The preliminary criteria for the EU Emissions Trading System (ETS), used by the European Commission's Directorate General for Combating Climate Change (DG Clima), suggest that CBAM criteria for steel imports may be stringent.
The next ETS indicator for pig iron will be 6% lower than 1.328 according to the DGClima internal document reviewed by Argus, at the third stage of the ETS, in 2013-2018, domestic producers will have a benchmark of 1.24 tons. This is 3% less than in 2021-2025, in addition to the 2.5% phasing out of quotas due in 2026.
If this indicator is used for CBAM, as expected, it will mean that the material produced in blast furnaces with an emission intensity of 2.1 tons will be released into the atmosphere. additional costs of more than 70 euros per ton (80 US dollars per ton) will be incurred, provided that the carbon price is 80 euros per ton. This test is preliminary and may turn out to be inaccurate after the actual revision is made, but there is a "high" probability of applying these tests, according to a document reviewed by Argus.
The ETS test for carbon steel in electric arc furnaces may decrease by 50% compared to stage 3, to 0.142 tons, the document says. This would mean additional costs for the import of electric arc furnaces in the amount of about 50 euros per ton, provided that the carbon content is about 750-800 kg, and the cost of ETS is 80 euros per ton.
This week, market participants raised their expectations regarding future carbon prices in the steel market. Previously, most companies took into account the cost of carbon at about 50 euros per ton, and some predicted it at 30 euros per ton, but in Northern Europe and Italy this range increased to 50-70 euros per ton.
Domestic producers assume that more and more buyers are switching purchases to local raw materials and avoiding imports, although the proposed EU mechanism of post-protection measures will also contribute to this.
The Commission is expected to announce the preliminary CBAM benchmarks for this quarter, although the actual figures will only be released in the first quarter.
