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S&P Global — 4 November 2024

Daily Update: November 4, 2024

Green Steel Market Building Momentum

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The Carbon Border Adjustment Mechanism was top of mind for those involved in base metals at LME Week, an annual metals and mining event in London. The mechanism is the EU's quasi-tariff on steel imports and was introduced to level the carbon playing field for domestic steelmakers. Currently in an information-collection phase, where values are computed but not charged, the mechanism is the bloc’s attempt to protect EU steelmakers as they embark on the expensive and mandatory business of decarbonization. It has also already succeeded in its other aim: to kickstart the global conversation about carbon premiums in steelmaking. At present, about 23% of EU steel comes from imports and is mostly destined for automakers.

Most European steel is made in coke-fueled blast furnaces in Germany. The country is well placed to benefit from the hydrogen revolution as it is creating a national hydrogen pipeline, enabling plants to cut 28 metric tons of CO2 per metric ton of hydrogen used.

Green steel, a type of steelmaking that prioritizes decarbonization, is gaining momentum. However, no supernational body has laid down a universal definition of green steel that can be adhered to and measured up against. It's difficult to create a catch-all definition because the various pathways to decarbonizing steel have different emissions characteristics. These include recycling scrap in an electric arc furnace (EAF), directly reducing iron ore to purify it (DRI), and using hydropower-derived electricity, hydrogen and renewable natural gas instead of coke.

So far, trading in green steel in Europe has been limited, and the Platts-assessed premium for hot-rolled coil has averaged 15% over the past 12 months, driven by overall steel demand. But the irony of the iron ore decarbonization story in the EU is that it might aid US steelmakers more than European ones. At present, most US steel mills are EAFs, which emit significantly less CO2, even if they are more energy-intensive and produce slightly lower-grade steel. As electricity is a lot cheaper in the US, EAFs are viable in a way they are not in the EU, where blast furnaces dominate. 

Developing economies have also favored EAFs because they cost less to build and use more-plentiful steel scrap rather than iron ore. However, the supply of scrap is coming under pressure, making DRI an increasingly attractive option.

DRI is a key strategy of India's government for the long-term decarbonization of steelmaking. But not all DRI is the same. It is most often associated with hydrogen and renewable energy sources to reduce emissions. In India, thermal coal is used, so steelmaking is still very carbon-intensive. By having DRI facilities in place, a future energy pivot could result in significant carbon reduction.

In China, by far the world's biggest steel producer, decarbonization is a slightly lower priority than in Europe, given the economic importance of managing the current demand decline. The country's steel decarbonization efforts have gone toward establishing a green power supply and the first DRI plants. However, some of this power is a distance away from the traditional steelmaking hubs. Green electricity is required, not only to build DRI plants, but to produce green hydrogen. After all, pure hydrogen doesn't exist naturally.

One thing is certain. For an industry starting from such a high base of carbon emissions, achieving net-zero is not going to be easy. But to reach the various milestones in a carbon-reduction pathway, transparency is vital. This is why S&P Global Commodity Insights’ recently launched assessments of European carbon-assessed steel premiums for long steel products such as rebar and medium sections are an important new signpost on the journey to decarbonization.

Today is Monday, November 4, 2024, and here is today’s essential intelligence.

Data Centers: Rapid Growth Will Test U.S. Tech Sector's Decarbonization Ambitions

Data center emissions could nearly double by 2030 as growing energy demands will likely rely on gas-fired power generation, which will slow down wider grid decarbonization efforts. Major tech players are seeking low-carbon power and have ambitious decarbonization goals but sourcing will prove challenging given the speed and size of increases in their energy consumption. While carbon emission concerns are unlikely to be a major impediment to near-term tech sector growth, significant long-term increases in energy needs could lead to challenges, including greater environmental scrutiny from regulators, investors, and other stakeholders.

—Read the article from S&P Global Ratings

US Housing Market: Home Price Rise Slows In August

US home prices continued to rise in August, though at the slowest pace since the beginning of 2024. The S&P CoreLogic Case-Shiller US National Home Price NSA Index, covering all nine US census divisions, posted a 4.2% annual gain in August, down from 4.8% annual growth in the preceding month. The 10-City Composite increased 6.0% year over year in August, a deceleration from the 6.8% annual gain in the previous month. The 20-City Composite was up 5.2% year over year, down from a 5.9% year-over-year gain in July.

—Read the article from S&P Global Market Intelligence

SPIVA Brazil Mid-Year 2024

Our SPIVA Global Scorecard illustrated the challenging market conditions for active managers around the world in the first half of 2024, particularly in equities, and Brazil was no exception. Funds in the Brazil Equity category underperformed at a rate of 88.0% over the first six months of 2024, rising to 91.7% over a 10-year period.

—Read the article from S&P Dow Jones Indices

Evolving Risks In North American Corporate Ratings: Supply Chain Disruption

S&P Global Ratings believes it is important to monitor long-dated megatrends because they can eventually transform industries and business processes in fundamental ways and create event risk in the shorter term. In this article, it explores the megatrend of supply chain risk. S&P Global Ratings assessed the potential impact of supply chain disruption on key sectors and provides an overall view on how they may influence credit quality on a continuum of positive, neutral, some risk and more risk.

—Read the article from S&P Global Ratings

UK Poised To Award First Green Hydrogen Subsidies Following Labour Budget

The UK is preparing to award GBP2.3 billion ($3 billion) in revenue support to 11 green hydrogen projects totaling 125 MW, after the finance ministry confirmed the funding in the new Labour government's first budget on Oct. 30. The projects will provide hydrogen to at least 35 offtakers, a spokesperson for the Department of Energy Security and Net Zero (DESNZ) said in an email late Oct. 30, following the budget announcement.

—Read the article from S&P Global Commodity Insights

Reforming Internet Liability Shield Hinges On US Election, Court Battles

The outcome of the upcoming US elections is likely to have significant implications for a statute central to online platforms and the technology companies that host them. Section 230 of the Communications Decency Act protects companies such as Meta Platforms Inc., Google LLC and X, formerly known as Twitter, from civil and criminal liability for user-created content published to their platforms. While both Democrats and Republicans have called for changes to the law, the major political parties differ over the details on what should be changed and how.

—Read the article from S&P Global Market Intelligence

Webinar: Productivity And Possibility: The AI Advantage In Investment Management (Nov. 14, 2024)

As the initial excitement around AI's potential settles, investment management firms worldwide are now focused on how to leverage AI to become more productive and visualize data in ways previously not possible. In an ever-evolving landscape, the ability to gain insights that can complement traditional finance techniques becomes a possibility today, not something for the distant future.

—Register for the webinar from S&P Global Market Intelligence


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