Carbon rules skew metals competition

By Michael Shields, European Steel Correspondent

LONDON (Reuters) - The campaign to curb global warming provides breathtaking opportunity for makers of metals, but varying regulatory regimes around the world make for an uneven playing field, industry officials say.

Efforts to reduce carbon dioxide (CO2) emissions that trap heat in the atmosphere are forcing makers of steel and aluminum to spend heavily to boost manufacturing efficiency, executives said at the Reuters Global Mining and Steel Summit this week.

In Europe, their bill is about to go up more as allocations of carbon permits used under an EU cap-and-trade system get more restrictive. That means the climate debate has become a double-edged sword for the sector.

"I think (the debate) is a net positive, but I think the industry has an awful lot of work to do to position itself on the positive side of the equation," said International Iron and Steel Institute (IISI) Secretary General Ian Christmas.

Steelmakers, which account for some 4 to 6 percent of man-made CO2 output, argue that they are better placed in the debate than are rivals from the aluminum industry.

"The reality is that aluminum requires 10 times the energy to get you the metal compared with steel. In terms of climate change, it is a disastrous material," said Christmas, whose organization represents major steelmakers.

Sakari Tamminen, chief executive of Finnish steelmaker Rautaruukki Oyj (RTRKS.HE: Quote, Profile, Research, Stock Buzz), added: "Steel is fully recyclable and can be used forever."

Both he and Christmas lobbied for a new system of targeting CO2 emissions by introducing a global system based on industrial sectors that would set moving benchmarks for CO2, then reward companies that beat the average and punish the laggards.

"That would be much more rational than this national system, which is very problematic," Tamminen said.

NUCLEAR OPTION

Christmas said IISI members in Europe and Japan worry that CO2 cap-and-trade systems could pose a fundamental handicap given the absence of such rules in places like China and Russia.

Under current EU thinking, he said, European operators of steel blast furnaces could face price penalties of around 100 euros ($135) per metric ton of steel, a fifth of the total price.

"There is a real risk that the steel industry in Europe will be at a significant cost disadvantage and what will happen is they will quickly relocate to those parts of the world which are producing at low cost," he said.

Aluminum makers are counting on brisk demand for lightweight metal so that vehicles can travel farther on less fuel. Last year, aluminum surpassed iron as the second most-used material in cars, behind steel.

With energy accounting for around 40 percent of the cost of manufacturing aluminum in Europe, companies are looking for ways to chop their fuel bills.  Continued...