Oct 24, 2023
CBAM may raise steel trade tensions, prices in 'inevitable' greening process: Alacero

CBAM won't have any immediate impact on Latin American steelmakers' export levels, particularly as only 1% of the region's exports -- in terms of crude steel -- are this year going to the EU, Wagner told S&P Global Commodity Insights.

However, the mechanism could further encourage steel imports into Latin America due to trade diversion from other regions impacted by the new environmental barrier, in particular China, Wagner said. The Asian giant has already boosted steel exports to Latin America this year.

Platts, part of S&P Global Commodity Insights, last assessed Brazilian hot-rolled coil at a premium of 16.1% over the Chinese HRC delivered price to Brazilian ports Oct. 20. The Brazilian domestic HRC price was last assessed at Real 4,000/mt ($785.85/mt) ex-works, taxes excluded, also on Oct. 20.

Latin America's total imports of rolled steel rose 8.7% on year in January-July to 15.7 million mt, taking a growing share of markets where, in some cases, demand has continued depressed since the pandemic-related slump. With annual crude steel production of approximately 60 million mt, the region's steel sector is currently working at just around 70% of its capacity.

Geopolitical factors, meanwhile, led Latin America's overall rolled steel exports to plunge 27.3% on year to 4.8 million mt in the first seven months of the year, Alacero data shows.

Regional price increases

Steel prices may also rise in some regions, particularly in the EU, as markets become more protected and the costs related to decarbonization and CBAM-related bureaucracies grow, the Alacero executive said.

Wagner accepts that CBAM represents an incentive toward an "inevitable" decarbonization of heavy industries including steel and recognizes the importance of the EU's first mover status in this respect, set to accelerate discussion on the adoption of broader carbon markets and pricing.

"We're not against CBAM," Wagner said. "We need to learn from this and work together [on decarbonization]. Even while some EU steelmakers are gaining support and subsidies from their governments, we won't complain about this in the WTO. We need to press for support from our own governments."

CBAM, legislated by the European Parliament as part of the EU Green Deal, is a tariff on carbon-intensive products imported into the EU and due to be fully introduced in 2026.

Adapting to CBAM rules

Adaption to CBAM rules may be a challenge, according to Wagner, even though Alacero and worldsteel data shows Latin America's high percentage of renewable energy in its electricity matrix means its overall carbon emissions in steel are lower than the world average. In Latin America, each metric ton of steel produced emits an average of 1.6 mt of CO2, while the world average is 1.9 mt.

"Latin American steelmakers are entering the transitional period of the European Union's Carbon Border Adjustment Mechanism (CBAM) with trepidation and uncertainties," Wagner said.

Some of the challenges involved are administrative and bureaucratic: Steelmakers will, for example, be required to state the percentage of steel scrap used in their furnace charges -- which could vary per charge and per client -- and which mills could consider sensitive information, Wagner noted.

"We're worried about the quantity of data required," he said.

New export opportunities possible

On the brighter side, mills in some parts of Latin America could find new export opportunities in Mexico and the US, due to existing trade accords with these nations.

Mexico's steel production and demand are growing due to nearshoring projects being undertaken with the US, where steel markets are more competitive, Wagner said.

The US is already a major export destination for the region, taking 2.28 million mt of rolled Latin American steel products in 2022, compared with just 639,000 mt shipped to EU+27, according to Alacero data.

Source: SP Global