EU Steel Mills Risk Closure Under Weight of CO2 Costs
02/20/2013 - A recent paper by CRU sets out the impact of CO2 charging on the cost structure of the EU steel industry, quantifies the effect on profitability and identifies the reductions in production volume that are likely to occur under different CO2 price scenarios.
A recent paper by CRU sets out the impact of CO2 charging on the cost structure of the EU steel industry, quantifies the effect on profitability and identifies the reductions in production volume that are likely to occur under different CO2 price scenarios. Under a CO2 price of €30, analysis suggests that crude steel production in Europe could fall by 9%, with profitability falling by as much as 27%. With the majority of steelmakers struggling to remain profit-making since the global financial crisis, the additional strain could force some players onto their knees.
The EU Emissions Trading Scheme (EU ETS) entered into its 3rd phase on 1 January 2013 and steel companies now have to purchase a proportion of the CO2 credits required to maintain production. Whilst CO2 prices are low, steel companies only have to concern themselves with the dire market conditions, but as the recovery takes hold, the full implications of CO2 costs will become apparent. Adrian Doyle, consultant in steel costs at CRU says, "Given the open nature of trade in steel products, there are few available options for steelmakers to mitigate the mounting threat of CO2 costs and we believe that the industry, in its current form, will be rendered non-viable; some restructuring, equivalent to the closure of up to 4 integrated steel making operations, will become necessary as CO2 prices rise. This view is beginning to be recognized more widely and steelmakers will be asking whether the 'Action Plan for the European Steel Industry', currently being drafted by the European Commission and scheduled for release by June 2013, will provide realistic solutions to this looming crisis.”
The full paper can be found at the following link.
Paul Butterworth, research manager, steel raw materials and steel costs at CRU, will be presenting CRU's steelmaking cost outlook and its impact on mill margins at the World Steel Conference in Hong Kong, 5–6 March 2013.
CRU is an independent business analysis and consultancy group focused on the mining, metals and fertilizer sectors. Founded in the late 1960s and still privately owned to ensure its independence, the group employs more than 200 experts in London, Beijing, Mumbai, Santiago, Sydney and key centers within the United States.
