Coke and nickel keeping EU steel industry up at night

In total, the OFCE estimates that France could make €3 billion in revenue off this new tax, which would cost taxpayers three times less than Macron's previously proposed climate-energy contribution.

This article is part of our special report Raw materials in the EU economy.

The European Commission is considering removing coking coal from a list of critical raw materials. The steel industry, already facing difficulty importing the raw materials it needs, says this could spell disaster.

Europe’s steel industry is facing critical headwinds. Trade tensions between the EU and the Trump administration in the United States have put the sector in a world of uncertainty.

And a new, more obscure threat may be looming around the corner – a loss of raw materials critical to the production of steel.

Donald Trump’s decision to slap 25% tariffs on foreign steel last year has already hobbled European steelmakers, who are struggling with a glut of steel they can no longer export.

The European Commission has put in place “safeguard” measures to stop the glut by limiting incoming steel that is being diverted from the US market. But the steel industry says it has not been effective.

Lakshmi Mittal, CEO if steelmaker ArcelorMittal, told the German newspaper Frankfurter Allgemeine Zeitung earlier this year that there are around 500 to 550 million tonnes of overcapacity in the steel industry – a quarter of global steel production.

According to Mittal, this shows the EU measures aren’t working. “Further measures are urgently necessary given the import tariffs US President Donald Trump has imposed on steel imports to the United States,” he said.

“The EU’s safeguard clauses have gaps – it’s too easy for exporters to evade them and the impact is massive: we have a steel glut.”

The problem, the European steel industry says, is that much of the overcapacity is the result of state subsidies in Asian economies. Those subsidies can come in curious forms. For instance, the EU believes Indonesia is giving its steel imports into Europe an unfair advantage by restricting the export of the raw materials used to make steel.

Nickel competition

Nickel ore, used in the production of stainless steel, has also come into focus. Indonesia has massively increased its production of stainless steel in recent years, taking advantage of the fact that it mines about a quarter of the nickel ore in the world.

The situation has become so serious that last month the European Commission launched a complaint against Indonesia.

“EU steel producers are under a lot of pressure and are suffering from the consequences of global overcapacity and unilateral trade restrictions,” said Cecilia Malmström, EU trade commissioner at the time.

“The export restrictions imposed by Indonesia put further jobs in the EU’s steel industry at risk,” she said.

The European steel industry says Indonesia is using the nickel export restrictions to undercut them. “Indonesia is sitting on vast quantities of nickel, they’ve set up an entirely export-oriented stainless steel industry,” says Aurelio Braconi, senior raw materials manager at European steel industry association Eurofer.

He says the Indonesian steel is flooding into the European market at cut-throat prices because of the country’s access to nickel. The situation shows just how critical raw materials can be.

“We have a double exposure,” he explains. “We don’t have enough resources in Europe and we don’t have the possibility to compete.”

Indonesian stainless steel exports have gone from almost nothing two years ago to becoming the second largest exporter worldwide and the largest to the EU. All the while, it is implementing strict control over the export of nickel ore, making it harder for other countries to produce stainless steel.

The country’s capacity is expected to expand to more than 11 million tonnes by 2025, even though its internal market demand was estimated at just 200,000 tonnes in 2018.

The Commission’s safeguard exercise is monitoring the situation on the steel market. But at the time it was launched two years ago, Indonesia wasn’t exporting stainless steel, so the country hasn’t been included.

“The market conditions changed so fast, so every instrument set up by policymakers should be adapted to have an update when needed for raw materials,” says Braconi.

Coking concerns

Nickel ore isn’t the only raw material the European steel industry is struggling to procure. Coking coal, which is used to produce steel in an oxygen furnace, is also mostly imported. This specific type of coal is a very small proportion of the overall coal that is mined. But it’s essential to the steel-making process.

Because it is both so essential and so scarce in Europe, the European Commission has placed it on a list of “critical raw materials”. But in 2017, the Commission moved it to a list of “borderline” materials that may be removed at a later stage.

Now, the steel industry worries it could be removed altogether when the list is updated in March next year. “Coking coal for the steel industry in the short term is still a critical material,” says Braconi. “Maybe in the next 10 to 15 years there could be new technologies to replace it, but for now we need it.”

Poland is the only place in Europe that is mining coking coal in any significant capacity, although there is also a small mine in the Czech Republic. The vast majority is imported from elsewhere in the world. And with trade tensions and economic trends threatening raw materials supply, a sudden shift in the import situation could mean steel is no longer available for European construction.

Europe waking up to raw materials ‘criticality’

Access to critical raw materials used in digital and clean technologies was labelled as “a strategic security question” in a European Green Deal unveiled today (11 December). A new industrial policy is expected to complete the picture next year.

Already, the industry says there has been a decoupling of  raw material market dynamics from supply and demand. “Previously raw materials would fall with falling demand,” says Braconi. “In recent months we’ve seen prices of steel collapse even as raw materials prices remain high.”

China is the largest producer of coking coal, accounting for more than half of global supply. Australia produces 15%, and Russia and the United States 7% each. EU production of coking coal accounts for just 1% of world production. Most EU imports of coking coal come from Australia, Russia and the United States.

JSW, a Polish company mining the material, is urging the Commission not to remove coking coal from the list.

“Taking into account the growing demand for steel, the demand for coking coal will increase significantly,” the company says. “Bearing in mind the significant CO2 emissions from coking coal imported from distant countries, it should be crucial to secure a stable, reliable domestic production meeting the European environmental standards.”

“We strongly urge the European Commission to maintain coking coal on the critical raw materials list.”

As the steel industry faces multiple headwinds, the sector is hoping that these issues will be addressed in the industrial strategy to be adopted in March. That strategy is expected to revise the critical raw materials policy. The result of that revision could have a significant impact on European steel.

Breaking new ground: The EU’s push for raw materials sovereignty

A new pro-mining investment policy, more free trade deals, and an incoming “geopolitical” European Commission signals the EU will stake more claim on critical raw materials.

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