While many steel consumers in the United States are puzzled by cap and trade and are waiting to see the final legislation before taking any official position, others are already expressing concern that they'll be forced to shoulder the financial burden as steel companies pass along higher energy prices.
With most steel products already at all-time highs, the thought of steel prices going even higher is overwhelming.
Steel plate producers, for example, slated cumulative increases of $470 a ton in the first six months of this year, putting June's spot market prices at $1,220 to $1,230 a ton, up nearly 63 percent since the start of the year. It's been much the same in the carbon flat-rolled market. In early April, spot market hot-rolled sheet prices hit a record $1,000 a ton, cold-rolled nearly $1,100 a ton and hot-dip galvanized sheet in excess of $1,200 a ton.
Representatives from the automotive industry say they have no choice but to pass higher steel prices on to their customers. "We acknowledge that there are concerns about CO2 emissions and we want to be part of the solution," said Charlie Territo, a spokesman for the Alliance of Automobile Manufacturers. "But if the price of steel increases, the cost of a vehicle will also increase."
Territo points out that the automotive industry is the only sector whose CO2 emissions are regulated due to a law passed this year that mandates that vehicles improve their miles-per-gallon efficiency. "The auto industry currently is the only carbon-constrained industry in the U.S.," he said. "We have to cut carbon emissions from our products by 30 percent."
The White House estimates that doing so will cost the automotive companies $114 billion through 2020. "It's not fair to ask an industry that is responsible for 20 percent of the total emissions to be 100 percent of the solution," Territo said, adding that auto plants are overwhelmingly powered by natural gas, a cleaner source of energy than coal.
The wind industry, which uses steel to build its massive turbines that in turn produce electricity, shares the auto industry's concerns about commodity prices. Still, it is hopeful that since wind energy is considered a clean and renewable energy resource it will flourish under a cap-and-trade system. "Yes, there's concern about rising commodity costs in general," an American Wind Energy Association spokesman said. "However, those costs also impact our competitors, such as coal and nuclear." Like the steel industry, the wind energy lobby is actively trying to influence the wording of the Lieberman-Warner bill.
Suppliers to the steel industry also are nervous. "We are the poster child for carbon emissions," said Larry Wolf, technical marketing manager of steel at Carmeuse North America BV, Pittsburgh. His company produces lime, which is used as a flux in purifying steel in the electric-arc furnace and the basic oxygen furnace. It also has important uses in the secondary refining of steel and in the manufacture of steel products.
Carmeuse North America is working to become more fuel efficient and is hoping the legislation will include some type of exemption for his company since, as with integratede steelmaking, carbon emissions are an inevitable part of lime production, he said.
Others are staying on the sidelines of the debate for now. The Precision Metalforming Association hasn't articulated a position on cap and trade yet, and several company chief executive officers declined to comment on the issue.