Emission trading reform puts steelmaker investments on hold

European steel producers for the most part are doing well with key sectors such as construction and the car sector booming. But uncertainty over reforms of the emissions trading system have caused investments to be put on hold.

Illustrative photo: Martinelle, Pixabay / CC0

Growth in European steel production for the first quarter of the year has been upped to 6.3 percent with the second quarter seen coming in with a 3.1 percent rise in output and the third quarter at 5.4 percent. The forecast for the whole year is now put at 4.6 percent by the industry association, Eurofer.

For the Czech steel sector the trend is not quite so convincing with some sectors still struggling and complaining of prices being undermined by imports, mostly from China.

And it’s perhaps those unconvincing general conditions as well as the need to pay more for the pollution permits in an uncertain emissions market that has prompted the biggest Czech steelmaker, Arcelor Mittal Ostrava to postpone some massive investments.

According to the business daily, E15, the uncertainty over the trend of so-called emission permits [permits for producing CO2] has forced Arcelor Mittal to postpone construction of new oxygen convertors, vital for the process, by several years. The investment would have cost several billion crowns. The investment had originally been earmarked for 2015 or 2016.

Although the European Parliament cleared long awaited reforms to the European emissions market in November this year, the precise impact of those changes on the price of emissions has still to become clear with the trading system due to be transformed after 2020.

The target is for emissions prices to rise sharply and encourage curbs and carbon dioxide production. But steelmakers fear that those rises could mean between a 5 and 10 percent hike in steel manufacturing costs. That, they add, could wife out immediately all their profit margins and leave the costs of recent investments hanging over them.

The Czech Republic is not the only location where the world’s biggest steelmaker has postponed investments due to uncertainty about how the market will evolve. The same also holds true for Arcelor Mittal’s Dabrowa Gornicza plant in Poland where an investment in the reconstruction of a blast furnace now looks to be on hold for at least the next five years while the picture clears over the reform of the emissions trading system.