mechanism. Green activists feel that such tariffs may eventually cut down on emissions. At the same time, they hope to make domestic manufacturers more competitive against less carbon-efficient foreign companies.

But the proposal for such a bipartisan bill is still in the very early stages.

In July last year, US Senator Chris Coons, D-Del., co-chair of the Senate’s Climate Solutions Caucus, proposed a bill to impose a “polluter import fee.” The policy was intended to affect certain carbon-intensive products entering the US. It would initially apply to commodities like aluminum, cement, iron, steel, natural gas, petroleum, and coal. However, it would eventually expand to other types of imports. The revenue obtained from the fees could then be used to support technologies designed to reduce emissions.

In April this year, Pennsylvania became the first fossil fuel-producing state in the US to adopt a carbon pricing policy. This kind of pricing works by putting a monetary value on carbon. And therein lies the rub. What’s the correct price tag to put on carbon emissions?

Running the Numbers

So far, the Biden Administration has calculated $51 for every ton of carbon released. New York State, on the other hand, pegged the figure at $125. Meanwhile, the International Monetary Fund has been kicking around a “three-tier system.” In this structure, developed countries would pay US $75 (£56) per ton of carbon, while less-developed parts of the world would pay $50 (£37) and $25 (£18).

Carbon markets can be operated in one of two ways, according to the Paris Agreement 2015. The first is through an emissions trading system that caps a total target for emissions. The other option is to use a system that allocates “carbon permits” accordingly.

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Another possibility includes what’s known as a “carbon offsetting scheme.” This provides tradable carbon credits to offset carbon emissions outside the “capped area.” This third option imposes a fee on every ton of carbon emitted.

Ultimately, many in the US oppose levying tariffs on steel and other imports from countries with higher carbon dioxide outputs. This lobby claims that carbon taxes are too complex an issue and that merely imposing a tax will not solve the problem or fight climate change. Their solution? Simply make commodities more expensive.

The US & The EU

Late last year, the European Union and the US negotiated what was billed as the world’s first carbon-based sectoral arrangement on steel and aluminum trade. However, it would not truly take effect until 2024. In the meantime, the two nations arrived at an “interim arrangement” for trade in the steel and aluminum sectors. This deal modified tariffs on EU suppliers and strengthened enforcement mechanisms to prevent “leakage” of Chinese steel and aluminum into the US.

The EU’s efforts

In February of this year, participants in a webinar hosted by Euractiv, a Brussel-based policy events organizer, expressed worries that the European Commission’s Carbon Border Adjustment Mechanism could be counterproductive. They said this would prove especially true if it didn’t provide a solution for those EU exporters of steel and other products impacted by the policy.

Incidentally, the European steel industry exports 20 million MT every year, worth almost EUR £20 billion. The Mechanism is currently in the proposal stage and is still being discussed by the European Parliament.

Europe, however, seems to be ahead of the US in the march toward carbon compliance. Many steel companies, including H2 Green Steel and Hybrit of Sweden, have begun using hydrogen and non-fossil fuels to produce “green” steel.

The de-carbonization of the steel industry is going to be a long journey. Obviously, taxation is an option that’s still on the table. However, steel producers will have to decide on a technologically and economically viable way to decrease their carbon footprint. Whether the use of hydrogen is the answer remains to be seen.

If you want a serious competitive edge in the metals industry, try a demo/tour of our revolutionary insights platform here.

 

 

Steel prices and gas are the primary topics of conversation today. It seems that steel traders in China are seeking more buyers abroad for their finished steel products. Meanwhile, Russia is mulling cutting gas supplies to the EU. Gas prices have an enormous impact on steel prices.

China: Lockdowns at Home, Low Demand Abroad

The news comes hot on the heels of reports detailing reduced consumption in Europe and ongoing COVID-19 lockdowns throughout China. Indeed, China’s latest anti-Coronavirus measures have resulted in a 2.9% industrial output drop year on year for April. At the same time, reports indicate that retail sales were off 11.1%. Steel price offers from Taiwan and South Korea were €860 ($910) per metric ton cfr Europe, also down from €1,080 ($1,140) cfr Europe from Southern and East Asia.

As one trader told MetalMiner, “Energy costs are hitting people hard. There are more defaults on energy bills.” He added that “The whole world wants to sell to Europe.” However, with inflation hitting record highs and the war in Ukraine charging onward, the market is anything but ripe for the picking.

Another trader pointed out that summer holidays in the Northern Hemisphere (normally in June, July, and August) will also mean lower building activity and lower demand. This is sure to put further downward pressure on steel.

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U.S., China and Russia flags

cil86/Adobe Stock

Russia: War, Sanctions, and Rubles

Uncertainty about whether or not Russia could cut gas supplies to the EU over European Commission sanctions has created volatility in prices for that hydrocarbon. Steelmakers can rely on natural gas for ironmaking in blast furnaces as well as for steelmaking in electric arc furnaces.

In 2021, the European Union imported 155 billion cubic meters of natural gas from Russia. This accounted for around 45% of total imports and close to 40% of its total gas consumption.

Another possible factor contributing to the ongoing volatility is the possibility that buyers might refuse to pay for Russian gas in rubles. In late March, Russian President Vladimir Putin issued an order demanding that “hostile countries” pay for their gas supply in their currency by opening accounts at Gazprombank. Indeed, Russia has already cut off gas supplies to Poland and Bulgaria over their refusal to comply with the demand. This immediately sparked concerns over what might happen if other countries followed suit.

The European Commission, the executive body for the European Union, has since softened its stance against buyers of Russian gas opening accounts at Gazprombank. They even stated that buyers could make payments in dollars or euros. However, the organization said nothing about operators opening a second account in ruble-based payments, which several have reportedly done.

The benchmark Dutch TTF price for the hydrocarbon commodity was €95.50 ($100) per megawatt hour on May 17, up 2.84% on the day from €92.86 ($97.93). The price achieved a high of €227.20 ($239.68) back in March.

natural gas tap

PhotocreoBednarek/Adobe Stock

Steel Prices and Gas Still Closely Intertwined

On April 29, the European Statistical Office reported that month’s outlook for inflation was 7.5% year on year in the 19 states that have adopted the euro as their currency. The organization also noted that energy was likely to have the highest annual rate in that outlook at 38%.

Of course, the EU has been trying to lessen its dependence on Russian oil and gas since the country invaded Ukraine in February. So far, their efforts include ramping up renewable energy products, lowering energy consumption, and diversifying sources.

However, many industry watchers have difficulty believing that Europe will be able to achieve that goal. “How is Europe going to back off from Russian gas?” one analyst asked. “I simply can’t see how they’re going to get away from it.”

A second source noted that it would be possible to reduce dependency on Russian gas by sourcing it from North Africa. Of course, this would require the construction of new infrastructure such as pipelines and terminals. He also said that whilst other countries have tried to diversify their gas supply, others like Germany have not. “It was comfortable for the Germans,” he said of the country’s gas transmission infrastructure.

One option for some steel plants would be to use gas produced from coking ovens to help fire blast furnaces. However, results would be inconsistent, as not every steel plant is so equipped.

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