3 June 2022 – The changes in the EU alloy surcharges for stainless steel as of 1 June have caught most market participants and analysts cold and caused much wonder. What did the mills do? And are the two European stainless steel producers Aperam and Acerinox negotiating a merger?
What happened to the EU alloy surcharges?
To the surprise of most market participants, the EU stainless steel producers changed the alloy surcharge as of 1 June 2022, although the basic factors had not really changed. Speculation that the nickel factor in the surcharge calculation basis has been changed seems rather unlikely.
In the end all just scrap
According to our calculations, the European producers have simply adjusted the proportion of stainless steel scrap in their alloy surcharges. Together with the current adjustments in raw material costs, this results in a coherent picture for the June 2022 surcharges.
Especially when one considers the current situation in Europe and upcoming decisions on the part of the EU regarding steel, scrap and ETS certificates.
Alloy surcharge adjusted to keep ETS certificates?
Attentive observers will have noticed that the lobby organisation of the EU steel producers EUROFER has launched an extensive political media campaign. The issue is that some EU parliamentarians have rewritten some parts of the draft EU Carbon Border Tax CBAM that EUROFER lobbied into it.
ETS allowances: hidden billions in subsidies
The change in the draft law concerns the hidden billions in subsidies through the allocation of free CO2 ETS allowances. With the introduction of CBAM, these are to be removed from steel producers. EUROFER now wants to prevent this at all costs and is therefore spinning the greatest horror scenarios in a media-effective manner, should this actually happen.
Ferrous scrap the most important raw material for steel producers?
Steel scrap and stainless steel scrap are becoming an increasingly important raw material for EU manufacturers. This is why the lobbyists could introduce a de facto ban on scrap exports with the new EU Waste Shipment Regulation. And now exports to OECD member Turkey – which buys the largest quantities of ferrous scrap – are also to be excluded from the new regulation.
Free certificates only under conditions
This is because the allocation of the free EU ETS certificates is subject to conditions. For the large European stainless steel producers, who all produce stainless steel with Electric Arc Furnaces (EAF), there are new benchmark values from 2021 to 2025 for what their EAFs may emit in CO2 in order to benefit from the free allocation. And these CO2 benchmark values have been reduced by 24% compared to the values applicable until 2020. And what is the easiest way to reduce the CO2 content of stainless steel production in EAF? Exactly – by increasing the scrap ratio.
Scrap rate adjusted to be able to keep ETS certificates?
The question now arises whether the stainless steel scrap share in the alloy surcharge was adjusted without further ado in order to be able to show something in the increasingly heated political battle for free and surplus ETS certificates? After all, from 2026 onwards the CO2 benchmark values are supposed to drop significantly once again.
Aperam and Acerinox facing possible merger?
Reports are currently circulating in the media that the two stainless steel giants Aperam and Acerinox are negotiating a possible merger. However, a decision has not yet been made. And it is not unlikely that such a merger could still be prevented by the European competition authorities, as this could create a dominant position, especially in the European economic area.
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