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Steel major enters market for attractively priced post-2012 credits

09 Dec 2011 17:35:06 | edcm

One of Europe's steel majors has entered the carbon market for 'attractively priced' post-2012 credits.

German steelmaking giant ThyssenKrupp is hedging forward to lock in low carbon prices for the 2013−2020 period of emissions trading (ETS), in a move market observers say represents a departure from the norm among big emitters.

"We're looking to close our position for our expected short position in the third [ETS] phase," Markus Weber, ThyssenKrupp's head of emissions trading, told ICIS Heren.

The company, which holds a surplus of around 6 million allowances, is buying carbon futures on the ICE and EEX exchanges, and over the counter.

Weber would not say for which years ThyssenKrupp is now hedging, or how many allowances the company is buying.

The company has "already purchased EU emission allowances at attractive market prices as a hedge for the third trading period, 2013−2020", it said last week as it published its annual financial results statement.

ThyssenKrupp received EU emissions allowances (EUAs) almost level with its actual emissions in 2010, when it emitted 21.25m tonnes of CO2 and received allowances for 21.26m tonnes of CO2.

ThyssenKrupp expects a "significant shortfall" in carbon allowances from 2013, Weber said.

That is because it emits 1.7 million tonnes of CO2 per tonne of steel produced − below the global average, but well above the benchmark 1.48 tonnes of CO2e that steelmakers must meet to receive all their carbon allowances free post-2012.

The terms of how steelmakers can meet that benchmark is now being challenged in the European Court of Justice by the sector's representative body, Eurofer (see EDCM 4 April 2011).

A hedge with no downside?

If other big industrial players follow ThyssenKrupp's lead on post-2012 hedging, it would represent a "change in trend", one analyst at a European bank said.

"They have been hedging less than expected. We are now in a period when they are buying what they need for today. That might be because people are waiting for prices to be low and for the EIB [European Investment Bank] to sell the 2013 EUAs," the analyst said, referring to the so-called NER300 programme (see EDCM 2 December 2011).

"The majority of companies will become short at some point in the third trading period," a second analyst, Ingo Tschach, managing director of Tschach Solutions, said.

"Although the market is long overall, there are still incentives for industrial companies to hedge against the possibility of future carbon price rises. If you take a really long-term outlook, then if you buy now at €7.50/tonne of CO2 equivalent there is no significant downside," Tschach said.

In Europe, ThyssenKrupp has cut its output by 500,000 tonnes of finished steel for the fourth quarter of 2011 in response to falling demand.

Unlike its major competitor ArcelorMittal, ThyssenKrupp has not responded to the difficult market conditions in Europe by shutting down blast furnaces − the part of a steel mill that makes liquid steel and causes most emissions ( see EDCM 8 December 2011). VF

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