Before we head into the long Labor Day weekend, let’s take a look back at the week that was in the world of metals.
Automakers released August sales reports, mostly showing sales remain down compared with 2019 levels.
Meanwhile, for the week ending Aug. 29, U.S. steel mills’ capacity utilization fell compared with the previous week, interrupting an extended stretch of weekly capacity increases.
In other news, President Donald Trump took aim at steel imports from Brazil and Mexico. With respect to Brazil, Trump opted to cut Brazil’s semi-finished steel quota for the remainder of the year down to 60,000 tons from 350,000 tons.
A recent article in the Financial Times — penned, it must be said by the president of Eurometaux, the European Association of non-ferrous metals producers — should not be dismissed as just a PR attempt to lobby Brussels.
The arguments made are repeated across the European metals sector. The arguments nod to social trends supported across the region to tackle climate change issues while trying to protect jobs and local economies.
Europe may not be able to set the world’s agenda. Collectively, however, the E.U. can set Europe’s agenda. In so doing, it can set an example other countries are already showing some interest in adopting.
Lost market share
As the post points out, since the 2008 financial crisis, Europe has lost a third of its primary aluminum production. Meanwhile, China has grown to produce some 60% of the world’s market.
Europe has lost market share for other base metals, too, missing the early boat for the cobalt, lithium and rare earths (used in electric cars).
Like the U.S., Europe has come to realize its dependency on foreign countries for strategic resources comes at its peril.
“The era of a conciliatory or naive Europe that relies on others to look after its interests is over,” Thierry Breton, the E.U. industry commissioner, is quoted by the Financial Times as saying.
Mining and refining in Europe has slashed its collective carbon footprint by more than 60% in the past two decades due to far higher and better-enforced standards in the region. Yet, not surprisingly, Europe’s metals sector cannot compete with subsidized imports from China and other regions.
A level playing field
But drawing on parallel commitments to achieve carbon neutrality by 2050, the region’s industry is making the case for creating a level playing field. That level playing would come not simply by imposing quotas but by applying a financial cost to imports that come with significantly higher carbon and environmental costs.
The wider industry is buying into the idea of products having a lower carbon footprint as a brand strength.
The LME is launching a low-carbon aluminum spot contract to promote and facilitate growing demand for metal with a definable carbon footprint.
Some producers are already onboard.
Rusal is at the forefront of promoting its primary metal as coming wholly from renewable (hydroelectric) sources. European metals producers may not have such a clear advantage in terms of power supply. However, a combination of technologies, practices and power sources means each ton of metal Europe produces emits on average eight times less carbon than its equivalent from China.
The industry wants the E.U. establish a coherent framework to assess, regulate and penalize imports that do not meet the same level of environmental responsibility. That could include a carbon tax on imports that would help level the playing field.
Ultimately, consumers always pay for taxes. However, at least this approach may have the benefit of helping to ensure a sustainable regional metals industry. It could encourage producers elsewhere to lower their environmental impact. Furthermore, it could reduce the supply chain risk of a growing dependence on countries like China that play by a different set of rules.
Want an occasional email from MetalMiner that highlights new content with NO sales ploys? Join that list here.
This past week’s metals news covered everything from silver price movements to the copper price rise’s slowdown to the reimposition of tariffs on some Canadian aluminum.
We also broke down President Donald Trump’s recent proclamation with respect to reimposing the Section 232 tariff on some Canadian aluminum. MetalMiner’s Stuart Burns delved into the concern expressed by Ontario Premier Doug Ford: could Trump target Canadian steel next?
As our readers know well by now, Trump imposed Section 232 tariffs on imported steel and aluminum of 25% and 10%, respectively, in 2018. During the course of negotiations with Canada and Mexico over the United States-Mexico-Canada Agreement (USMCA) — the successor to NAFTA — the U.S. rescinded the tariffs in May 2019.
Now, at least for unalloyed aluminum from Canada, the tariff is back.
Most of the focus on the upcoming presidential election has been around the handling of the coronavirus pandemic, choice of running mates and candidates’ reactions to protests centered around the BLM movement.
Not surprisingly, such issues attract the headlines and, of course, matter for society at large.
Policy has not taken center stage to the extent it has in previous campaigns. However, we should be aware that some policy ideas coming out of the Biden camp could have profound implications in the years ahead (if the polls are proved right and he enters the White House in January 2021).
In a far-reaching policy initiative, the presidential hopeful would set the U.S. on the path of cutting net carbon emissions from the country’s electricity production to zero by 2035, according to the Financial Times.
Achieving that goal would mean all power comes from either one of two sources. On the one hand, power would come from clean energy sources such as nuclear, hydro, solar or wind. Aside from that, any carbon emitted by fossil fuels sources, such as coal or natural gas, is captured and stored (e.g., carbon sequestration).
As the post observes, that would be no mean feat in just 15 years.
Last year, 61% of U.S. electricity came from either coal or natural gas. Nuclear and renewables accounted for 37%.
Implications, changes Biden’s plan would bring
Such a policy would require a number of fundamental changes with far-reaching implications for industry and consumers.
Net-zero would require, on the one hand, a massive ramp-up in renewable capacity. While economically viable in terms of power costs, that is already facing opposition from groups opposing huge wind or solar farms.
On the other hand, to counter variability it would create huge opportunities for power storage, such as power banks and pump storage schemes. It would also require a dramatic upgrading of the U.S.’s aging power distribution network to handle distribution and fluctuating supply.
But most controversially it would require — for the moment, at least — the subsidy of carbon capture and sequestration technology. Despite numerous, largely government-sponsored trials around the world, it still remains stubbornly uneconomic at current carbon prices.
Even worse, most carbon dioxide so captured is used to recharge depleted oil wells for enhanced recovery. That application will decline as quickly as renewables rise to take its place in generating power for electrification of the automotive sector.
Cost, cost, cost
While we are not passing judgment on the desirability of such an ambitious target, we should not lose sight of the cost.
California has driven the green narrative in the U.S. in recent years.
The state has the most aggressive decarburization goals. California has also seen a dramatic increase in the cost of electricity. Electricity costs are rising five times faster in California than in the rest of the U.S.
Despite being an early adopter in the vanguard of renewables, California’s experience has been more costly than wider adoption across the country would prove in the future. The goal requires newer technology and a countrywide upgrading of transmission infrastructure. Realistically, it also requires zero-carbon assumes carbon capture and sequestration.
Unless there is a technological game-changer to reduce the cost and find a market for the 1.6 billion tons of carbon dioxide produced it’s hard to see how these costs won’t be passed on to consumers.
Undoubtedly, there will be tremendous opportunities for firms. With the development of new technologies that such ambitious targets will create, there will be winners and losers.
Before we head into the weekend, let’s take a look back at the week that was and some of the metals storylines here on MetalMiner, including coverage of silver prices, LME off-warrant stocks, cobalt-free lithium-ion batteries and more:
This morning in metals news: the Chinese province of Henan will raise its fees for steel and cement producers that do not meet low-emissions targets; BMO says the copper concentrate market will tighten this year; and the Oyu Tolgoi project took another step forward this past week.
This morning in metals news, the Aluminum Association sent a letter to U.S. Trade Representative Robert Lighthizer restating its support for exemptions to the Section 232 tariffs on imported aluminum, ground preparation has begun for a new electric vehicle battery cell production facility in Lordstown, Ohio, and the E.U. has disbursed a loan of €75 million to ArcelorMittal for its work on technology to reduce carbon emissions.
“The performances of even the best-scoring companies fall considerably short of society expectations in all six thematic areas,” the report stated, adding that all mining companies must improve their efforts to ensure company practices are efficiently managed.