INTERVIEW: Energy debate crucial for future of German steel, Kerkhoff says

Maintaining energy discounts is key to a competitive German steel industry, Hans Jürgen Kerkhoff, president of national steel federation WV Stahl, told Steel First in a recent interview in Germany.

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Following a long debate, the German parliament is scheduled to vote on Friday June 27 on a reform of the renewable energy act (EEG). This includes a discount for energy-intensive industries in international competition, including steelmakers.

“The current debate on energy is crucial for the future of the German steel industry,” Kerkhoff said on the sidelines of the the 4th International Conference on Steels in Cars and Trucks, in Braunschweig.

High energy costs
In the race to meet targets for the use of renewable energy by 2020, Germany has been pushing fast and hard to pass its reformed EEG into law by August 1, 2014.

But the country’s steelmakers, which face some of the highest costs for energy in Europe, are worried about falling behind their competitors if the energy-tax discounts previously afforded to them disappear from the renewed EEG.

“Energy costs are not just about price; the costs are high in Germany due to support for renewable energies,” Kerkhoff said.

“The energy costs of the steel industry nearly doubled between 2003 and 2013, and if the current discounts offered to industry are taken away, costs would nearly double again,” he said.

Global steel producer ArcelorMittal is paying €30 million ($41 million) more for energy each year at its 7 million-tpy German operations, compared with counterparts in the rest of Europe. This is despite a discounted surcharge provided for by the EEG, the head of ArcelorMittal’s German facilities told Steel First at the end of 2013.

Debating discounts
The European Commission started an investigation into the German renewable energy tax discount in December last year.

In April this year, the German ministry of economic affairs and energy said that it had agreed with the Commission that the discounts do not violate European Community rules on state aid.

Having already drafted the reformed EEG before the Commission arrived at its decision, the German parliament started in early May to debate an amendment to the new law which would maintain the discount for energy-intensive industries such as steelmaking in international competition.

More dispute was caused, however, by a provision in the amendment concerning tax discounts for industries which generate their own power.

On June 25, the ministry of economic affairs and energy confirmed that changes had been made to the legislation, raising the tax surcharge for industrial groups generating their own power to a level higher than was previously discussed.

Such measures would affect, for example, German steelmaker Salzgitter, which since 2010 has invested €270 million ($368 million) in its flat steel subsidiary Salzgitter Flachstahl, to generate electricity out of by-product gases from its coke plant and blast furnace.

“Frankly, I do not know if the end-result will be positive,” Kerkhoff said of the upcoming vote in the German parliament.

Staying competitive
The WV Stahl president emphasised that the principal reason to maintain the discounts is to keep the German steel industry competitive within the EU.

“We are not asking for political measures [with the discounts], we are asking for free and fair trade,” Kerkhoff said.

However, the German steel sector is already faring better than its counterparts in many other EU countries, he added, thanks to a strong industry and close relations “within a highly differentiated value network where universities and research institutes also play a role”.

“The German steel industry will reach the pre-crisis [of 2008] level by 2015, while the EU steel industry as a whole will still be 25% below pre-crisis levels,” Kerkhoff predicted, noting however that there are large differences between regions and products.

Total crude steel production in the EU’s largest producing nation, Germany, increased by 7.3% year-on-year to 3.9 million tonnes in May 2014, according to the latest data from the World Steel Assn. The figures compared with falling output in France, Italy and Spain, and a global growth average of 2.2%.

Global issue
While Germany and Europe are not isolated from global competition, with imports also posing a threat to the region’s steelmakers, the imposition of taxes on steel products coming in from outside the EU is not a viable option, according to Kerkhoff.

“I do not see a discussion on carbon taxes for steel imports into the EU happening, and from my point of view there is no need for such a measure,” he said. “Increased protectionism could lead to a global distortion of the steel trade.”

Curbing pollution among steelmakers is not only a German or European undertaking, however.

US steelmakers are setting up new production units for direct reduction iron (DRI), including Nucor’s recently commissioned plant in the state of Louisiana, to ride the wave created by the cheap and less-polluting shale gas fuel option.

And the Chinese government in Beijing passed amendments to its environmental protection law in April which created tougher penalties for polluting companies, with implications particularly for steelmakers using coal-burning blast furnaces.

In Europe, meanwhile, the entire steel industry may face exponentially higher CO2 emissions costs in Phase 3 of the European Emissions Trading Scheme (ETS), delegates heard at Metal Bulletin’s 20th International Iron Ore Symposium in Stockholm, Sweden, on June 25.

While margins continue to be squeezed across the European steel sector, it seems that German steelmakers are not the only ones that will increasingly need to include the social costs of pollution into their calculations for costs of production.

“Energy policy has become a game-changer for the industry,” Kerkhoff said.