FILE: Steel and scrap metal markets regionalize, led by China, as decarbonization accelerates
China has been the catalyst for the regionalization of the steel market in recent years, a trend picked up in other regions, notably the European Union, as the decarbonization momentum accelerates.
The two movements go hand in hand. China’s “winter cuts” and “blue skies” policies have demonstrated since 2017 that it is pointless to create carbon emissions at the national level to manufacture products intended only for export. which is equivalent to exporting pollution.
In recent years, China has also decided not to import pollution from other countries, limiting imports of waste. Measures were then relaxed for non-ferrous and ferrous waste, as the benefits of using secondary metals in circular production lines and as a decarbonization tool became evident. Today, a growing appetite for scrap around the world, coupled with supply chain disruptions from COVID-19, has triggered export control policies in countries as diverse as South Africa, the ‘Iran, Malaysia and the European Union.
Demand for steel in China has peaked
China’s crude steel production fell to its lowest level in 44 months in October, according to the Iron and Steel Association CISA. Exports were at their lowest for 11 months. Cuts at smelters have pushed global aluminum prices to multi-year highs as the Asian giant slashed coal-fired electricity use to decarbonize production and embrace more sustainable growth. According to Paul Bartholomew, chief analyst at Platts’ Metals Analytics, “The cuts in steel and aluminum production this year were aimed at containing overcapacity and gaining more control over the markets. China’s current “five-year plan” policy aims to focus more on the domestic market and therefore the government does not want to just export its excess capacity as in the past. “
China’s finished steel exports have fallen every year since peaking at 110 million tonnes in 2015 threatened the financial health of international steelmakers. Since 2019, its annual crude steel production has exceeded 1 billion tonnes: CRU group analyst Paul Robinson maintains, however, that China’s steel demand has already peaked.
Platts Metals Analytics expects China to export about 66 million tonnes of finished steel in 2021, up about 20% from 2020. Its lower export levels have helped steelmakers in some other countries to regain domestic market share, also reducing global freight needs. China’s removal in May of a 13% value-added tax rebate on exports of 146 types of products, including rebar and hot-rolled coil, accelerated the trend, contributing soaring steel prices in the EU and the US, where market tension is recovering from the crisis The slump and logistical constraints linked to COVID-19 in 2020 have forced buyers to seek supplies regional.
Bilateral and regional agreements
China’s declining role in export markets has paved the way for other players to enter into bilateral or regional trade agreements.
“Since the middle of last year, when most countries were emerging from the first waves of the pandemic and lockdowns, global steel markets have largely split into east and west,” commented Bartholomew. “Steel prices in the US and the EU have reached record highs, largely due to supply constraints and a pickup in downstream demand. Meanwhile, prices in China and India have increased, but not to the same extent as in the EU and the US. This has led India to increase its exports to the United States and in particular the EU and countries such as Vietnam targeting the United States for the first time due to the wide steel spreads.
Section 232 changes the ripples
The bilateral agreement announced at the end of October, replacing the import tariffs of Article 232 of the United States on steel and aluminum of European origin with tariff quotas (TRQ) from January 1, 2022, will have a ripple effect on trade. The EU will suspend tariffs on imports of certain US products; post-Brexit, the UK is chasing an agreement similar to that of the EU; a bilateral agreement between the United States and Japan is under negotiation.
Section 232 tariffs were introduced in March 2018 by former US President Donald Trump to maintain the strength of US steel workers. The resulting steel price hikes were, however, undesirable for US consumers, while the resulting trade gaps led the EU and subsequently the UK to introduce their own safeguards. quotas.
Although still subject to Section 232 restrictions, UK steelmakers will now benefit from reduced import pressure: Continuing high prices in the US will attract more steel from EU steel mills , which in turn will send less to the UK, a source from the International Steel Traders’ Association said in early December. .
Elsewhere, the restrictions reinforce regionalization: Mexico will restore tariffs of 15% on imported steel from June 2022 to support the national industry. An OECD report on the development of the steel market in the second quarter noted that global steel trade had experienced a moderate decline in recent years, while the number of new anti-dumping duty cases and compensators increased in a scenario of persistent steel overcapacity.
The carbon border adjustment mechanism to be introduced by the EU in 2023 will promote the regionalization and decarbonization of steel: taxing imports of steel with a high carbon footprint should protect the investments of local steelmakers in their decarbonization programs . California uses a similar mechanism for electricity imports.
Carbon pricing currently works at the regional level. EU carbon prices have risen sharply this year, reaching over 80 Eur / mt ($ 90.30 / mt) in December from 30 Eur / mt a year ago. China recently introduced a carbon market. Of the 32 companies surveyed by Platts’ Metals Analytics, 6% expect China to impose a carbon tax on the country’s steel industry in 2022, 28% in 2023, and 66% after 2023.
Regional use of scrap
Scrap markets should regionalize to optimize local supply chains. This raw material is essential for electric arc furnace steelmaking, which is significantly less carbon-intensive than blast furnace steelmaking.
Under a proposed revised waste shipment legislation, from 2024 exports of scrap from the EU to third countries will only be allowed if the latter can prove, through independent audits, that they are can manage waste in a sustainable manner. The EU is the world’s largest exporter of scrap, with exports of 17.4 million tonnes in 2020.
Ukraine will triple tariffs on steel scrap exports to 180 euros / t from the start of 2022. Russia will increase tariffs on scrap exports to 100 euros / t or 5% ( whichever is greater), compared to 70 euros / t currently, applicable for 180 days from 1 January 2022. This is a de facto export ban, representing around 22% of the valuation of scrap metal. Platts CFR Turkey heavy iron at $ 460 / t on December 20.