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.

EU carbon prices take a breather after 20% increase in Q1

Some industries, facing added costs in the next phase of emissions trading in Europe, bemoan political measures designed to increase the cost of carbon credits. However, the two main causes of higher EUA prices so far this year have been the earthquake and ensuing nuclear crisis in Japan and unrest in the Middle East and North Africa.

SBB 1 April European Union Allowance (EUA) prices were steadyat the end of March after seeing the fastest increase since 2008. A combination of high oil and gas prices, together with uncertainty over the future of Europe’s nuclear capacity, has caused a 20% jump in prices so far this year.

The December 2011 EUA contract, which has the highest trading volumes, settled on 30 March at €17.05/t ($24.24/t) on the London-based European Climate Exchange (ECX).

The market has been waiting for the release of 2010 emissions figures today before deciding on a direction, Carine Hemery of carbon market analysts, Orbeo, tells Steel Business Briefing. If the total is higher than the 1.95bn t of CO2e Orbeo has forecast then this could push prices higher, she suggests.

The future of Europe’s nuclear power plants will also have an effect on prices, Hemery adds. If German chancellor, Angela Merkel, decides to permanently close the country’s seven oldest nuclear reactors, EUA prices are likely to see another jump, she explains.

Russian steel projects ask for over $377m of carbon credits

After several years of delays, the Russian government finally began the process of issuing carbon credits to Joint Implementation projects this year. Now, Russian steel plants which have reduced their emissions canearn credits, while European steelmakers have access to a new source of offset credits for the emissions trading system.

SBB 3 November 2010 Eight Russian projects which have reduced greenhouse gas emissions in the iron and steel industry are among a total of 58 projects which have taken part in the second round of applications for carbon credits from Russia’s Sberbank, Steel Business Briefing learns.

Sberbank is offering a total of 30m Emissions Reduction Units (ERUs), worth more than $553m (€394m) according to a recent European auction, to projects which have successfully reduced emissions as part of the UN Joint Implementation programme. The state-owned bank should decide on which projects receive ERUs in this round by 22 November, SBB understands.

The largest project on the list is Magnitogorsk Iron & Steel’s (MMK) switch from open-hearth furnaces to electric arc furnaces and installation of continuous slab casters. It is asking for 7m credits to represent the 7m tonnes of CO2 equivalent emissions it has saved since the start of 2008.

In addition to six projects to upgrade or improve the efficiency of iron and steel production and rolling, Air Liquide-Severstal, which provides oxygen to Severstal’s basic oxygen furnaces, also applied. In total the eight projects asked for more than 20m ERUs.

In the first round of applications Evraz was granted the right to 2.12m ERUs, while Metalloinvest was granted 3.2m. They should receive the credits by the end of the year, SBB understands.

ERU futures and options contracts will begin trading on the London-based European Climate Exchange (ECX) on 8 November, SBB notes.