In this list
Coal | Electric Power | Metals

European Union's CBAM may significantly boost ferrous scrap demand: consultant

Commodities | Energy | Electric Power | Renewables | Natural Gas

Hydrogen: Beyond the Hype

Metals | Steel

Platts Steel Raw Materials Monthly

Metals | Coronavirus | Steel

16th Steel Markets Asia Conference

Energy | Oil | Shipping | Crude Oil | Refined Products | Fuel Oil | Energy Oil | Bunker Fuel | Marine Fuels

Latam marine fuel 0.5% prices soar to 17-month highs, surpass pre-pandemic levels

Energy | LNG

Spot and term, Australian supply and Asian demand: Indelible links in the LNG market

European Union's CBAM may significantly boost ferrous scrap demand: consultant

Highlights

Ferrous scrap to aid steelmaking decarbonization

Carbon tax should boost arisings

Upwards price pressure likely to ensue

The European Union's Carbon Border Adjustment Mechanism -- expected to tax the carbon content of steel imports into the trade bloc -- may significantly boost demand for ferrous scrap as a decarbonization tool in steel production, according to a metallics specialist.

Not registered?

Receive daily email alerts, subscriber notes & personalize your experience.

Register Now

Sao Paulo-based Jose Carlos Martins, senior partner, Neelix Consulting Mining & Metals, told S&P Global Platts in an emailed interview that the carbon tax should cause market turbulence and encourage scrap arisings for two to three years after its introduction. Later, due to continuing growth in steel production levels and tightness of high-grade iron ore – which helps reduce the amount of coal needed in the blast furnace – ferrous scrap tightness could occur, pushing scrap prices up.

Upwards price pressure could potentially be alleviated by obligatory scrapping schemes for vehicles using internal combustion engines: pollutant ships could also provide an ample source of scrap, he said.

The European Commission is set to make an initial proposal for the CBAM on July 14, for implementation in 2023, as part of a package of measures to slash the bloc's carbon emissions by 55% of 1990 levels by 2030. The carbon tax is seen likely to strongly encourage scrap-based steelmaking, which is far less carbon-intensive than blast-furnace based steelmaking using coal and iron ore. The task is urgent: steel production has been estimated to account for as much as 25% of Europe's industrial CO₂ emissions.

"The carbon tax will act as a subsidy to scrap and steelworks will be prepared to pay more for the scrap... not only to use in electric arc furnaces but also in [basic oxygen furnaces]," Martins said. BOFs are typically used together with blast furnaces in integrated steelworks.

"Currently it's cheaper to use iron ore and coal in blast furnaces than to use scrap," Martins said. "But much greater use of scrap in BOF furnaces is foreseen in the near future to avoid the necessity of investing in new electric arc furnace capacity."

Scrap-based EAF steelmaking has grown to account for more than 30% of all steelmaking. But few new EAF installations are currently foreseen for Europe due to the cost: long products steelmaker Beltrame's Eur300 million ($356 million) investment project in an EAF and solar plant in Romania, announced in the week beginning July 4, is understood to be the first greenfield EAF plant planned in the EU for decades.

Platts' analysis indicates that increased demand for less carbon-intensive steelmaking will naturally lead to higher scrap prices, as well as a rise in the premiums of higher grade ferrous scrap including shred, bushelling and PNS over the benchmark Heavy Melting Scrap HMS 1/2 (80:20).

EU mills generally prefer higher grade scrap which has better iron yield and so they export more heavy melting scrap, including to destinations including Turkey, rather than using it internally.

Prices near all-time high

Platts' assessment for Turkish imports of premium heavy melting scrap 1/2 (80:20) reached all-time highs of $515.75/mt on May 24, twice the level of a year earlier, as demand from steelmakers surged while supply remained restricted following low arisings in 2020 due to COVID-19 related curbs.

Platts assessed the Turkey CFR benchmark at $495/mt July 9, unchanged on day.

Pressure on scrap prices is also expected to come from future tightness in the high-grade iron ore market, according to Neelix's Martins.

"This year steel production should exceed 2 billion mt and quite clearly iron ore production and generation of scrap are not keeping pace. Continued growth in Asia and urbanization will still require a lot of steel, as global decarbonization also will."

The consultant foresees that introduction of a carbon tax will amplify the "strong inflationary pressures" already at play in the metallics supply chain due to pressure on high-grade iron ore supplies. "In addition to around 150 mt/year capacity interrupted at Vale and Samarco, in the next two or three years there aren't many new projects bringing new iron ore capacity. The capacity available at Vale faces major restrictions to return to market. And exhaustion at existing operating mines will require at least 50 million mt/year new capacity but there's no projects to cover this."

Platts assessed the 62% Fe Iron Ore IODEX Index at $216.50/dry mt CFR North China July 9, down $1.70/dmt on day. The index reached an all-time high of $233.10/mt on May 12.