HLG Ad-Hoc Group 3

Energy & environment factors affecting the

competitiveness of energy-intensive industries
Ian Goldsmith

Steelmaking made simple

Steel scrap

Iron Ore
Coal/Coke
Natural gas
Oil
Electricity
Blast Furnace

Oxygen Steelmaking

Secondary Steelmaking

Steel scrap
Coal/Coke
Electricity
Natural Gas
Electric Arc Steelmaking

Continuous Casting

Key Steel Industry Statistics

Steel Production by Region

Steelmaking by process route

(2004)
3%

(millions of tonnes)
2005

(+/- 2004)

Global 1106

(+50)

EU 25

186

( -7)

94

( -5)

348

(+72)

USA
China

BF/BOS
EAF
Other

34%

63%

In 2004, over 90% of global steel was continuously cast

EU 25*, China, NAFTA, Japan, Korea >95%
*But, Poland <80%

Regional steel slab production

costs
($/t, ex works, 2005, weighted average of regional plants covered)

324

EU15

316

N America

* Tata, SAIL and Jindal only

Sources: WSD

311

Japan

300

China

260

252

FSU

India*

227

Brazil

Raw materials (global effect) and

energy (local effect)
Raw materials (indexed)

Energy prices

Year 2000 = 100

p/therm

/MWh

UK Electricity (RHS)

70

500

60

UK Natural gas (LHS)

50

400

50

40

Coal

300

30

Scrap
200

30

Coke
Iron Ore

Germany Electricity
(RHS)

10

100
00

01

02

03

04

05

06
YTD

Note:
Market prices FOB
Source: Corus

01

02

03

04

20
10

05 06
YTD

Note:
UK Wholesale electricity and natural gas forward prices
Source: Heren Energy report
Exchange rate: /1.50

Global electricity prices

(2004 Electricity prices for industrial customers, /MWh)
Current Price
~70

102

Very large industrial

customers: ~35

54

51

48

47

41

40

38

35
23

Japan

UK

Neth*

Poland

Germany*

US

* Estimated
** 2003
Sources: IEA Energy Prices and Taxes Q4 2005, Datastream, Corus

France

Brazil

Norway

Russia**

Steel is a global industry

Global steel export volumes 1975-2004
400

45%

Exports as % of
global production
volumes (right hand
scale, %)

350

40%

300
35%
250

Export volumes
(left hand scale,
mt)

30%

200

150

100

Source: IISI

25%

20%

Competition drives cost

reduction
oil injection and burden preparation
hot blast temperature >1200 C
oxygen enrichment

Reducing agent
consumption
(kg/t hot metal)

800

600

top pressure

theoretical
minimum level
of carbon demand
414 kg /t hot metal

burden distribution
improved sinter quality
coal injection

oil

coal

400

200

coke

0
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000

Competition drives energy efficiency

Legislation overload
EU:

UK:

IPPC Directive

EU Emissions Trading Scheme

Environmental Protection Act 1990

(Contaminated Land Regulations)

Packaging & Packaging Waste Directive

Landfill Tax

Landfill Directive

Hazardous Waste Regulations

Trans-frontier Shipment of Waste

Regulations

Producer Responsibility (Packaging)

Waste Framework Directive

Climate Change Levy

EU Polluting Emissions Register

Renewables Obligation

Air Quality Directives

Air Quality Objectives

National Emissions Ceilings Directive

Large Combustion Plant Directive

Water Framework Directive

REACH

ELV Directive

WEE Equipment/RoHS Directives

Energy Using Products Directive

Impact of Environmental Policy

Electricity prices and

EUETS allowance
prices are related

Estimated effect of EU ETS on UK electricity prices is over 25% of the increase since 2004
UK electricity companies have increased profits by ~800m/year
(Source: IPA report for UK Government Nov 2005)

Examples of effect on Corus

UK Renewables Obligation = 9m in 2006 (by 2010 this will be over 13m)
UK Climate Change Levy = 6m (index linked from 2007)
EU ETS >20m (Including energy cost increases plus administration, verification etc)