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Daily Update: February 16, 2022

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Daily Update November 29, 2022

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October 2022 – Hong Kong carbon market, ISSB proposed emission standards

ESG Investment Research

Post-COP27: IPCC aligned indexes, time for changes?


Daily Update: February 16, 2022

Start every business day with our analyses of the most pressing developments affecting markets today, alongside a curated selection of our latest and most important insights on the global economy.

Steel industry players around the world are enjoying improving conditions during earnings season and amid accelerating decarbonization efforts. 

The recovery for the global steel industry is expected to continue into 2022, with support from overall increased demand, new regulation for an effective trade environment, and rebounds in construction and manufacturing. Global steel production expanded 3.6%, to 1.9 billion metric tons in 2021, according to the World Steel Association. While profits are likely to stay strong this year, S&P Global Ratings cautions that prolonged inflationary pressures could further effect steel companies’ input costs for raw materials, labor constraints, and higher logistics costs. Nonetheless, companies appear to be feeling more pressure from the energy transition than from elevated prices

Just two months into 2022, the industry that accounts for approximately 7% of global carbon emissions appears to be coming to terms with its commitment to decarbonize in the face of surging demand for steel. Yesterday, the U.S.’s Biden Administration affirmed the importance of low-carbon steel in its clean manufacturing plans, and in the second quarter six major global banks aim to finalize a framework for lending to support the steel industry's decarbonization efforts. 

After China implemented mandatory steel output cuts aimed at reducing its sector's carbon emissions last year, the world’s largest steel producer on Feb. 11 raised the benchmark efficiency targets for the industry to achieve in the next three years, according to S&P Global Platts. Steel output from China’s major producing province Hebei has been halted from Oct. 1, 2021 through March 31 as part of the Ministry of Ecology and Environment’s anti-pollution campaign for the Winter Olympics. The short-term squeeze in steel supply at the start of 2022 follows poor earnings results from Chinese steelmakers in the fourth quarter of last year. However, these supply constraints may not offset the country’s weak property market, according to market participants interviewed by S&P Global Platts—many of whom expect China's crude steel production to continue being capped with output declining this year and beyond

"There's a broader picture around decarbonization that affects steel more than any attempts to control pollution around the Olympics," Ronnie Cecil, an S&P Global Market Intelligence principal analyst for iron ore and steel, told S&P Global Market Intelligence. "China cut steel production [in 2021], and they will likely do so again this year, and other than some slow down around February, the Olympics won't have much impact."

“Government-mandated production cuts at Chinese steel mills and moves to curb industrial output markedly shifted commodity market demand and prices in 2021. We believe the Chinese government is unlikely to loosen the control on steel production in 2022. Moreover, given China’s goal of peak carbon emission by 2030, its crude steel production is likely to gradually fall,” S&P Global Ratings said in its 2022 industry top trends outlook for metals and mining. “Given that China accounts for over half of global demand for raw materials, a prolonged weakness in demand or market expectations would weaken key support for prices.” 

In Europe, where steel supply has fully recovered from pandemic disruptions and healthy demand has pushed steelmakers’ margins to unprecedented levels with record profits, steelmakers have been successful in increasing prices above the cost levels of inflation and raw materials, and are likely to allocate more cash flows to their shareholders, according to S&P Global Ratings. As the region leading the world in net-zero efforts, Europe has already seen many of its steel mills accelerate their decarbonization targets to much earlier than 2050, the EU’s deadline for the industry. Companies in some countries are investing in green steelmaking, but others have been resistant to retire their blast furnaces

"Steel is a crucial material for the UK's low carbon aspirations: it is an essential component of wind turbines to electric vehicles," the UK Parliament's Environmental Audit Committee said as it opened an inquiry into green steel on Feb. 3, according to S&P Global Platts. “However, the steelmaking process itself produces significant greenhouse gas emissions, with the production of a ton of steel generating almost two tons of CO2 emissions.”

Today is Wednesday, February 16, 2022, and here is today’s essential intelligence.



Economy


When Rates Rise: UAE Banks Will Benefit From Higher Interest Rates

S&P Global Ratings expects banks in the United Arab Emirates to benefit from the planned increase in interest rates by the U.S. Federal Reserve, which the Central Bank of the UAE will likely mirror because the UAE dirham is pegged to the U.S dollar. S&P Global economists expect the Fed to raise rates six times this year starting in March, and five more times in total in 2023 and 2024. These changes will be earnings-accretive for UAE banks because of the structure of their balance sheets.

—Read the full report from S&P Global Ratings




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Capital Markets


Private Markets Shrug Off Clean Energy Stock Sell-Off

A stock rout that has slashed the value of renewable energy companies 41% in the past year has yet to spook private market investors backing climate technology startups and green infrastructure projects. While listed green energy companies spent 2021 trying to hang onto shareholders amid supply chain disruptions and soaring raw material costs, investors rushed into the private markets for green energy. Private equity and venture capital firms poured $53.7 billion into climate technology in 2021, according to research firm BloombergNEF, and Brookfield Asset Management Inc. launched what it claims is the largest-ever fund dedicated to the transition to a net-zero world.

—Read the full article from S&P Global Market Intelligence




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Global Trade


Russia Could Face 'Iran-Level Sanctions' Within Months Of Potential Ukraine Invasion: Analysts

Russia's top banks are likely to be a key target of Western sanctions in response to a potential invasion of Ukraine, with significant market impact spreading across borders, Center for a New American Security experts said Feb. 14. The panel predicted the U.S., EU, and U.K. governments would act with relative cohesion, leveling penalties within days. The experts project the 55 Bcm/year Nord Stream 2 gas pipeline to Germany would be canceled—as U.S. and European leaders have threatened in recent weeks—but no other direct energy sanctions, at least immediately.

—Read the full article from S&P Global Platts




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ESG


Listen: How One Of The World’s Largest Insurers Is Tackling Climate Change

Climate change is driving up insurance-related losses on a global scale even as homeowners, businesses, and communities around the world continue to build in hazard-prone areas such as those that experience frequent flooding or storm damage. In this episode of ESG Insider, hosts Lindsey Hall and Esther Whieldon examine how one of the world’s largest insurers is tackling rising risks from climate change in an interview with Ernst Rauch, Chief Climate and Geo Scientist and Head of the Climate Solutions Unit at Munich Re.

—Listen and subscribe to ESG Insider, a podcast from S&P Global Sustainable1




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Energy & Commodities


Oil Markets Catch Breath On Signs Of Ukraine Diplomacy

Oil futures fell Feb. 15 across the board amid signs a diplomatic solution to the crisis in Ukraine remains possible despite U.S. and European officials continuing to warn of potential sanctions. At 2.36 p.m. Singapore time (0636 GMT), the ICE April Brent futures contract was down 65 cents/b (0.67%) from the previous close at $95.83/b, while the NYMEX March light sweet crude contract was 70 cents/b (0.73%) lower at $94.76/b. The fall followed crude prices closing close to $100/b Feb. 14.

—Read the full article from S&P Global Platts




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Technology & Media


Listen: Next In Tech | Episode 52: Macroeconomic Machinations

Consumer expectations about spending have been buffeted by the pandemic and their perceptions about the economy. Mike Nocerino, the author of a recent report on the results of the Voice of the Connected User Landscape (VoCUL) study, joins host Eric Hanselman to talk about macroeconomic effects and activities like revenge spending. Consumers are saying that things are getting better, but that there’s a lingering unease. It’s a look beyond the raw economic data to the human side of the economy.

—Listen and subscribe to Next in Tech, a podcast from S&P Global Market Intelligence




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Written by Molly Mintz.