Steel Industry Energy & Value Chains

The threat to Competitiveness

Presentation to the Consultative Committee on
Industrial Change of the EESC
Brussels 7th May 2008
By Ian Goldsmith, UK Public Affairs Manager, Corus
About Steel

• Ubiquitous
– If not made of steel, it’s been made using steel

• Growing rapidly globally after a period of stagnation

– But not in Europe

• Energy and CO2 intensive

– Efficient processes
• Little further scope for significant improvement
– Need breakthrough technology to make a real difference

• Competitive market
– Imports set the price floor
– But facing rapid cost escalation from raw materials and energy inputs

• Policy priorities discourage major investment in EU facilities

Steel is fundamental to modern society

• Recycling • Packaging
– steel is the most recycled material in – steel packaging is light, versatile and
the world recyclable
• Transport • Agribusiness
– bicycles, trains, cars, lorries, ships
are all made of steel – steel-based farm equipment essential
to modern farming
• Energy
• Automotive
– exploration and extraction,
transportation, refining, electricity – new steels reduce body weight with
production compromising safety

• Water • Communication
– extraction, transportation and – ballpoint pens to satellites
purification
• By-product reuse
• Housing and Construction
– using slags reduces minerals
– steel construction is time & energy
efficient extraction and CO2 emissions

Steel is one of the solutions to a more climate friendly society

Steel Solutions
Carbon neutral housing

All new homes in the United Kingdom will

have to be carbon neutral by 2016
Steel Solutions
New generation vehicles

AHSS is predicted to be more than 50% of sheet steel in cars in

2010 contributing a 5% reduction in total GHG emissions
Steel Solutions
Wind turbines

Steel support for renewable electricity

Steel is in constant circulation, but a significant amount is ‘stored’ in society
 World steel production
still growing fast by recent standards
1.8bn Tonnes
by 2015?

1,250 CAGRs 1950-59 5.3% >4%pa?

1900-09 7.5% 1960-69 5.8%

1,000 1910-19 -0.3% 1970-79 2.6%

C ru d e s te e l, K t

1920-29 5.8% 1980-89 0.9%

750 1930-39 4.1% 1990-99 -0.4%

1940-49 1.4% 2000-06 6.6%

500

250

0
1900
1905
1910
1915
1920
1925
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
Data: Hatch Beddows, IISI. Note: CAGR – compound annual growth rate
Business Environment
Climate change
Indicator Value Data Year

Global CO2 emissions (anthropogenic) 32.2 Bt CO2 2000

100 %
Global CO2 emissions (anthropogenic) in C equivalent 8.8 Bt Ceq 2000

Global CO2 emissions (Ceq) by region: USA & Canada 26.3% 2000
Western Europe 14.3%
Communist East Asia 13.6%
Eastern Europe & Former Soviet States 12.4%
India & Southeast Asia 11.2%
Australia, Japan, Pacific Ocean States 6.8%
Central & South America 6.2%
Middle East 5.7%
Africa 3.5%

Global CO2 emissions from steel industry 1,442 Mt CO2 2000

4% 1,920 Mt CO2 2005

CO2 emissions from EU (25) steel industry 330 Mt CO2 2000

0.9 % 319 Mt CO2 2005

Direct CO2 emissions from Corus Group 29.6 Mt CO2 2000

0.09 % 28.4 Mt CO2 2005
29.4 Mt CO2 2006

Year 2000
Source: IPCC Report and IISI. 2000 data has been used to provide greater accuracy of information.
Carbon as a reducing agent = non reduceable
process emissions of blast furnaces
Reduction agent consumption (kg/t hot metal)

oil injection and burden preparation

hot blast temperature >1200 °C
oxygen enrichment
800 top pressure
theoretical burden distribution
minimum level improved sinter quality
600 of carbon demand
414 kg /t hot metal coal injection
oil
coal
400

200
coke

0
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000
 EU steelmaking has become more
energy efficient
CO2 emission per ton of finished product
Index 100 for 1975
• -20% through dramatic improvement of 100
material efficiency
1975: 71.5% 2005: 92% 90

Continuous casting; quality control; >45% reduction in 15 years

process management 80
• -14% through increase in scrap
availability
70
1975: 55Mt/y 2005: 80MT/y
<10% reduction in 10 years
• -18% through improved BF 60
management and concentration
Measurements; models; charging; high 50
grade ores
• -6% through shift away from local C-
40 Source: Eurostat/Eurofer
bearing iron ores
1975 1980 1985 1990 1995 2000

Incremental improvements limited: Technology change needed

Breakthrough technology
ULCOS – Ultra-Low CO2 Steelmaking
• Objective: to reduce CO2 emissions by 50% by 2050 compared to
today’s best routes
– 5 year project
– €59m budget
• Equivalent of 60 man-years
• Involving well over 100 people
– 48 companies and organisations from 15 European countries
– Funded by industry (56%) and the EU (44%)

– 80 options examined
– 4 process concepts selected for further development

– Next stage
• to move to large-scale pilot
• Potentially costing some €300m per technology
– Implementation?
• Unlikely before 2020
 ULCOS II:
Top Gas Recycling Blast Furnace
Modification of blast furnace with gas recycling, CO2 removal & injection of oxygen

Sinter, pellets
lump ore & coke Export gas

Reduction of Dust
25 % catcher
carbon input
(= 15% for the whole
plant: 270 kg CO2/t) CO2 Tail gas
removal
Ready for
900 - 1000°°C
CCS
(800 kg CO2/t)

Product gas
Coal & 25 - 1200°°C
cold oxygen Gas heater

Hot metal
and slag
ULCOS II: Geological storage

Depth > 800m to have CO2 behaving like a fluid. ( temperature < 31 °C and
pressure > 73,83 bar)
Capacity depends on: area, thickness and slope of the reservoir, appropriate cap
rock, absence of faults, average porosity, permeability, Conflicts of use to be checked
(ex: aquifer used for drinking water)
Product prices are set globally

700 Yearly average HRC prices by region ($/t)

600
500 Asia
400 USA
300
200 Europe
100
0
80

83

86

89

92

95

98

01

04
19

19

19

19

19

19

19

20

20
Data: Hatch Beddows, SBB. Note: USA: Midwest prices, fob mill. Europe: North European prices, ex-works. Asia: East Asian imports, c&f port.
All prices are annual averages in nominal terms
Steep increases in raw material prices

Raw material prices indexed to 2001

500
Iron ore
450 Shown prior to:
>200% increase in coking coal prices
400 Scrap
>60% increase in iron ore prices
Tin
350
Coal
300
250 Zinc

200
150
100
50
'01 '02 '03 '04 '05 '06 '07 '08
YTD

Indexed on 2001 prices

Source: CRU including 2008 forecasts for iron ore and coking coal, Thomson Datastream showing 2008 year to 29/01/2008 data for
scrap, tin & zinc
 46€
46 € 24€
24€
(2)
(3)

60€
60€ 67€
67€
(3)
84€
84€ (3)
(3)

57€
57€
(3)

60€
60€ 25€
25€ 8€
(4) (4)
(3)

22€
22€ 70€
70€
(1) (3)
49€
49 €
(3)

26€
26€
(1)

< 20€
20€
(4)

Sources:
(1) Presentation European
Aluminium Association HLG-Ad
hoc 1 (Long Term Contracts) -
2005
16€
16€ (2) TVO EPR R.Tarjanne and
(1)
K. Luostaninen, Lappeenranta
University of technology (Long
term contract) – 2003
(3) Platts Base load year 2007

World Map of electricity prices (€/MWh) (Platts 4 April 2006)

(4) CEFIC
UK Electricity costs
Competitiveness gap with Europe
UK wholesale electricity prices
Electricity: €/MWh baseload, year forward
100

90
DE
UK power prices
FR currently 20%
80 UK more expensive

70

60

50

40

30

20
Feb-05 May-05 Aug-05 Nov-05 Feb-06 May-06 Aug-06 Nov-06 Feb-07 May-07 Aug-07 Nov-07

Source: Reuters
Political Situation/Business Environment
European position

Policy confusion?
• Burden sharing under Kyoto Protocol
– 8% reduction in GHG emissions
– But no targets beyond 2012
• EU Climate Change Policy
– Target of 20% reduction in CO2 emissions by 2020 (30% if others take action)
– Target for automotive CO2 of 130g/km
• EU Emissions Trading Scheme
– Cap & trade system, implemented by Member States in different ways in Phase I
– Move from free allocation towards auctioning post 2012
• Energy market/supply issues
– Lack of a level playing field across Europe
– The current liberalisation proposals may not be enough to fix the problem
• High Level Group on Competitiveness, Energy & Environment
– Recognition that energy intensive industries in Europe are at risk.
EU ETS
Impact on competitiveness of auctioning

CO2 cost screen: Sectors potentially exposed under unilateral CO2 pricing
Lime
Potential maximum gross value added at stake (MVAS)

40% Allocation dependent (direct) CO2 costs / GVA

and net gross value added at stake (NVAS)

Electricity (indirect) CO2 costs / GVA

30% Other inorganic Household paper Casting of iron

basic chemicals Non-wovens
Copper
Industrial gases
Flat glass
Coke oven
Veneer sheets
Fertilisers & Nitrogen Malt
20% Rubber tiers
Basic iron & steel

& tubes
Cement

Hollow glass
Finishing
10% of textiles

Aluminium
Refined petroleum Pulp &
Paper
4%
2%
0%
UK
0.0% 0.2% 0.4% 0.6% 0.8% 1.0% GDP
Price increase assumption: CO2 = €20/t CO2; Electricity = €10/MWh

Hourcade et.al. Differentiation and dynamics of EU ETS industrial competitiveness impacts.

Source: Carbon Trust
Global problems need global solutions

• Being “first mover” is not always an advantage

– If policy drives up costs locally, globally competing companies will
lose out
– Customers decide to buy elsewhere
• Manufacturers follow them
• The more mobile the product, the quicker it will shift
– Competitors are becoming more sophisticated
• Competition is no longer for basic products offered in bulk
• China is a large supplier of galvanised steel to the European market
» Now offering organic coated steels
Industry response to policy

• As long as it can remain competitive, industry will continue to:

– Drive down energy use
– Reduce CO2 emissions where possible
– Research new process technologies
– Develop new energy efficient product applications
– Invest in existing facilities

• Industry therefore needs policy solutions that will:

– Maintain competitiveness of EU-based companies
– Maintain industrial base in Europe
– Avoid encouraging CO2 migration (leakage)