Could Corus Closure Have More to do With Carbon Credits?

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The loss of 1,700 jobs is always a tragedy although in the steel industry unfortunately not an unusual story. Nor did Tata’s Corus come in for a huge amount of blame when they announced this week that they were closing the three million ton per year merchant bar plant at Teesside in the UK after four long term clients failed to honor their commitments to take product from the plant earlier in the year. Corus tried manfully to keep the plant going, losing some $130m over the intervening 7 months since the original announcement was made regarding the contracts, according to Bloomberg.

But there is another story doing the rounds following an article in the Times that detailed the windfall $1bn benefit ArcelorMittal are said to have secured from the European Union after intense lobbying by them and their trade body Eurofer. Arcelor have been granted the rights to 20.8 million surplus carbon emission allowances given to it free by the EU. With the carbon price at over $21, they are worth about $440 million. But, with additional surplus allowances up to 2012 and an increased carbon price expected to rise to over $45 – the company could have gained assets worth around $1.6 billion.

The next largest beneficiary of this largesse is none other than Corus, with ThyssenKrupp coming in third. The story suggests Corus stands to gain at the current carbon prices $165m and, with an increased carbon price and its additional allowances, the asset value of its cap and trade holdings could amount to over $600m. But that may not be the end of it. Closure of the plant will deliver further “savings” of over 6m tons of carbon dioxide, worth an additional $130 million per annum at current rates but around $330 million at expected market levels.

Meanwhile, producers like Arcelor and Corus are keen to build new production facilities in developing countries like India. New facilities are not only lower cost but under the UN’s Clean Development Mechanism the producer is paid up to $50 a ton for each ton of carbon dioxide “saved” by building a new plant, while the company which owns them also gets paid $50 for each ton of carbon dioxide not produced in its European plant, for which read Redcar.

I am sure this was not the intention of the European Union when it first dreamed up the Cap and Trade scheme, but like most politically driven initiatives, once the politicians have nailed their colors to the mast they stubbornly refuse to change course or admit they could be wrong. One can’t blame Corus. If the above scenario is correct they are merely responding to the business environment the politicos in Brussels have created.

–Stuart Burns

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