Steel Industry Energy & Value ChainsThe threat to CompetitivenessPresentation to the Consultative Committee on Industrial Change of the EESCBrussels 7 th May 2008By Ian Goldsmith, UK Public Affairs Manager, Corus

About Steel

• Ubiquitous– If not made of steel, it’s been made using steel

• Growing rapidly globally after a period of stagnation– But not in Europe

• Energy and CO2 intensive– Efficient processes

• Little further scope for significant improvement

– Need breakthrough technology to make a real difference

• Competitive market– Imports set the price floor

– But facing rapid cost escalation from raw materials and energy inputs

• Policy priorities discourage major investment in EU facilities

Steel is fundamental to modern society

• Recycling– steel is the most recycled material in

the world

• Transport– bicycles, trains, cars, lorries, ships

are all made of steel

• Energy– exploration and extraction,

transportation, refining, electricity production

• Water– extraction, transportation and

purification

• Housing and Construction– steel construction is time & energy

efficient

• Packaging– steel packaging is light, versatile and

recyclable

• Agribusiness– steel-based farm equipment essential

to modern farming

• Automotive– new steels reduce body weight with

compromising safety

• Communication– ballpoint pens to satellites

• By-product reuse– using slags reduces minerals

extraction and CO2 emissions

Steel is one of the solutions to a more climate frie ndly society

Steel SolutionsCarbon neutral housing

All new homes in the United Kingdom will have to be carbon neutral by 2016

Steel SolutionsNew generation vehicles

AHSS is predicted to be more than 50% of sheet stee l in cars in 2010 contributing a 5% reduction in total GHG emiss ions

Steel SolutionsWind turbines

Steel support for renewable electricity

Steel is in constant circulation, but a significant amount is ‘stored’ in society

Data: Hatch Beddows, IISI. Note: CAGR – compound annual growth rate

World steel productionstill growing fast by recent standards

0

250

500

750

1,000

1,25019

0019

0519

1019

1519

2019

2519

3019

3519

4019

4519

5019

5519

6019

6519

7019

7519

8019

8519

9019

9520

0020

05

Cru

de s

teel

, Kt

6.6%2000-061.4%1940-49

-0.4%1990-994.1%1930-39

0.9%1980-895.8%1920-29

2.6%1970-79-0.3%1910-19

5.8%1960-697.5%1900-09

5.3%1950-59CAGRs >4%pa?

1.8bn Tonnesby 2015?

Data YearValueIndicator

200020052006

29.6 Mt CO2

28.4 Mt CO2

29.4 Mt CO2

Direct CO2 emissions from Corus Group

20002005

330 Mt CO2

319 Mt CO2

CO2 emissions from EU (25) steel industry

20002005

1,442 Mt CO2

1,920 Mt CO2

Global CO2 emissions from steel industry

200026.3% 14.3% 13.6% 12.4%11.2%6.8% 6.2% 5.7% 3.5%

Global CO2 emissions (Ceq) by region: USA & CanadaWestern Europe

Communist East AsiaEastern Europe & Former Soviet States

India & Southeast AsiaAustralia, Japan, Pacific Ocean States

Central & South AmericaMiddle East

Africa

20008.8 Bt CeqGlobal CO2 emissions (anthropogenic) in C equivalent

200032.2 Bt CO2Global CO2 emissions (anthropogenic) 100 %

4 %

0.9 %

0.09 %

Year 2000

Business EnvironmentClimate change

Source: IPCC Report and IISI. 2000 data has been used to provide greater accuracy of information.

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 20000

200

400

600

800

hot blast temperature >1200 °°°°C

burden distribution

coal injection

improved sinter quality

oxygen enrichment

top pressure

oil injection and burden preparation

Red

uctio

n ag

ent c

onsu

mpt

ion

(kg/

t hot

met

al)

oil

theoretical minimum level of carbon demand

414 kg /t hot metal

coke

coal

Carbon as a reducing agent = non reduceable process emissions of blast furnaces

EU steelmaking has become more energy efficient

• -20% through dramatic improvement of material efficiency

1975: 71.5% 2005: 92%

Continuous casting; quality control; process management

• -14% through increase in scrap availability

1975: 55Mt/y 2005: 80MT/y

• -18% through improved BF management and concentration

Measurements; models; charging; high grade ores

• -6% through shift away from local C-bearing iron ores 40

50

60

70

80

90

100

1975 1980 1985 1990 1995 2000

CO2 emission per ton of finished productIndex 100 for 1975

Source: Eurostat/Eurofer

Incremental improvements limited: Technology change needed

>45% reduction in 15 years

<10% reduction in 10 years

Breakthrough technologyULCOS – Ultra-Low CO 2 Steelmaking

• Objective: to reduce CO2 emissions by 50% by 2050 compared to today’s best routes– 5 year project– €59m budget

• Equivalent of 60 man-years• Involving well over 100 people

– 48 companies and organisations from 15 European countries

– Funded by industry (56%) and the EU (44%)

– 80 options examined

– 4 process concepts selected for further development

– Next stage• to move to large-scale pilot• Potentially costing some €300m per technology

– Implementation?• Unlikely before 2020

ULCOS II:Top Gas Recycling Blast Furnace

Reduction of25 %

carbon input(= 15% for the whole plant: 270 kg CO 2/t)

Sinter, pellets

lump ore & coke

Dust

catcher

Export gas

Hot metal

and slag

25 - 1200°°°°CGas heater

CO2

removal

Coal &

cold oxygen

900 - 1000°°°°C

Tail gas

Product g

as

Ready for CCS

(800 kg CO 2/t)

Modification of blast furnace with gas recycling, CO2 removal & injection of oxygen

Depth > 800m to have CO2 behaving like a fluid. ( temperature < 31 °C and pressure > 73,83 bar) Capacity depends on: area, thickness and slope of the reservoir, appropriate cap rock, absence of faults, average porosity, permeability, Conflicts of use to be checked (ex: aquifer used for drinking water)

ULCOS II: Geological storage

Product prices are set globally

USA

Europe

Asia

0

100

200

300

400

500

600

700

1980

1983

1986

1989

1992

1995

1998

2001

2004

Data: Hatch Beddows, SBB. Note: USA: Midwest prices, fob mill. Europe: North European prices, ex-works. Asia: East Asian imports, c&f port.

All prices are annual averages in nominal terms

Yearly average HRC prices by region ($/t)

Indexed on 2001 pricesSource: CRU including 2008 forecasts for iron ore and coking coal, Thomson Datastream showing 2008 year to 29/01/2008 data for scrap, tin & zinc

50

100

150

200

250

300

350

400

450

500

'01 '02 '03 '04 '05 '06 '07 '08YTD

Raw material prices indexed to 2001

Scrap

Zinc

Iron ore

Coal

Tin

Steep increases in raw material prices

Shown prior to:>200% increase in coking coal prices>60% increase in iron ore prices

2222€€

1616€€

2626€€

4949€€

6060€€

8484€€

4646€€ 2424€€

5757€€

7070€€(1)

(1)

(1)

(2)

(3)

(3)

(3)

(3)

(3)

World Map of electricity prices (€/MWh)

Sources: (1) Presentation European

Aluminium Association HLG-Ad hoc 1 (Long Term Contracts) -2005

(2) TVO EPR R.Tarjanne and K. Luostaninen, LappeenrantaUniversity of technology (Long term contract) – 2003

(3) Platts Base load year 2007 (Platts 4 April 2006)�

(4) CEFIC

(3)

6060€€(3) 6767€€

(3)

< 20< 20€€(4)(4)

2525€€(4)

88€€(4)

UK Electricity costs Competitiveness gap with Europe

UK wholesale electricity pricesElectricity: €/MWh baseload, year forward

20

30

40

50

60

70

80

90

100

Feb-05 May-05 Aug-05 Nov-05 Feb-06 May-06 Aug-06 Nov-06 Feb -07 May-07 Aug-07 Nov-07

DE

FR

UK

Source: Reuters

UK power prices currently 20%

more expensive

Policy confusion?• Burden sharing under Kyoto Protocol

– 8% reduction in GHG emissions– But no targets beyond 2012

• EU Climate Change Policy– Target of 20% reduction in CO2 emissions by 2020 (30% if others take action)– Target for automotive CO2 of 130g/km

• EU Emissions Trading Scheme– Cap & trade system, implemented by Member States in different ways in Phase I– Move from free allocation towards auctioning post 2012

• Energy market/supply issues– Lack of a level playing field across Europe– The current liberalisation proposals may not be enough to fix the problem

• High Level Group on Competitiveness, Energy & Envir onment– Recognition that energy intensive industries in Europe are at risk.

Political Situation/Business EnvironmentEuropean position

EU ETSImpact on competitiveness of auctioning

Pot

entia

l max

imum

gro

ss v

alue

add

ed a

t sta

ke (

MV

AS

)an

d ne

t gro

ss v

alue

add

ed a

t sta

ke (

NV

AS

)

Cem

ent

Bas

ic ir

on &

ste

el

Lime

Fertilisers & Nitrogen

Alu

min

ium

Other inorganicbasic chemicals

Pulp &Paper

Malt

Coke oven

Industrial gasesNon-wovens

Refined petroleum

Household paper

Hollow glass

Finishing of textiles

Rubber tiers & tubes

CopperCasting of iron

UK GDP

Allocation dependent (direct) CO2 costs / GVA

Electricity (indirect) CO2 costs / GVA

Price increase assumption: CO2 = €20/t CO2; Electricity = €10/MWh

Flat glassVeneer sheets

0%

10%

20%

30%

40%

0.0% 0.2% 0.4% 0.6% 0.8% 1.0%

4%2%Pot

entia

l max

imum

gro

ss v

alue

add

ed a

t sta

ke (

MV

AS

)an

d ne

t gro

ss v

alue

add

ed a

t sta

ke (

NV

AS

)

Cem

ent

Bas

ic ir

on &

ste

el

Lime

Fertilisers & Nitrogen

Alu

min

ium

Other inorganicbasic chemicals

Pulp &Paper

Malt

Coke oven

Industrial gasesNon-wovens

Refined petroleum

Household paper

Hollow glass

Finishing of textiles

Rubber tiers & tubes

CopperCasting of iron

UK GDP

Allocation dependent (direct) CO2 costs / GVA

Electricity (indirect) CO2 costs / GVA

Price increase assumption: CO2 = €20/t CO2; Electricity = €10/MWh

Flat glassVeneer sheets

0%

10%

20%

30%

40%

0.0% 0.2% 0.4% 0.6% 0.8% 1.0%

4%2%

CO2 cost screen: Sectors potentially exposed under unilateral CO2 pricing

Hourcade et.al. Differentiation and dynamics of EU ETS industrial competitiveness impacts. Source: Carbon Trust

Global problems need global solutions

• Being “first mover” is not always an advantage

– If policy drives up costs locally, globally competing companies will lose out

– Customers decide to buy elsewhere• Manufacturers follow them• The more mobile the product, the quicker it will shift

– Competitors are becoming more sophisticated• Competition is no longer for basic products offered in bulk

• China is a large supplier of galvanised steel to the European market

» Now offering organic coated steels

Industry response to policy

• As long as it can remain competitive, industry will continue to:

– Drive down energy use

– Reduce CO2 emissions where possible

– Research new process technologies

– Develop new energy efficient product applications

– Invest in existing facilities

• Industry therefore needs policy solutions that will:

– Maintain competitiveness of EU-based companies

– Maintain industrial base in Europe

– Avoid encouraging CO2 migration (leakage)