23 June 2022 – Yesterday, the EU Parliament passed the new regulations for European emissions trading (ETS) and the introduction of the Carbon Border Tax CBAM. Spoiler alert: To the great dissatisfaction of EU steel producers. Burst Nickel Deal: Approx. 40,000 tonnes still open, price now depressed to level to save Tsingshan Group. New US law on forced labour in China has global impact – aluminium affected?
ETS certificates and the Carbon Border Tax CBAM
The new regulation of the European Emissions Trading Scheme (ETS) and the Carbon Border Tax (CBAM) were passed by a large majority in the EU Parliament on Thursday. This means that the next hurdle, which initially failed in the first vote, has been cleared and the climate package “Fit for 55”, which should now rather be called “Fit for 62”, now goes to the Member States for negotiation.
Spoiler alert: The result is a severe slap in the face for European steel producers.
Key points of the new ETS trade
- Free ETS allowances will be phased out from CBAM hard launch in 2027 until 2032, three years earlier than foreseen in the original draft.
- Free ETS allowances only for exports out of the EU
- ETS sectors now to cut CO2 emissions by between 61 and 63% by 2030
- Free ETS allowances due to carbon leakage also to be abolished from 2032 onwards
- Penalties for manufacturers who do not take measures to reduce CO2 emissions
Key points of the Carbon Border Tax CBAM
- Soft launch from 2023 to 2026
- Hard launch from 2027
- CO2 levies on industries covered by CBAM
- Energy, direct reduced iron and hydrogen now also with CO2 levy
- CBAM should not be misused as another market protection measure
European steel producers dissatisfied
EUROFER, the association of European steel producers, has already shown itself to be extremely dissatisfied with the vote of the EU Parliament and has demanded improvements. Especially the loss of the free and often surplus ETS certificates had provided steel producers with billions in hidden subsidies in the past years.
In addition, CO2 levies on imports such as direct reduced iron, hydrogen and energy were included in CBAM, which had previously been lobbied out.
Green washing natural gas plan fails
In view of the fact that the EU steel industry’s overall plan to implement only the minimum level of CO2 reductions by 2030 has failed due to the outbreak of the Russia-Ukraine war and the end of cheap natural gas imports from Russia, this makes it doubly bitter.
This is also shown by Eurofer’s closing of ranks with WindEurope, the association of EU wind energy producers. So far, efforts to build a hydrogen industry in Europe have been marginal and focused on non-EU countries with cheap natural gas, energy and desalination plants to import non-green hydrogen cheaply. These CO2 emissions could simply have been calculated out of the manufacturers’ balance sheets.
This seems to be over and could mean the end of supposed green steel in the EU, which until now could only be achieved by tricks and shifting CO2 emissions to other companies.
And suddenly there is movement and the urgent demand for more efforts for a hydrogen industry in Europe. Together with the wind energy producers, who still face the problem that the over-regulated European Union has not yet come up with a solution, let alone a plan, for the expansion of urgently needed renewable energies.
The natural gas plan for green washing European steel seems to have failed, at least for the time being.
ETS and CBAM Lobbying goes into the next round
“We are asking for the right conditions to enable the green steel transition, which is under way. EUROFER is willing to contribute in a constructive way to the public debate and therefore we call once again on EU policymakers to have an open, fact-based discussion on these crucial topics”, urged Mr. Eggert. “This is even more urgent against the backdrop of the accelerating EU energy crisis. The current geopolitical situation requires swift but forward-looking decisions to cut the EU’s fossil fuels dependency from Russia whilst speeding up the green transition”, he concluded.
Source: Eurofer, 22 June 2022
What was that about the No. 8 finish?
As far as an open and fact-based discussion is concerned, Mr Eggert from Eurofer knows his stuff. For, as the EU anti-dumping case against flat-rolled stainless steel imports from Taiwan and China sets out in more than 700 pages by Eurofer, an Asian No. 8 finish and a European No. 8 finish are identical down to the smallest detail and testify to outstanding expertise and an open and fact-based discussion.
Or, to conclude with a bit of fact-based polemic: they are only facts if the right people say they are facts.
Salvation for Tsingshan achieved? Nickel below $25,500 per tonne
Market participants familiar with the matter have reported that the nickel price has now been pushed down to a level that allows the Tsingshan Group to be saved. There are said to be about 40,000 tonnes of nickel still open, which were subscribed for about $25,500 per tonne.
Nickel prices to rise again
A large part of the market assumes that the nickel price will rise again from July/August 2022. In particular, the Tsingshan Group, which had recently invested massively in the purchase of nickel mines, also has a great interest in rising prices once the failed deal is completed.
US: New import rules for products from China
The Uyghur Forced Labour Prevention Act (UFLPA) supports the existing ban on importing goods into the United States that have been produced using forced labour. Enforcement of the UFLPA started on 21 June 2022.
Companies with supply chains that have links to Xinjiang in particular and China in general should therefore consider the implications of the enforcement of the UFLPA.
Scope of the UFLPA extends beyond China
The UFLPA requires U.S. Customs and Border Protection (CBP) to presume that the importation into the United States of all goods, wares, articles, and merchandise mined, produced, or manufactured in whole or in part in the Xinjiang Uighur Autonomous Region of China (Xinjiang), or from facilities on the UFLPA Entity List, is prohibited.
The scope of the UFLPA extends to goods produced outside China or shipped through China that contain inputs wholly or partly produced in Xinjiang. There are no de minimis exceptions.
EU measures in planning
So far, the European Union is not yet ready with regard to forced labour. But the new law will also have an impact on companies in Europe that buy inputs or raw materials in China and then export them to the United States will also have to take action in this regard and review their supply chains.
Chinese aluminium affected?
US-based consulting firm Horizon Advisory had found in a recent analysis of open-account data, including government and company documents, that eight major aluminium producers based in Xinjiang – accounting for about 17% of China’s total aluminium production – may have links to state-sponsored labour relocation programmes.
Recently, there had been a massive increase in e.g. flat-rolled aluminium products from China, after which the European Commission announced the end of the suspension of the anti-dumping measure AD668 as of July 2022.
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