Ferro-chrome sector signs up to decarbonization agenda | LME Week 2021

The ferro-chrome market is facing growing pressure to decarbonize from downstream, with the need to cut carbon emissions becoming increasingly accepted among producers, traders and consumers

By Janie Davies and Jon Stibbs

Alloys are not currently included in the Carbon Border Adjustment Mechanism (CBAM) - the European Commission’s flagship policy to lower carbon emissions and defend domestic industries such as steel from external producers that do not need to allow for their emissions.

But upstream emissions for imported goods could also be added with products included in CBAM via amendments of the proposal through the European parliament and council, according to market sources.

This could potentially allow the inclusion of ferro-alloys including ferro-chrome, according to industry sources, who anticipate the scope of CBAM will be widened.

At present, the pressure for lower emissions in the ferro-chrome market comes from the wider decarbonization agenda, rather than CBAM itself. But CBAM will put more pressure on companies further up the supply chain.

Direct emissions (known as scope 1 in CBAM documentation) from steel are included in the current CBAM scheme. This means steel importers will need to buy carbon certificates corresponding to the carbon price that would have been paid if the goods had been produced under the EU’s carbon pricing rules, the EC explains on its website.

Should the scheme be broadened in future versions of CBAM, imports of ferro-chrome could fall into the same system, meaning the cost of ferro-chrome sold in Europe would increase in accordance with its carbon emissions.

“[If] a non-EU producer can show they have already paid a price for the carbon used in the production of the imported goods in a third country, the corresponding cost can be fully deducted for the EU importer,” the EC said.

This would give an advantage to producers that already pay for the carbon emitted in their production, and incentivize decarbonization measures among alloy producers outside Europe.

“As the situation is now, I could easily foresee that the carbon certificate cost will be passed to the European buyer,” a ferro-chrome producer told Fastmarkets. “The carbon certificate cost will have a major cost effect on a product’s value.”
But the implications of adding to the costs of domestic steel producers by increasing feedstock prices, may run counter to the intention of cutting carbon emissions, according to some sources.

This runs the risk of weakening the competitiveness of steel producers in Europe and potentially lead to carbon leakage if production moved out of Europe, according to an industry source.

Should this occur, it would directly oppose the EC’s goal of CBAM to fight climate change and prevent the risk of carbon leakage.

Additionally, it would be complicated to validate footprint data of non-European feedstock under the current proposals, which could underestimate the footprint of foreign ferro-chrome.

Pressure to lower emissions
Pressure is growing on ferro-alloy producers to reduce their carbon emissions from end consumers and other sources, according to market participants.

End consumers and downstream manufacturers could choose to only work with companies that prioritize decarbonization, creating an advantage for those who do, a ferro-chrome supplier source said.

“Although alloys are not included in CBAM, South African producers already pay a carbon tax levied by the South African government and it’s increasing every year. It could become a competitive advantage for South African ferro-chrome producers,” he said.

Regions can be expected to roll out incentives for ferro-chrome producers to cut their carbon emissions as the decarbonization agenda gathers pace internationally. These policies could take different forms.

“There could be a premium - or adjustment - for companies to do a proper job in managing their environmental footprint. There should be an incentive for the right behavior and there should be no discounts for cutting corners. Regions need to watch out that they don’t get left behind,” the source added.

“I don’t think we should even call it a premium - we should call it a feature,” he said.

Gaining finance
Some lenders are already inquiring about the carbon emissions of potential borrowers, according to sources. As a result, traders, for example, report needing to lower their emissions to gain credit.

“Carbon-neutral status is being talked about in respect of gaining finance. Lenders will ask about your carbon status and you are more likely to get finance if you are reducing emissions,” one trader in Europe said. “In response, we are seeing a shift towards reducing carbon emissions where possible, such as in our means of transportation.”

Carbon-cutting initiatives
The steel industry is subject to high emissions costs and, as a result, some mills plan to introduce carbon surcharges, as well as modernizing their equipment to produce green steel.

Ferro-chrome producers looking downstream have begun to implement their own initiatives to cut emissions.
There are expectations that the market will need to lower its carbon footprint in advance of the implementation of legislation designed to encourage lower emissions, such as CBAM.

“I believe CBAM is going to push the whole industry. It will definitely factor into our upcoming projects/initiatives,” a spokesman for Yildirim Group told Fastmarkets.

Yildirim Group has already set about installing a solar power plant for its Eti Krom ferro-chrome arm, which will reduce its total energy consumption by 12% when completed in the second quarter of 2022.

“For the past two years, environmental sustainability has been our key driver for [carbon dioxide] emission reductions and also water/waste management. And our environmental sustainability strategy focuses on developing a better/clean future for our planet by minimizing our impact on climate, soil and water,” the company said.

The International Chromium Development Association (ICDA) has developed a scheme to recognize companies that are already leading the way in responsible sourcing and practicing the highest corporate responsibility, including limiting their environmental impact.

“The Responsible Chromium label is an official recognition that certifies a company has reached a certain standard of compliance in the fields of environment, labor and human rights, ethics and sustainable procurement,” a spokesperson for the ICDA told Fastmarkets.

The top award winner was Outokumpu, which reports producing the lowest carbon ferro-chrome in the world. The company uses its own patented furnace technology and can draw on hydro, and other renewable and nuclear power.

London metals week remains a key milestone in the commodities calendar. Find out why it’s still a big draw for the world’s commodity trading community, and discover our special LME Week 2021 coverage on key commodities such as nickel, lead, tin and lithium.

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