As if uncertainty over future energy prices
weren't enough to worry about in recent years, metals industry
analysts must now mull the potential impact of a possible
carbon tax. One thing is certain, though the steel industry, in
particular, has reduced its energy consumption.
Energy consumption has dropped to 13 million
British thermal units (mmBtus) per ton of steel produced,
according to the American Iron and Steel Institute, down more
than 27 percent since 1990 and more than 60 percent since 1970.
Just how evenly the reductions are spread throughout the
industry might be another matter, however.
"I don't think that the integrated mills have
come down that much," Charles A. Bradford, president of
Bradford Research/Soleil Securities Inc., New York, said. He
gives credit for the overall decline in emissions to electric
furnace mini-mills, which he estimated emit roughly 1 ton of
carbon for every ton of steel produced vs. 3 tons of carbon per
ton of steel for integrated producers.
Not surprisingly, this view is supported by
the president of the trade association most associated with
mini-mills, the Steel Manufacturers Association, which
estimates that electric-arc furnace mills use just one-quarter
to one-third of the energy required by equivalent integrated
mills. But SMA president Thomas A. Danjczek said that EF
producers' costs are being continually pressured upward, and
during the past two years electricity prices for the average
SMA member have probably amounted to a minimum of $7 per
shipped ton while natural gas costs have nearly doubled,
tacking on another $10 a ton.
In the primary aluminum industry, there's
even more doubt as to how competitive U.S. producers can remain
in the years ahead. Lloyd T. O'Carroll, metals equity analyst
at Davenport & Co LCC, Richmond, Va., noted that, globally,
the median price paid for electricity is $27 per megawatt hour,
well below the $75 per MWh at some U.S. sites, even though
certain domestic plants are paying in the mid-$30- to
$40-per-MWh range, rates that he views as "competitive." (This
doesn't include Canadian producers like Alcan Inc., Montreal,
which enjoy world-class low-cost hydropower.)
But O'Carroll points out that a crucial
question is how much more a U.S. producer, who might be paying
$35 to $40 per MWh today, will be paying over the longer term.
Moreover, forecasts must now include not only the more
traditional factors, such as the effect of rising coal prices,
but a shifting reliance in future years toward natural
gas-based power, which will help boost blended average power
costs, and the cost of environmental cleanups. And today
there's also the more recently emerging issue of a possible
Indeed, a growing number of analysts seem to
agree that energy's impact on the metals industry is now likely
to go beyond price and supply forecasts for natural gas,
electrical power and coal.
James Moss, a partner at First River
Consulting LLC, Pittsburgh, said that unlike in the United
States, the idea of carbon mitigation is no longer considered a
peripheral concept in other developed nations.
"People look at the carbon content" of
manufactured goods in Europe, Moss said, suggesting that it's
likely that one day this could be the case here. "It's not yet
an issue for the steel industry, but it could very well be one
in future legislation. With an industry that's been making the
kind of money that it's been making, and the environmental
impact that it has, it won't take too long for politics to find
Nick Sowar, a partner at Deloitte &
Touche LLP in Cincinnati, sees continuing pressure to take down
inefficient front ends, and believes that concerns about energy
will help to accelerate this trend. "We're going to see a more
international approach to where melting takes place," he said,
citing the combination of Mumbai, India,-based Tata Steel and
Corus Group Plc, which could result in the latter's European
operations importing more semifinished feedstock. There's also
the expected shift of global front-end production to such
resource-rich countries as Brazil.
In the United States, the Sparrows Point,
Md., facility being divested by Mittal Steel USA Inc. comes to
mind "as a great location to be bringing in semifinished
product" due to its coastal location.