Carbon markets may exacerbate steelmakers’ costs

European steelmakers are expecting costs from the Emissions Trading System (ETS) to increase. By how much they will increase depends largely on what happens to the price of carbon. However, just as steelmakers have limited experience of the carbon markets, market traders and analysts have little experience of the steel industry. Dialogue between the two sectors could be beneficial to both sides.

SBB 11 April Both the European and global carbon markets could significantly increase costs for EU steelmakers, while at the same time reducing the potential for offsetting those costs, speakers at Steel Business Briefing’s Green Steel Strategies conference in Brussels argued.

European Union Allowance (EUA) prices are expected to rise to around €40/tonne by 2020, according to forecasts presented by Carine Hemery of carbon market analysts Orbeo. Moreover, the amount by which steelmakers can cut their costs by offsetting with UN carbon credits, called Certified Emissions Reductions (CERs), could fall from around €3-4/t currently to just €1-2/t in 2013-2020, she adds.

The December 2011 contract, which has the most liquidity, has consolidated slightly over the last week to €16.97/t on 7 April on the London-based European Climate Exchange (ECX). The December 2011 CER contract also consolidated to €12.97/t.

The carbon markets will have to adjust to a situation in which industrial sectors are buying rather than selling EUAs, says Barclays Capital carbon trader Ben Readman. Utility companies tend to hedge their EUA costs up to three years in advance. However, industrials do not want to sell this far forward, especially as in three years’ time they are also likely to have a shortfall of credits.


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