Geopolitics, energy costs, shifting trade flows put Italian slab, flat steel imports in focus

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Platts, a part of S&P Global Commodity Insights, will launch new daily low-carbon aluminum billet price assessments for the European market, effective Sept. 20, 2022. In tandem with the launch, Platts will increase the frequency of its existing weekly assessments for both standard aluminum billet DDP Italy (ABITA04) and DDP Germany (ABGEA04) to daily, also effective Sept. 20. The low-carbon billet assessments will comprise daily assessments for Low-Carbon Aluminum Billet delivered duty paid Italy and Germany and associated monthly averages. Platts will also introduce weekly averages for standard billet following the change in assessment frequency. LCAB specifications are: Low-Carbon Aluminum Billet DDP Germany Low-Carbon Aluminum Billet DDP Italy Symbol LCABG00 LCABI00 Quality 6060/6063 billet 6060/6063 billet Quantity Minimum 50 mt Minimum 50 mt Incoterm DDP DDP Location Germany Italy Timing Within 60 Days Within 60 Days Payment Net 30 days Net 60 days UOM $/mt $/mt The LCAB assessments apply to billet produced with a maximum emissions level of 4 mt of CO2/mt of aluminum at the smelter only (Scopes 1 and 2). This low-carbon assessment will not encompass emissions of other production-related activities, such as mining and raw material transportation (Scope 3). Other quantities and emission levels will be normalized to this maximum carbon emissions level basis. Platts will only consider aluminum billets that have had their smelter Scope 1 and 2 emissions certified by an internationally accepted, independent organization. Market participants will be expected to supply proof of such certification upon request. In the absence of observable spot market activity, Platts may consider other verifiable data reported. Platts may observe direct market activity as well as the effect of movements through spread differentials, for example. Platts is launching these new LCAB assessments following extensive engagement with market participants throughout the aluminum value chain. The assessments complement Platts existing carbon-related price offerings, including its LCAP for high-grade European P1020 aluminum and its Zero-Carbon Aluminum Price leveraging Platts CORSIA-eligible carbon credit price assessments to calculate the cost of offsetting the carbon emissions of the LCAP assessment to zero. Platts carbon-related metals assessments align with S&P Global's strategic focus on offering ESG-related commodities pricing and are in response to requests from market participants for tools to help quantify cost and manage risks and opportunities associated with a growing focus on carbon-reduction strategies and increasing global regulation. The assessments will be published in Platts Metals Daily, on Platts Dimensions Pro, and in the Platts price database under the symbols listed above. Platts invites feedback on this launch. Please send feedback to Platts_Aluminum@spglobal.com and pricegroup@spglobal.com . For written comments, please provide a clear indication if comments are not intended for publication by Platts for public viewing. Platts will consider all comments received and will make comments not marked as confidential available upon request.

This report is part of the S&P Global Commodity Insights' Metals Trade Review series, where we dig through datasets and digest some of the key trends in iron ore, metallurgical coal , copper , alumina, and scrap. We also explore what the next few months could bring, from supply and demand shifts, to new arbitrages, and to quality spread fluctuations. The global alumina market is set to continue grappling with trade flow disruptions in the third quarter caused by the Russia-Ukraine war and a surplus of Australian supply, with refinery and smelter restarts and curtailment risks in the Atlantic basin adding to the volatility. Buyers in China are largely expected to remain on the sidelines in Q3, with Australian imports still priced significantly higher than domestic supply, while China's alumina exports are expected to remain high on unprecedented Russian demand as it positions itself as a key alternative to Australian alumina. In the Atlantic basin, refinery restarts and smelter curtailments are expected to dominate price cues in Q3, with market participants generally anticipating premiums will ease, barring any major disruption to refinery operations. Benchmark Platts FOB Australia alumina was assessed at $367/mt FOB June 30, with the FOB Brazil alumina differential at a $32/mt premium to Australian material, S&P Global Commodity Insights data showed. The Platts China ex-works Shanxi daily alumina assessment was steady for most of June and ended the quarter at Yuan 2,870/mt. Platts FOB Australia alumina assessment rose early in the year to heights not seen since US sanctions on Russian aluminum giant Rusal and refinery output cuts at Brazil's Alunorte in 2018. Platts FOB Western Australia assessment peaked at $533/mt in Q1, surpassing the $484/mt high in Q4 2021. However, Australia's March 20 ban on alumina and bauxite exports to Russia resulted in an immediate global ex-Russia glut, and prices plunged by nearly a third in a month to $371/mt FOB on April 20. The $353/mt FOB reached June 6 marked the bottom for the quarter, but remained slightly above the year-to-date low of $345/mt FOB on Jan. 7. China's domestic prices also fell in Q2 on the back of new refining capacity and seaborne price declines, but less sharply as high production costs and smelter restarts stemmed the decline. Australia's export ban to Russia caps prices In the wake of Australia's export ban announcement, sellers rushed to offload cargoes destined for Russia to other buyers, pressuring prices lower. Will Chinese alumina exports to #Russia remain elevated in Q3? — S&P Global Commodity Insights Metals (@SPGCIMetals) July 6, 2022 "The sharpest plunge was when transacted prices fell $30/mt within 36 hours," a trader said, referring to two consecutive spot trades at $440/mt and $410/mt FOB Australia in early April. "Those were not the worst prices to sell, though." While the pace of decline slowed after prices breached $400/mt FOB, market participants continue to expect the ex-Russia surplus to cap Australian prices in Q3, barring significant refinery cuts due to high energy prices or a change in Australia's export policy. Nevertheless, Chinese buyers remain priced out of the market despite the glut by the high premium of Australian material to domestic alumina. The implied premium exceeded $200/mt in March before easing after the export ban announcement, but remained prohibitive at around $60/mt at end June. China turns net exporter on Russian demand With its alumina supply pipeline from Australia and Ukraine closed, Russia hunted for alternative supplies across Asia in Q2. Southeast Asia plugged part of its supply gap, but China's expanded refining capacity and its proximity to Russian Far East ports quickly enabled it to become Russia's largest supplier. China's alumina exports surged more than 18 times on the year to 167,724 mt in April and made it a net exporter for the first time since February 2019, customs data showed. Exports rose further to 188,768 mt in May, with more than 80% destined for Russia. Russia was procuring Chinese alumina at around Yuan 3,000/mt from northern ports at end June, according to sources familiar with the trade. While Yuan-denominated prices remained largely stable through Q2, the depreciation of the Yuan since end-April meant the exports became cheaper on a dollar basis. Alumina from northern Shandong province comprised the bulk of the exports to Russia due to the proximity of its refineries to coastal ports and the use of imported Guinean bauxite. Sources in China said the market would be monitoring refining costs and raw material prices in Q3 as higher prices of bauxite, caustic soda and coal could pressure refineries to taper production. "The main risk to Russia's supply from China is if high-cost refineries are forced to curtail output due to rising production costs," a trader said. "Refineries could need to keep long-standing relations with existing customers and prioritize them, even if Russia is able to pay slightly more." Nevertheless, global market participants expect China to keep up its supply to Russia, which provides a steady income stream amid a cloudy macroeconomic outlook. Western energy crisis threat Following smelter curtailments in Europe since late 2021, aluminum smelters in the US have become the new casualties of spiraling energy prices arising from the Ukraine conflict. In June, Chicago-based Century Aluminum said it would suspend operations at its Hawesville, Kentucky smelter for up to a year due to the rising cost of energy. The smelter was operating at 80% of its 250,000 mt/year capacity at the time. Alcoa also curtailed one of three operational potlines at its Warrick aluminum smelter in Indiana July 1 “due to operational challenges,” taking 54,000 mt/year of production offline, although the operational issues were not related to power costs as the smelter has its own power generation. The timing of the smelter curtailments coincides with the restart of the Jamalco refinery in Jamaica, which had halted operations due to a major fire in August 2021. Jamalco, a 55:45 joint venture between Noble Group and Clarendon Alumina Production with a production capacity of 1.417 million mt/year, typically exports a large portion of its output to Europe, where Jamaican alumina is duty-free. “This could have a double whammy effect on the alumina supply-demand complex, especially in the Atlantic basin, since supply is going up while demand is sliding,” a trader said. “We may have yet to see the last of smelter curtailments this year given the skyrocketing energy prices while aluminum [prices] slump.” Any further smelter curtailments in the Atlantic could drive regional premiums higher, but also diminish support for the Brazilian alumina differential to the Pacific basin as demand would moderate on reduced smelting activity. While smelter curtailments have been the focus since late 2021, some market participants said high costs of production could create risks for refinery operations in the Atlantic, especially in parts of Europe. "The San Ciprian refinery in Spain could be facing high refining costs, and I'm not sure if it's sustainable with these energy prices," a trader said. Alcoa's San Ciprian smelter curtailed operations in December due to high power costs.

This report is part of the S&P Global Commodity Insights' Metals Trade Review series , where we dig through datasets and digest some of the key trends in iron ore, metallurgical coal, copper, alumina, and steel and scrap. We also explore what the next few months could bring, from supply and demand shifts, to new arbitrages, and to quality spread fluctuations. Asian demand for copper concentrates will likely be supported in the third quarter by healthy margins and an increase in smelter production capacity in China, while clean copper concentrate output is expected to lag consumption, placing downward pressure on the country's treatment and refining charges. TC/RCs are fees paid to smelters by mines for converting copper concentrate to copper cathode, and falling TCs signal that copper concentrate supply is tight. Several Chinese smelters restarted idled production capacities in the second quarter, significantly boosting demand for copper concentrates. Major Chinese producer Yanggu Xiangguang Copper, with 500,000 mt/year capacity, resumed production in second-half May and was running at 90% of capacity in June, while a number of other Chinese smelters restarted production in June after seasonal maintenance. Another major Chinese smelter, Daye Nonferrous, with 600,000 mt/year of capacity currently, is expected to start a new 400,000 mt/year production line in August, adding further procurement pressure. High sulfuric acid prices that supported smelter profit margins in Q2 are expected to continue in Q3, and current market expectations are that smelter production rates will remain high, market sources said. On the supply side, water shortages and deteriorating ore grades impacted copper production in Chile in the first half of the year, resulting in the country's copper concentrate exports falling 13% year on year over January-May. Strikes in Peru impacted production at MMG's Las Bambas mine and Southern Copper' Cuajone and Toquepala mines. As a result, some term contracts could not be delivered to buyers in Q2, and both traders and smelters were observed restocking clean copper concentrates due to shipment delays or the cancellation of planned term cargoes. Although anticipated new copper supply, such as from Peru's Quelleveco mine, could bring some relief to the market, its first shipment has been delayed to August-September due to production difficulties from an initial target of July. Platts daily clean copper concentrate treatment charge touched a three-month low June 29 at $73/mt CIF China, and was down 14% from April 18, S&P Global Commodity Insights data showed. Concentrate charges are expected to bottom in Q3 before supply picks up again in Q4, sources said. Demand and supply of #copper concentrate is expected to grow in Q3. Do you think spot copper concentrate treatment charge will fall below $70/mt in Q3? — S&P Global Commodity Insights Metals (@SPGCIMetals) July 4, 2022 Trader-smelter bid spread widens The limited availability of clean copper concentrate since Xiangguang resumed production in May has prompted traders to bid more aggressively in the spot market. Recovering short physical positions to deliver term contracts, and securing clean concentrates to sell together with blended or non-standard copper concentrates, have resulted in widening spreads between smelter and trader transaction levels. The Platts producer-trader differential was assessed at minus $14.60/mt June 29, the widest to date in 2022. Traders were more active in the spot market in Q2, with 33% of spot trades observed to have been concluded by traders over April-June, up from 25% over January-March. The shortage of standard clean copper concentrate has prompted many smelters to turn to blended or non-standard copper concentrates to fulfill production requirements. Platts observed 220,000 mt of blended copper concentrates traded in the spot market in Q2, up from 115,000 mt in Q1. In addition, Mongolian-origin copper concentrates were heard sold to non-traditional buyers in south China in Q2, while Grassberg concentrate with 700 ppm fluorine content was sold to Chinese smelters. Kamoa concentrates from the Democratic Republic of Congo were also purchased by some Chinese smelters in the spot market due to Las Bambas shipment delays. Large-size smelters bid much higher than offers for clean copper concentrates during Q2 amid ample supply of non-standard copper concentrates, and traders preferred to sell to small- to medium-size smelters. Smelters generally prefer to buy standard clean copper concentrates when supply is abundant, as the cost to remove impurities can be higher than the TC charge, a smelter source said. Industrial demand recovery critical Copper cathode spot liquidity, meanwhile, may still see downward pressure in Q3 despite Shanghai having lifted its lockdown restrictions, as lower copper consumption has also been observed in the West amid a gloomy global macroeconomic outlook. China's refined copper imports fell 9.3% year on year in April, while London Metal Exchange copper stocks surged 66% to 156,225 mt as deliveries to LME warehouses rose on weak downstream consumption. As central banks raised interest rates in a bid to tame inflation following the Russia-Ukraine conflict, copper prices on the LME started to decline, falling below $9,000/mt in June. Combined with the lifting of lockdown measures in Shanghai, the import arbitrage finally opened in May, improving spot liquidity. Import premiums increased fourfold to $80/mt on May 11 from a one-year low of $20/mt on April 1. While lower copper prices typically boost downstream consumption, market participants were not optimistic about global copper consumption in the second half of the year. Rising interest rates and high inflation will dampen copper consumption by the construction and home appliances sectors in the US and Europe, sources said. Demand recovery in China was also unclear during the period, as indicators for the automotive and property sectors, both major consumers of copper, contracted in Q2. This caused Shanghai futures Exchange copper prices to fall below Yuan 70,000/mt June 17, resulting in more hesitancy among buyers. However, as a strong dollar and weak overseas demand continue to pressure LME copper prices, traders remain hopeful trading activity will pick up in Q3 on the back of stimulus packages rolled out in China to boost consumption.

UK government June 29 announced extension of the nation's steel import safeguard controls for a further two years "in the national interest," despite possibly breaching World Trade Organization rules. Safeguards using quotas and tariffs (TRQs) have been extended on imports of products from 15 categories from July 1 until June 30, 2024, after which they can no longer be extended. Extensions to five of these categories are controversial, following original recommendations from the UK's independent Trade Remedies Authority (TRA) to phase out these controls June 30: this may target products from certain developing nations and particularly China. The five are: category 6 -- tin mill products; 7 -- non-alloy and other alloy quarto plates; 12 -- merchant bars and light sections; 16 -- non-alloy and other alloy wire rod and 17 -- angles, shapes, and sections of iron or non-alloy steel. The 10 categories on which the safeguards extension had already been expected are: 1 -- non-alloy and other alloy hot-rolled sheet and strip; 2 -- non-alloy and other alloy cold-rolled sheet; 4 -- metallic coated sheet; 5 -- organic coated sheet; 13 -- rebar; 19 -- railway material; 20 -- gas pipe; 21 -- hollow section; 25 -- large welded tube and 26 -- other welded tube. Infrastructure -- UK industry is partly dependent on imported steel. The domestic industry in the UK has been in historic decline raising concerns over the security of supply chains. UK steelmakers, including major producers Tata Steel UK, British Steel and Liberty Steel UK, currently produce about 7.2 million mt of crude steel annually, 70% of the country's annual demand of around 10.5 million mt crude steel, according to producers' body UK Steel. Products include long, flat and specialty steels. The UK steel industry directly contributes GBP2.4 billion ($2.89 billion) annually to UK GDP. 96% of steel used in construction and infrastructure in the UK is recovered and recycled. -- Policy makers fear excess global capacity may see cheap product flood the UK market. UK International Trade Secretary Anne-Marie Trevelyan in a June 29 speech cited global world excess steel capacity as a factor supporting the steel imports safeguard extension. The Brussels-based World Steel Association and OECD estimated global excess steel capacity in 2021 at 504 million mt, down from a 754 million mt peak in 2015. Trade Flows --Europe remains a key partner for UK steel trade despite the UK leaving the EU. The EU is by far the UK's biggest steel trading partner, with rights to export 181,526 mt of Category 1 and 305,241 mt of Category 4 products to the UK in 3Q 2022 under the safeguards system. This compares to 23,203 mt and 23,242 mt respectively for Turkey, another of the biggest exporters to the UK under the scheme. South Korea, UAE and India have substantial quotas in the extended safeguards scheme, according to a trade department list. China and Japan have gained small quotas relative to the size of their steel production. China was the 20th largest exporter of both iron and steel products to the UK in 2021, supplying just 69,188 mt of a total UK import of these products of 6.37 million mt, according to HMRC tax authority data compiled by S&P Global's - Global Trade Analytics Suite (GTAS). Spain and Germany were the top two suppliers, with Ukraine in fifth place. -- Russia's war on Ukraine and sanctions have led to changes in trade flows. The government has suspended the safeguard measure for steel goods coming from Ukraine for the next two years due to Russia's invasion of that country. Quotas formerly allocated to Russia and Belarus under the previous safeguards system have been reallocated to other countries including Ukraine, the EU, Turkey and Taiwan "to avoid a potential shortage of steel in the UK," TRA confirmed July 1. Russia and Belarus previously accounted for 22% of the UK's imports of rebar. Developing countries become subject to the safeguard when their supply exceeds 3% of the total UK imports. Trade department data shows UK import levels in the major product categories subject to safeguards have fallen since the EU introduced safeguards in 2018 (see graph), following a "sharp and significant relative increase in the 2013-2017 period." The UK steel safeguards system mirrors the EU safeguards system, put in place mid-2018 to curb trade deviation following the US's imposition of Section 232 import tariffs of 25% on steel imports in March 2018. The EU recently renewed its steel safeguards until mid-2024. -- US and UK moving closer on steel trade terms. In June 2022 the UK and US established a new tariff quota trade accord to replace Section 232 controls between the two nations. "The tariff-free volumes we have secured mean that UK steel and aluminum exports to the US can return to levels not seen since before 2018," Trevelyan said June 29. The UK safeguards announcement came as new steel protectionist measures are being introduced in various nations in a falling market. Turkey July 1 imposed customs duties of between 9% and 16.5% on flat and long steel products from Organization of the Islamic Conference, or OIC, member countries, including Bahrain, Bangladesh, UAE, Morocco, Iran, Qatar, Kuwait, Malaysia, Pakistan, Saudi Arabia, Oman and Jordan. China's ministry of commerce June 29 extended anti-dumping taxes ranging from 5.5% to 26% to imports of steel fasteners from the EU and the UK for a five-year period. Prices -- EU, US and Asian steel markets continued downward movements following the UK announcement. EU HRC prices were reportedly "near bottom" June 30, assessed by Platts at Eur840/mt ex-works Ruhr according to S&P Commodity Insights following a recent decline on poor demand. US HRC prices stood at a four-year low on reports of increasing availability below $1,000/st with a bearish outlook. Chinese mill sources saw HRC prices "at bottom" June 30. Platts assessed SS400 HRC 3 mm thick at $672/mt FOB China. Low-priced Indian-origin HRC weighed on SAE1006 prices in Vietnam. In long products, Asian rebar prices fell June 30 on bearish seaborne market sentiment with Platts' 16-32 mm BS4449 Grade 500 rebar price dropping $7/mt to $667/mt CFR Southeast Asia. Asia wire rod extended its fall to a 17-month low June 29. Platts assessed SAE1008 6.5 mm diameter mesh-quality rod down $5/mt on week at $678/mt FOB China. EU buyers held back from booking steel sections, expecting further prices falls, with medium sections prices assessed at Eur1,240/mt delivered June 29, down Eur60/mt on week. June monthly contracts in the UK domestic ferrous scrap market fell sharply for the second consecutive month across the grades, on relatively low UK mill appetite. Platts' assessment of 3B shredded scrap was GBP 315/mt delivered to mill June 10, down GBP 32.50/mt on month.

Lockdowns to limit the spread of COVID-19 in China, especially in Shanghai, disrupted the supply chains of vehicle makers, who were already dealing with a shortage of semiconductor chips. Market projections became more uncertain after Russia invaded Ukraine , as the latter was a key supplier of wire harnesses for vehicles to several European automakers. The invasion also affected chipmakers in the US as Ukraine manufactures gases such as neon which are used in lasers to produce the chips. Sanctions on Russia hit hard as over January to May, the region's vehicle sales sank 52% year on year to 318,114 units, data from the Association of European Businesses showed. Rising raw material costs are hitting electric vehicles, which will push EV retail prices higher. The Platts seaborne lithium carbonate and lithium hydroxide assessments jumped 115.9% and 139.4%, respectively, since the beginning of 2022 to $73,000/mt CIF North Asia and $75,900/mt CIF North Asia June 22, S&P Global Commodity Insights data showed. Market uncertainty is likely to cause greater reliance on contracted volumes, which could prolong future contract discussions and increase protection of supply chains. Forward gear: End of lockdown in Shanghai to mend supply chains Reverse gear: Vehicle retail prices could exceed disposable incomes Outlook Vehicle manufacturers are struggling to restore normal operations. Along with a likelihood that the war in Ukraine will not end anytime soon, the emergence of a bearish factor which could hit global economies could result in a recession never encountered before. “For many countries, recession will be hard to avoid,” World Bank President David Malpass said June 7. “Even if a global recession is averted, the pain of stagflation could persist for several years—unless major supply increases are set in motion.” Even though demand for new vehicles is strong, prices for these vehicles are rising and may well put them outside the comfortable price range for consumers whose earning power has been shrunk by at least two years of COVID-19 and their effects , notwithstanding inflation. Is it any wonder that stagflation is on the lips of economists and soothsayers? Moreover, growing food protectionism could very well lead to an obvious choice of either filling up stomachs or gas tanks or charging up an EV battery. US Vehicle inventories in the US remained tight as production struggled to recover from semiconductor shortages and other logistical challenges that began in the first half of 2021. Although vehicles at dealership lots will command record transaction prices, the impact of rising interest rates may curb this trend. Hot-rolled coil prices have been volatile since they touched the $1,500/st mark, assessed by S&P Global for its daily Platts TSI US hot-rolled coil index at the start of 2022. Semiconductor shortage hinders production Suppressed vehicle demand could lift output in 2023 Platts TSI US HRC index stood at $1,240/st on May 31, down 2.4% from $1,270/st on Jan. 31 EU New car registrations in the European Union dropped 13.7% to 3.72 million units over January-May, data from European Automobile Manufacturers Association showed, as semiconductor shortages negatively affected car sales across the region. For May alone, passenger car registrations fell 11.2% year on year to 791,546 units. Consumers in the region came under increasing pressure from rising inflation. Russia’s invasion of Ukraine compounded the bearish market, along with an impact on energy. Due to the uncertainties, EU vehicle makers who were able to recover quickly from the initial impacts could face declines in the near term. EU electric vehicle makers faced surging battery material costs. Glut and weak demand hit HRC markets in the EU Battery and vehicle makers step up plans to clinch future supplies May new car sales in Russia plummet to lowest since 2006: Autostat CHINA China’s vehicle production sank 12.6% year on year to 1.86 million units in May as lockdowns in Shanghai disrupted vital supply chains, data from the China Association of Automobile Manufacturers showed. But the country’s new energy vehicle production in May reached 466,000 units, up 113.9% on the year and 49.5% on the month. China’s automobile industry is expected to reach its full-year target, as domestic producers ramped up efforts to return production back to normal, CAAM said. China slashes tax on buying vehicles Higher raw material costs could hinder NEV growth NEVs more likely to benefit from government stimulus measures INDIA Indian vehicle production stood at 1.97 million units in May, up from 1.89 million units in April and 806,755 units in may 2021, data from the Society of Indian Automobile Manufacturers showed. However, as 2020 and 2021 were years when lockdowns took place to limit the spread of COVID-19, data from 2019 was viewed as better comparison. In this case, 2.42 million units were produced in May 2019, so May 2022 was 18.6% lower than the pre-COVID-19 level. As of May, the Indian market had not recovered from the impact of COVID-19. The Federation of Automobile Dealers Associations is taking a cautious stance regarding any recovery in vehicle sales in the near term. Higher wholesale prices for vehicles will reduce the disposable income of buyers, affecting vehicle sales India cuts excise duty on fuel prices to control inflation Local vehicle manufacturers, such as Maruti Suzuki, struggle to keep high production schedules

Direct-reduced iron and its more transportable sister hot-briquetted iron have dallied in the wings of mainstream steelmaking as high-quality and low-residual furnace inputs for nearly 60 years. Suddenly the two have swept center stage for holding the key to steel decarbonization. Combined with hydrogen instead of traditional natural gas and linked with efficient furnaces powered by renewable energy, they have the potential to provide the most effective route to making “green” steel, be it low-carbon or zero-carbon. That’s important in a hard-to-abate sector that accounts for up to 11% of all global CO2 emissions. Blast furnace steel production – accounting for two-thirds of global crude steel output of a massive 1.95 billion mt in 2021 – typically produces 2.0 mt/CO2 per mt of crude steel. DRI with hydrogen brings this below 0.5 mt/CO2 per mt, Singapore Exchange said at the SGX Iron Ore Forum in May. In the European Union, the race is on to make green steel commercially viable. The EU's overall greenhouse gas emissions reduction target for 2030 requires sectors covered by the Emissions Trading System, including steel, to reduce their emissions by 43% compared to 2005 levels. Free ETS allowances for steelmakers are to be phased out between 2026 and 2030, leaving mills with rising costs as they simultaneously adapt to new technologies, with consumers set to face green steel price premiums. Steelmaking using DRI and HBI promises to be a winner in this race. As a production route, it’s already established. Hydrogen-based DRI was produced at a commercial scale in Trinidad and Tobago using a fluidized bed reactor process as long ago as the early 2000s. Now the process needs to be fine-tuned and accompanied by a truly fossil-free energy source. “Direct-reduced iron is considered the primary actor in the transition to a sustainable steelmaking route,” said Pasquale Cavaliere, professor of metallurgy at Italy’s University of Salento. “And in order to produce carbon-free steel, hydrogen is fundamental.” Note: Global DRI production, including hot and cold DRI and HBI, has shown an upward trend since 790,000 mt was recorded in 1970. In 2020, well over half of global DRI output came from India (where production is largely coal-based in rotary kilns) and from Iran, which in addition to using Midrex technology, has its own natural gas-based technology, Pered. In 2020, global output fell from 2019 due to COVID-19. According to data from worldsteel, production totaled 102.77 million mt in 2021. High metallization cuts coal usage DRI and HBI are usually made from high-grade iron ore pellets typically reduced by gas to provide a highly-metallized raw material for both electric arc furnaces and traditional blast furnaces. According to US-based DRI technologist Midrex Technologies, HBI, which is metallized beyond 90%, needs only to be melted. Therefore, HBI use in blast furnaces decreases the consumption of reducing agents. A 10% increase in the metallization of blast furnace burden results in a 7% decrease in the coke rate, which in turn reduces CO2 emissions. If 100 kg of HBI/per mt of hot metal is used, the reducing agent rate (coke equivalent) can be decreased by around 25kg/mt of hot metal. Technology pathways Broadly, there are three routes to decarbonize steelmaking, according to the European Steel Technology Platform (ESTEP), which groups together the European Commission, national governments and major steelmakers in a bid to maintain EU leadership in the low-carbon steel production drive: Circular economy – based on scrap usage in both basic oxygen furnaces and EAFs Smart carbon usage – involving use of conventional blast furnace or BOF plants with add-on CO2 mitigation technologies such as Carbon Capture & Utilization or Carbon Capture & Storage Carbon direct avoidance – by using DRI or HBI None are simple or cheap. Scrap availability is growing only slowly worldwide, and its prices are increasing. Widespread supplies are dependent on China scrapping its first-generation consumer goods products, a wave now poised to break. And CDA needs ample supply of hydrogen and renewable energy at economical prices. Smart carbon is therefore the stopgap, but inevitably a short-term solution as it does involve carbon production. Still, this route could prevail for the next 20 to 30 years as that is the remaining useful lifespan of many existing blast furnaces. BHP CEO Mike Henry told a Financial Times mining summit late last year that the industry needs to take into account the “sunk capital” in those furnaces. “The economics of that will prove to be too challenging… for a rapid switch to hydrogen," he said. It could cost “many hundreds of billions of dollars” to decarbonize the world’s entire steel industry using green hydrogen-based DRI, according to the BHP chief. Green hydrogen, produced using renewable energy to electrolyze water, is at present expensive to make due to the high costs of renewable energy. The EC’s Green Steel for Europe initiative is currently spending Eur3 billion on research and development alone. European Steel Association, or Eurofer, said Eur31 billion investments are needed for 60 low-carbon projects in the pipeline. Looking forward, CDA should be the ultimate goal for steelmakers. In addition to via DRI/HBI processes, assuming a fossil fuel-free energy source, this may be offered by other processes under development: iron bath reactor smelting reduction hydrogen plasma smelting reduction enabling direct transformation of iron ore into liquid steel electricity-based steelmaking by iron ore electrolysis pure scrap usage World DRI production by region (million mt) Region 2018 2019 2020 Middle East/North Africa 47.19 50.15 50.04 Asia/Oceania 29.09 34.33 33.71 CIS/Eastern Europe 7.9 8.03 7.93 Latin America (incl. Mexico and Caribbean) 10.12 9.77 7.49 North America (US and Canada) 5.02 4.68 4.52 Western Europe 0.56 0.47 0.53 Sub-Saharan Africa 0.83 0.66 0.18 Source: Midrex Technologies, Inc. Scaling up A 1 million mt/year capacity used to be the maximum for DRI and HBI plants, but bigger installations are now emerging worldwide. Midrex installed a 2 million mt/year HBI plant at Austrian steelmaker Voestalpine’s Texas site in 2016, with steelmaker ArcelorMittal acquiring 80% of the project this year as part of a DRI global expansion strategy. Midrex’s DRI installation at Turkish steelmaker’s Tosyali Algerie produced more than 2.28 million mt last year, with a second 2.5 million mt/year plant ordered, to make increasing use of hydrogen. In March Tenova HYL, an Italo-Mexican DRI technologist, announced it will supply China’s largest hydrogen-based DRI facility so far, with a production capacity of 1 million mt/year of DRI, at Baosteel Zhanjiang Iron & Steel Co., Ltd using the ENERGIRON process developed by Tenova together with Italian plantmaker Danieli. This follows a 2020 order from HBIS Group for China’s first hydrogen-based DRI plant, of 600,000 mt/year capacity. BF and EAF installations worldwide are set to increasingly use DRI/HBI processes. Other steelmakers opting for or expanding the capacity of DRI/HBI installations as part of their decarbonization drive include Nucor Corporation, Salzgitter, and SSAB together with iron ore miner LKAB and energy producer Vattenfall in the HYBRIT project. SSAB claims that HYBRIT, using Tenova HYL DRI technology at a pilot plant in Sweden, is the first-ever producer of fossil-free steel, already being supplied on a trial basis to carmaker Volvo. Jefferies Research analyst Alan Spence reported May 19 that Northern Sweden has surplus fossil-free electricity, but transmission is a current bottleneck and thus a hurdle to long-term plans for a complete decarbonization of SSAB’s European footprint. All down to energy source Indeed, while direct emissions in the H2-DRI-EAF route may be reduced almost to zero, the final carbon footprint of this approach relies on the carbon intensity of electricity used – both for hydrogen production as well as to operate the electric arc furnace, said industry group Hydrogen Europe in a May 11 report. For the process to be beneficial in terms of net GHG emissions, the maximum carbon intensity of electricity used cannot exceed 513 gCO2 per kWh, it said. “According to our estimates, in order for the project to achieve breakeven, the hydrogen delivery price would have to be below Eur3.0/kg - in the 'high prices’ scenario and below 1.5 EUR/kg – in the 'adjusted prices’ scenario,” Hydrogen Europe wrote. “The estimated CO2 breakeven price is Eur140/mt for both price scenarios.” And that looks still to be some way off, in both cases. S&P Global Commodity Insights assessed the cost of producing renewable hydrogen via alkaline electrolysis in Europe at Eur10.99/kg ($11.48/kg) June 14, up from Eur4.18/kg a year ago, on soaring gas and power prices. Carbon was auctioned at Eur82.31/mt June 15. In short, still too high and too low, respectively, for cost-effective green steel.

Near term scrap futures contracts on the London Metal Exchange saw heavy declines over the week to June 16, while the trading volumes increased week on week. Platts, part o S&P Global Commodity Insights, assessed the June contract down $31/mt over the week to $388.50/mt on June 16, while the July contract fell $51.25/mt to $365/mt. The August contract fell $55/mt to $364.50/mt, while the September contract dropped $49.50/mt to $371.50/mt. The backwardated structure over the June-July portion of the forward curve strengthened significantly week on week, suggesting that futures traders expect physical scrap prices to fall sharply in the near term. The slight contango over the July-August portion of the curve shifted into a slight backwardation, while the contango over the August-September portion of the curve strengthened. Spot prices for physical imports of premium heavy melting scrap 1/2 (80:20) dropped $47/mt week on week to $378/mt CFR Turkey on June 16, amid a lack of noticeable deals. Several market players said the stand-off between buyers and sellers continued, as their price ideas were too wide apart to match. A Turkish buyer said he would wait another 10 days before making a fresh scrap purchase, as the market was going down fast. He said scrap import workable levels should be significantly lower than current offers in the market amid a lack of demand for finished products along with a recent sharp decrease in finished product prices. Weekly LME scrap futures trading volumes over the week to June 16 totaled 106,160 mt, down from 79,270 mt for the week ending June 9. Near-term rebar futures contracts also saw heavy declines in the week to June 16. Platts assessed the June contract down $27/mt on week to $697.50/mt, according to S&P Global data. The July contract fell $53.50/mt week on week to $670/mt, while the August contract dropped $55.50/mt to $666/mt. The September contract dropped $44/mt to $675.50/mt. The backwardation over the June-July portion of the forward curve strengthened significantly over the course of the week, suggesting that futures traders expect prices to fall significantly in the near term. The backwardation over July-August portion of the curve strengthened slightly, while the backwardation over the August-September portion of the curve shifted into contango. Turkish physical rebar export prices fell $35/mt week on week to $700/mt FOB on June 16, as buyers continued to hold back amid expectations of lower prices in the near term, driven by softening scrap import levels, while mills have tried to maintain elevated offers amid high energy costs. "No previous raw material purchase is workable for the current [rebar] prices," one mill source said, but added that mills will need to adapt to the market level somehow. Rebar futures weekly trading volumes in the week to June 16 on the LME totaled 12,540 mt, down from 2,230 mt for week ending June 9. The daily outright spread between Turkish export rebar and import scrap was assessed at $322/mt on June 16, up $12/mt week on week. Elsewhere, Indian scrap futures, which settles basis the Platts CFR Nhava Sheva shredded scrap assessment, traded 390 mt in the week to June 16. The contract has seen a total volume of 5,700 mt traded since its launch in July 2021.

The London Metal Exchange is to introduce a weekly over-the-counter (OTC) position reporting framework for all its physically delivered metals to enhance market trade visibility, effective July 18, despite members' reservations, the LME said June 17. It will also extend accountability levels to OTC positions from the same date, it said in a statement. The steps follow consultation with the exchange's market users: however the majority of respondents expressed concerns over the new measures, the LME said. From July 18 the LME therefore withdraws the existing requirement to daily report OTC nickel positions, introduced March 14, it added. The planned introduction of the new regulations follows widespread criticism of the exchange's lack of adequate market oversight in the run-up to a speculative play by a single investor in nickel trading in early March, which led LME nickel prices to soar 250% in just three days to more than $100,000/mt before trading in the metal was suspended March 8 for over a week. Cancellation of an estimated $3.9 billion-worth of nickel trades made just before the market suspension angered market players, some of whom have since filed court action demanding compensation for monies lost. The steps now to be taken in "enhancement of the LME's visibility of OTC markets is, we believe, in the interests of the market as a whole and will improve our ability to oversee activity holistically, ensuring future market stability and continued compliance with our regulatory obligations," an LME spokesperson said June 17. The new regulation will oblige members to report all OTC positions in aluminum, aluminum alloy, cobalt, copper, lead, NASAAC, nickel, tin and zinc on a weekly basis with no minimum position size threshold. This will provide the LME with timely visibility of significant positions in the OTC market, it said. The LME's analytical capabilities regarding this data will initially be limited by a lack of historical data, the manual nature of submission, and the short implementation timelines, it noted. However, the LME will continue to increase its capabilities that will improve its analysis of OTC data over time, it said. Price bands The LME also acted to ensure greater market stability by introducing upper and lower price limits to guarantee orderly trading when its nickel trading reopened March 16 following the suspension. Price limits were also applied to other non-ferrous metals trading on the LME, in a move well-accepted by the market, the LME has said. Price bands to prevent extreme volatility had already been in operation on steel and metals trading at other exchanges including Shanghai Futures Exchange and CME. Both ferrous and non-ferrous metals prices have historically shown volatility due to the global nature of their trade and susceptibility to geopolitical changes. This volatility however became extreme in the weeks immediately after Russia's Feb. 24 invasion of Ukraine, as sanctions against Russia sparked supply concerns. Russia has typically supplied 15% of the world's battery-grade nickel. Members' reporting reservations The LME said in its June 17 statement it had received 27 timely responses to its consultation on OTC reporting. While generally supportive of ensuring fair and orderly market operation, a majority of respondents had concerns about the practicality or form of reporting and how the information might be used, it said. Some respondents felt it might make more sense to wait until the publication of an independent review and other analysis of the LME's nickel market troubles: regulatory reviews were announced by the Financial Conduct Authority and Bank of England April 4. The exchange said that despite members' individual reservations, it has decided to go ahead with prompt introduction of the OTC reporting regulation in the interest of the market as a whole, as any relevant review finding could be considered and factored into the LME's plans in due course. OTC data must be reported to the exchange in encrypted form to ensure client confidentiality, it said. In the event a member holds no OTC positions, it should confirm this via submission of a nil file return, to ensure that the information available to the LME is as complete as possible. Category 5 members who do not hold positions directly (but only indirectly through another member) will not be directly subject to the reporting obligation in the weekly OTC position reporting proposal. "The LME will not delay taking appropriate actions," it stated. "The LME believes that the benefits to the market of receiving regular OTC data to monitor trading in instruments linked to the LME are such that it would be inappropriate to delay the Proposal. The Proposal will further assist the LME to reduce the risk of the occurrence of disorderly trading conditions on its market, in line with the LME's regulatory obligations, in the context of recent events in the LME Nickel market which have demonstrated the effects that OTC activity can have on the wider LME market," it said. A consultation last year on whether regular OTC reporting should be made compulsory at the LME had also not found approval from the majority of members, a spokesperson noted earlier this year.

The global nickel and copper markets remained in deficit over the January-April 2022 period, while aluminum, tin and zinc were all in surplus, the World Bureau of Metals Statistics said June 16. A deficit of 51,700 mt was recorded in the nickel market over the four-month period, compared to a deficit of 146,900 mt for the whole of 2021 and a deficit of 46,100 mt in the first quarter of 2022. Refined nickel output for January-April was 867,800 mt against demand of 919,500 mt, WBMS said. Total mined nickel production for the period rose 58,000 mt year on year to 882,700 mt, the data showed. In China, smelter/refinery output dropped 16,000 mt on the year during the period, while apparent demand increased 34,000 mt year on year to 481,300 mt. Indonesian smelter/refinery production for the four-month period rose 16% to 321,100 mt. Global apparent nickel demand climbed 52,000 mt year on year, WBMS said. London Metal Exchange reported nickel stocks were 27,200 mt lower at the end of April than at the end of 2021, but 2,400 mt higher than at the end of March. S&P Global Commodity Insights assessed spot battery-grade nickel sulfate with minimum 22% nickel content and maximum 100 ppb magnetic material at Yuan 42,600/mt ($6,348.73/mt) DDP China June 16, up 25.7% since the start of 2022. Copper deficit A deficit of 409,000 mt was recorded in the copper market in the four-month period, which compared to a deficit of 473,000 mt for the whole of 2021 and 189,000 mt for the first quarter of 2022, WBMS said. Global copper production for the January-April period fell 0.7% year on year to 6.88 million mt, while global refined production rose 1.1% to 8.1 million mt, driven by a 161,000 mt increase in China. Total global demand for January-April rose 5.7% year on year to 8.54 million mt, with apparent demand in China up 4.4% to 4.6 million mt, while reported output of semi-finished copper products in China dropped 0.9%. Refined copper production in the US dropped 22,000 mt to 305,800 mt, WBMS said. Copper stocks were reported to be 115,500 mt higher than at the end of December, and up by 21,000 mt compared with the end of March. Other base metals Meanwhile, the primary aluminum market recorded a surplus of 400,000 mt over January-April, after a 2021 deficit of 1.8 million mt, WBMS said. Primary aluminum demand for the period dropped 750,000 mt year on year to 21.9 million mt while production rose 0.5%. Total reported primary aluminum stocks at the end of April were 417,000 mt below the end-December 2021 level at 833,000 mt. The zinc market also recorded a surplus of 76,600 mt in the January-April period, while lead was in a deficit of 82,000 mt, the WBMS said.

New lower-emissions steel products are growing in the market, with Kobe Steel and Thyssenkrupp marketing grades which take into account the positive impact on carbon emissions from hot-briquetted iron and ferrous scrap used alongside iron ore to produce steel. Kobe Steel's new zero-emissions steel made its way into suspension used in a Toyota Motor Corp. Corolla hydrogen-fuelled race car last week at the Fuji International Speedway, while Salzgitter and other companies are offering lower-emissions and carbon-accounted steels to buyers focusing on their procurement-related upstream Scope 3 emissions. Steel producers operating blast furnaces are looking to optimize and introduce new ways to work with raw materials, such as HBI, hydrogen and biomass, and add renewable energy and fuel processes to downstream steel plants. Such changes may boost lower emissions steel volumes ahead of potential expansion in new technologies and applications later this decade in hydrogen-based direct reduction iron and molten oxide electrolysis which promise to slash steelmaking carbon emissions closer to zero. Kobe Steel and Germany's Thyssenkrupp, which launched the HBI-based bluemint pure and scrap-based bluemint recycled flat steel product range, have taken on the approach of capturing the benefits of using HBI and scrap in their existing blast furnace process and applying the CO2 savings to a proportion of steel products. Rather than using average carbon intensity in actual steel production methods, emissions savings are isolated to a portion of output with certified lower emissions being applied, using the so-called mass balance methodology. By selling steel with verified emissions, the companies can apply a carbon saving to the relevant product, appropriate with the raw material and calculated volume, and buyers are invited to use the emissions savings against their Scope 3 benchmarking. Kobe Steel last month launched Kobenable Premier, a steel product with 100% reduction in CO2 emissions during manufacturing, and Kobenable Half, with a 50% reduction in emissions, compared with similar steel using a 2018-2019 fiscal year baseline. The Kobenable range with certified emissions reductions is available for steel sheet, steel plate, wire rod and bar products manufactured at the Kakogawa Works in Hyogo Prefecture, Japan, and the Kobe Wire Rod & Bar Plant. The mass balance methodology, allocates CO2 reductions to specific steel products, in accordance with ISO 20915, Kobe Steel said. "This approach has been used for products such as recycled plastics, bioplastics, electricity generated from renewable energy sources, and certified food products like cocoa and palm oil, for which separation of product properties are difficult due to the characteristics of the manufacturing process or the supply chain," Kobe Steel said in a statement. "In the ironmaking process, it becomes possible to reduce the amount of coke used and thereby reduce CO2 emissions by replacing a portion of iron ore with HBI, a raw material for steel that has already been reduced." Certification in emissions savings Thyssenkrupp highlighted the benefits of using emissions savings directly from using the materials in the blast furnace process into steel products, over applying carbon offsets to steel through other emissions reductions projects and third-party certificates. Thyssenkrupp compared the emissions savings with its conventional reference steel product emissions of 2.1 mt emissions per ton of strip steel on a life cycle analysis basis taking into account Scopes 1-3. By using modelling, it simulated scrap charged at 100% into the blast furnace in the case of bluemint recycled, which is marketed with 0.75 mt carbon emissions. Scrap is already used in the basic oxygen furnace combined with pig iron for its conventional steel, and is not included in comparative savings applied, it said. Bluemint pure using HBI is marketed with 0.6 mt of carbon emissions, it said. Cleveland Cliffs, Voestalpine and other companies are utilizing HBI in blast furnaces, also lowering the carbon intensity of steel produced at existing plants by cutting the need for coal and other reductant fuels. Voestalpine and Kobe Steel have published studies using HBI with iron ore in reducing overall solid fuels to produce hot metal, with a cut mainly seen in PCI coal use rather than met coke. Coke's characteristics help support the burden during smelting, which has limited PCI's rates of substitution. Trials may see blast furnaces use greater proportions of HBI and scrap replacing iron ore products in blast furnaces, although blast furnaces traditionally fed mainly using iron ore products such as sinter, pellets and lump. Cliffs said in 2021 its Scope 1 and Scope 2 greenhouse gas emissions on a per unit basis fell, aided by the use of HBI supplied internally from its Toledo DRI plant. Overall greenhouse gas emissions in 2021 rose to 34.5 million mt CO2 equivalent from 32.2 million mt in 2020, due to increased production volumes following the COVID effect in 2020, it said. "Our increased consumption of scrap and our successful use of HBI in our furnaces to reduce coke rate, enhance productivity and quality, and stretch hot metal production led to an overall reduction in carbon intensity per ton in 2021," the steel, mining and scrap processing group said in its latest sustainability report. In Europe, ArcelorMittal and Arvedi have long been producing flat steel via the EAF route, using mainly scrap in a process which leads to a lower carbon intensity compared with the blast furnace route. US and Japanese EAFs also produce flat steel products using scrap. ArcelorMittal and Salzgitter earlier announced the production of flat steel using EAFs with certified use of renewable power, demonstrating low-emissions steel products for users trialing new grades and benchmarking for emissions. ArcelorMittal has a range of long and flat steel products under the XCarb brand of recycled and renewably produced steel made via EAFs using scrap. ArcelorMittal also sells steel bundled with certificates from emissions reductions projects at its sites. ArcelorMittal's EAF in Sestao, Spain, used 100% renewable power and a high proportion of scrap to produce HRC with less than 0.5 mt of CO2 on a cradle to gate life cycle basis, the company said after the first sale of the grade to re-roller Grupo Arania in March. Salzgitter has offered cold-rolled and galvanized coil with emissions reductions of as much as 66% by producing the grades using its Peine EAF combined with rolling at the Salzgitter Flachstahl works. Bypassing its regular blast furnaces, the company is offering small volumes of low-emissions certified flat steel to Mercedes-Benz, Bosch, Siemens, Gaggenau, Miele, and Neff. SSAB supplied Volvo Group pilot EAF-based steel in trials, produced with partners as the Swedish company invests in its first EAF in Europe to start up in 2026. Thyssenkrupp and Salzgitter have plans to invest in DRI plants and seek to contribute to lowering emissions significantly with major operational changes. While Thyssenkrupp intends to decommission its blast furnaces over time, the company sees integrating HBI-based steel production into the current integrated site at Duisburg-Hamborn as already cutting emissions towards its goal, while gaining experience in handling HBI for steel production.

Depreciation of the Turkish lira against the US dollar hit demand in the Turkish domestic long steel market, while Turkish mills' rebar offers in the export market have come under pressure amid falling scrap prices, mill and trading sources told S&P Global Commodity Insights June 10. Platts assessed Turkish imports of premium heavy melting scrap 1/2 (80:20) at $425/mt CFR on June 9, down $4/mt on the day. The assessment has fallen $225/mt since reaching $650/mt CFR on April 11, according to S&P Global data. Some Turkish producers, who are facing higher energy costs since June 1, have halved their production capacities, while others are mulling shutting down for short periods of maintenance, sources said. A major long steel producer in Turkey said his company had halved working hours at its melt shop and was contemplating pausing output if the sluggish sentiment persisted, while another steelmaker said his company was implementing short output breaks, depending on market conditions. A trading company manager said a large producer in southern Turkey had taken a week-long maintenance break, but production was expected to restart from June 13. "Another producer in our region is also expected to start maintenance in the coming weeks, due to the market slackness," he said. On June 1, Turkey's energy prices were raised sharply with the state gas distributor Botas saying natural gas prices had gone up by 30% for residential use and 10% for industrial use. The Energy Market Regulatory Authority, or EPDK, also said that electricity prices had gone up 25% for industrial use. A further rise in electricity costs is expected in July, with the EPDK due to change the method of calculating electricity prices for industrial use from July 1, which could increase rates by as much as 71%-86%, according to some sources. Workable levels for Turkish rebar in the export market continued to soften, as buyers held back amid weakening scrap prices. Platts assessed Turkish exported rebar down $5/mt on the day at $735/mt FOB on June 9. Workable prices could fall further in the coming days amid a decline in imported scrap prices, a service center manager said June 10. A scrap cargo from the EU was heard to have been booked by a large Turkish mill at below $400/mt CFR, further pressuring prices, an industry source said June 10.

Carbon capture utilization and storage can provide a transitional solution to European steelmakers as the industry looks to cut carbon dioxide emissions. However, a final solution for achieving net-zero steel production will depend on how the steel is produced and the location of the mill, analysts with S&P Global Commodity Insights said June 8. In a webinar discussing the potential use of CCUS to decarbonize the steel and cement industries, analysts from S&P Global's Clean Energy Technology Group said that while these sectors are among the top emitters of industrial CO2, they also are core pillars of today's society, being two of the most important engineering and construction materials. Combined, global steel and cement production contributes to 13% of global CO2 emissions, representing a major challenge for global net-zero emissions targets, with major steelmakers targeting net-zero emissions by 2050. To achieve emissions reductions above 80% in Europe's steel industry, currently three options are the most attractive: hydrogen, natural gas with CCUS, or utilizing steel scrap, said Paola Perez Pena, principal research analyst at S&P Global. However, she noted that scrap has some limitations, depending on the region. CCUS only part of solution The top three steel producers in Europe are considering CCUS to reduce emissions but are also exploring hydrogen-based technologies as part of the solution, Perez Pena said. In Europe, carbon emissions trading system allowances will make multiple decarbonization routes economical to replace blast furnace and basic oxygen furnace production by 2030, but only hydrogen will provide deep decarbonization, she said. "Although CCUS is one of the technologies that the steel industry is evaluating, the complexity of the capture process for this industry is one of the big challenges since the most common steel production process has multiple CO2 sources," Perez Pena said. Steel production via blast furnace is the most carbon intensive method and is the most widely utilized method of production in Europe currently. "As the predominant production method of this industry is the conventional coal-dependent blast furnace process, the need to assess alternative breakthrough technologies to reduce CO2 emissions is high," Perez Pena said. However, the decarbonization pathway of individual steelmakers will depend on which production process is being utilized. As a result, it is important that flexibility in the choice of decarbonization technologies is maintained to account for the differences in regional characteristics, including natural resources and infrastructure, she said. Government support key to decarbonization The EU steel industry has collectively committed to reduce emissions by 30% by 2030 versus 2021 but is seeking ways for this to be achieved as cost efficiently as possible. Eurofer, the European Steel Association, is advocating for greenhouse gas emissions benchmark-based free allocation of CO2 allowances, compensation of indirect costs and complementary carbon adjustment as the elements that will help through the transition; the EU parliament is expected to vote on its proposals soon. Currently, the steel industry accounts for 5% of the current CCUS pipeline of large-scale projects, mainly in Europe. "Although these numbers seem small in the overall pipeline of projects, this is a significant step ahead," Perez Pena said. While China accounts for more than 55% of all global steel production, Europe is one of the first regions facing the decarbonization challenge as carbon regulations increase in the region, Perez Pena said. Changing customer demand and growing investor and public interest in sustainability are further driving the need to decarbonize. An analysis by the Clean Energy Technology Group found that steel can decarbonize at a lower premium than cement, but the right conditions need to exist for steelmakers. The production premium for steel could go up to 15% for the European steel sector. However, when factoring in paying for the cost of carbon emitted, producing steel with some decarbonization solutions could be cheaper in some cases, based on 2030 estimates, Perez Pena said. "Given how competitive the market is and the thin industry margins, decarbonization is not easy for business and governments will need to provide the right conditions in place to make sure the domestic industry is not destroyed," she said.

Sulphuric acid prices have been rising strongly since the start of COVID-19. Copper prices are also showing a similar trend. What are the factors behind the strong uptrend in demand? What is the impact on copper and sulphuric acid from the ongoing Russia-Ukraine war and China's "zero-COVID" strategy? S&P Global Commodity Insights' experts--Mok Yuen Cheng and Han Lu from the Platts pricing team and Hui Min Lee from Fertecon-- discuss in this podcast. More listening options: No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P).

China’s lofty ambitions to hit peak carbon emission by 2030 and achieve carbon neutrality by 2060 have pushed major Chinese steelmakers to chart a greener route to production as they increasingly become interested in developing direct reduced iron, or DRI, plants using hydrogen and natural gas. But rising decarbonization costs and the expected dominance of traditional blast furnace-converter route in the Chinese steel industry for the foreseeable future is set to slow the sector’s transition to utilizing low-carbon DRI-electric arc furnace production route until at least 2030. Reducing emissions at blast furnace-converter route would also be costly and challenging. A quest for hydrogen-based zero-carbon steel Over 2021-2025, China is likely to have at least 8.2 million mt/year of low- or zero-carbon DRI capacity coming on stream, calculations by S&P Global Commodity Insights showed, with Baosteel and Hebei Iron & Steel Group as the two major trailblazers.Baosteel is part of the Baowu Group, the world’s largest steelmaker, while Hebei Iron & Steel ranks third in global steel production. Despite the efforts, hydrogen-run DRI plants remain at a relatively smaller production scale. According to Baosteel, the technology of using pure hydrogen as reducing gas at DRI plant is still on trial or experimental stage in China. The company aims to boost the hydrogen ratio at its DRI plant to 80%-90% in 2030. Reducing gases at the first DRI plants at both Baosteel and Hebei Iron & Steel will be a combination of hydrogen, natural gas and coke oven gas. Baosteel aims to reduce its carbon emissions by 30% from 2020 levels in 2027, while Baowu is targeting the same in 2035. Baosteel further amps up its carbon goals by targeting to produce total carbon-free auto sheet covering the entire process — right from raw material processing to finished steel — in 2030. While the carbon-free auto sheet will be coming from the DRI-EAF route, to reduce carbon emissions effectively, market sources expect Baosteel and its parent company Baowu Group will have to mainly depend on using decarbonizing blast furnace-converter route as well as the carbon capture, use and storage (CCUS) technology. Steel production through the traditional blast furnace-converter route at Baowu Group accounted for about 93.5% of its total crude steel output of 115 million mt in 2020, while EAF steel output was only 6.5%. It’s not just the Baowu Group. This is true for the entire Chinese steel industry as well. China’s crude steel capacity of blast furnace-converter route is currently at over 1 billion mt/year, while EAF steelmaking capacity is just close to 200 million mt/year, according to S&P Global calculations. Costly decarbonization Carbon-free steel refers to the production of one metric ton of steel that emits less than 0.5 mt of CO2, which means steelmaking in blast furnace-converter route will need to cut its carbon emissions by over 80% to meet carbon-free steel standards. Currently, producing 1 mt of crude steel in blast furnace-converter route emits about 2 mt of CO2, while consuming pure scrap in EAFs emits 0.8 mt of CO2. Steelmaking in conventional DRI and EAF route produces 1.4-1.95 mt of CO2, depending on types of reducing materials. Blast furnaces using biomass, zero-carbon electricity and CCUS technology could reduce emissions in pig iron production by close to 80%. But there’s a catch.Production costs will soar, requiring more than $150/mt extra to produce iron, compared to iron that comes from conventional blast furnaces, according to Baosteel data. Bring in hydrogen and even seemingly costlier low-carbon production prices pale in comparison. Hot metal production at DRI plants using green hydrogen as reducing gas could cut CO2 emission by almost 100%, but the costs will be $425/mt higher than conventional iron-making process. DRI plants, using coal, zero-carbon electricity and CCUS, will also be able to reduce the CO2 emission by close to 100%, but the cost will still be over $400/mt higher.Given high decarbonization cost and still immature technologies – either via DRI-EAF or blast-converter route – low- or zero-carbon steel products are unlikely to dominate the market at least before 2030, some sources said. Controlling steel output Upgrading of China’s manufacturing sector will require more high-end and deep-processed steel products, which are more complex to produce and generate higher carbon emissions than ordinary steel products, a market source said. China last year came out with mandatory output cut measures, a short-term but effective solution to control emissions. Steel output cuts will prevent the steel industry’s carbon emissions from rebounding while developing high-end steel products. Meanwhile, China’s urbanization is seen almost reaching saturation levels, and steel demand has plateaued. This could assist China’s efforts to reduce its steel production, some market participants said. They expected China’s crude steel output to hover from 900 million mt/year to 1 billion mt/year for the next few years, before production starts coming down. Before any decarbonization technology reaches a scale at which costs could drive costs down, China’s steel output controls could be the only cost-effective way to rein in carbon emissions.