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Arcelor Mittal carbon credit sell off reaps millions in 2012

06 Feb 2013 17:42:17

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Steel giant Arcelor Mittal sold off carbon allowances in 2012 to boost its balance sheet, the company's annual results showed on Wednesday. The move may be an indication that long-awaited industrial selling has already kicked off, adding to the oversupply and pressure on carbon prices.

Arcelor Mittal generated $0.2bn from the sale of carbon credits for its business in 2012, with most of this falling in the last quarter and end of phase II of the EU emissions trading system (ETS).

Given an average closing price for the EUA benchmark of €7.55/tonne of CO2 equivalent (tCO2e), according to ICIS data, this translates into the sale of about 26.5m allowances.

Wednesday's results showed that the company's Q4 '12 earnings before interest, taxes, depreciation, and amortisation (EBITDA) results were lifted by money generated from selling carbon allowances, which brought in a net gain of $220m (€162m) in the last quarter of last year, helping it to offset losses to its global business.

"The proceeds from the sale of carbon dioxide credits will be re-invested in energy-savings projects," the company said in a statement.

The sale marks a turnaround in Arcelor Mittal's approach to the ETS, after it went to court in phase II, claiming that the inclusion of the steel sector in the ETS broke EU law on property rights and the freedom to pursue economic activity. At the time, an Arcelor Mittal spokesman had said that the company remained concerned that the ETS put an excessive strain on European steel companies, rendering them uncompetitive (see EDCM 4 March 2012).

Costs and challenges to business

Not counting carbon sales, the company's Flat Carbon Europe's business declined from Q3 to Q4 in 2012.

The company's Q4 '12 operating results included costs, such as an impairment charge and a write-down of goodwill, totalling $2.8bn, originating from Arcelorr Mittal's plan to permanently close the coke plant and six finishing lines at its Belgian site in Liege, as well as other projects.

The decision to close the plant follows a court battle that reversed the European Commission's decision to grant the steel giant quotas on an annual basis for its idle HF6 blast furnace outside Liege under Wallonia's National Allocation Plan (see EDCM 2 February 2012).

Other assets incurring costs included the long-term liquid phase idling of Arcelor Mittal's French Florange site; its Luxembourg Schifflange site's electric arc furnace and continuous caster "extended idling"; as well as a number of problems with assets in Spain and North Africa. Arcelor Mittal would have been allocated allowances for all of these sites, excluding the ones in Africa, which it may have decided to sell off while production at the plants has been halted.

Reasons for the surplus

Other factors contributing to the decision to sell allowances may have been the company's falling emissions and rising pressure on its business as Europe's economic woes continue. A weaker macroeconomic and market environment drove down the bloc's steel demand by around 9% in 2012, bringing the total decline since 2007, before the recession started, to 29%.

Arcelor Mittal expects that these difficult conditions will persist for its business in the region in the near and medium term and has thus revised its European business' value and resultant cashflow down.

While Arcelor Mittal sold off some allowances, emissions also declined in Q4 '12 as its crude steel production dropped by 8.3% from 5.7mt in Q3 '12 to 5.2mt in Q4 '12.

Large industrials such as Arcelor Mittal have been generally expected to hold onto their phase II surplus until the European Commission had confirmed the National Implementation Measures (NIMs), which outline how many allowances will be handed out for free in phase III to the sectors included in the ETS.

A final decision on the NIMs has been repeatedly delayed (see EDCM 28 January 2013), however, which may have prompted Arcelor Mittal and other companies to sell off some of their surplus in the interim. Marie-Louise du Bois

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