Latest market news

Chinese steel investment needs to avoid lock in: CBI

  • Market: Hydrogen, Metals
  • 15/10/24

Chinese investment in steel assets needs to be aligned with a Paris-compatible scenario to avoid locking in emissions and stranded assets, according to a report by non-profit Climate Bonds Initiative (CBI).

Almost 80pc or 730.8mn t/yr of China's existing coal-based blast furnace capacity will need to be retired or require reinvestment by 2030, CBI said in its report released last week. Steel asset lifetimes often exceed 40 years, so "investment decisions made today can lock in billions of tons of emissions and potentially billions of dollars in stranded assets", CBI added.

Steel production currently accounts for around 8pc of global CO2 emissions, and almost 50pc of global steel output is from China, CBI said. China's steel sector is estimated to require at least 1.6 trillion yuan ($226bn) in fixed asset investment for decarbonisation by 2050, according to a joint report by CBI and US-based Rocky Mountain Institute (RMI) earlier this year. Of the Yn1.6 trillion, 33pc should go to energy efficiency, 23pc for electric arc furnaces, 18pc for direct iron reduction (DRI), 14pc for carbon capture, utilisation and storage (CCUS), 7pc for blast furnace hydrogen injection, and 5pc for pellet manufacturing.

Green bonds

Steel companies can obtain financing through labelled green bonds from various categories at the project level, including energy efficiency, heat recycling, waste and resource recycle, green hydrogen, biomass, and CCUS.

A total of Yn4.46 trillion of labelled green bonds had originated from China in domestic and overseas markets as of the end of 2023, according to CBI. But Chinese steel firms had only issued 23 green bonds totalling Yn3.5bn and six sustainability-linked bonds totalling Yn1.6bn by the end of last year, representing 0.1pc of the total Chinese labelled bond market. This Yn5.1bn falls very short of the estimated Yn1.6 trillion needed to decarbonise the Chinese steel sector.

CBI asserts that the labelled bond and loan market can supply the required capital, but issuers operating in the steel sector must be encouraged to price deals with the recommended transparency and credibility.

Recommendations

Several Chinese provinces have already issued provincial-level transition finance guidance, including major steel-producing Hebei province this year. But China's national-level transition finance guidance remains under development.

CBI thus recommends that the national transition taxonomy further align provincial guidelines and "enhance interoperability" between Chinese and international transition taxonomies, incentivise low-carbon production methods, customise financing for small-to-medium companies, and enhance entity-level transition plans.

CBI also suggests that banks incentivise companies to enhance the quality of their information disclosure and integrate such incentives into their transition frameworks. The non-profit also urged steel companies to issue credible transition plans, which should include Paris-aligned emission-reduction targets and clear capital expenditure plans.

Lastly, CBI notes that policies should support hydrogen infrastructure and supply chain development to accelerate green hydrogen deployment for high-emitting sectors. This is especially as current financing to decarbonise heavy industrial sectors have mainly been for mature technologies, such as raising energy efficiency. But green hydrogen can reduce over 90pc of steel production emissions, and steady development in hydrogen infrastructure and supply chain will cut costs and accelerate the steel transition.

CBI also flagged public sector steel procurement as an avenue through which the country can boost demand for green steel, especially since Chinese public authorities buy about 350mn t/yr of steel, which causes around 689mn t/yr of CO2 emissions. Green public procurement (GPP) policies in China would also have a global impact, with steel public procurement demand in China three times that of India's total steel demand of 100mn t/yr. CDI suggests that the Chinese government accelerate adopting national-level standards to ensure consistent embodied emissions reporting, as GPP policies will only be effective when implemented with standardised methodologies.


Sharelinkedin-sharetwitter-sharefacebook-shareemail-share

Related news posts

Argus illuminates the markets by putting a lens on the areas that matter most to you. The market news and commentary we publish reveals vital insights that enable you to make stronger, well-informed decisions. Explore a selection of news stories related to this one.

News
01/11/24

Mexican hydrogen regulatory efforts gain ground

Mexican hydrogen regulatory efforts gain ground

Mexico City, 1 November (Argus) — The Mexican hydrogen association (AMH2) has made significant strides in recent discussions with regulators and officials, unveiling a comprehensive roadmap for industrial hydrogen adoption. The group's report estimates there will be demand for about 392,189 tonnes (t) of hydrogen per year across seven major industries during Mexico's pilot hydrogen development phase. This includes sector-specific hydrogen demands of 148,350 t/yr from oil refining through 10 potential applications; 107,325 t/yr for mining; 55,877 t/yr for hydrogen blending in natural gas; 23,932 t/yr in the metals industry; 35,040 t/yr tied to ammonia production; 15,265 t/yr for public transport; and 6,400 t/yr for methanol production. AMH2's strategy urges the administration of President Claudia Sheinbaum to designate a lead ministry for hydrogen development, prioritize green hydrogen production and introduce incentives for project financing, technology development and energy transition initiatives. Additionally, it calls for regulatory adaptations to facilitate hydrogen's integration into Mexico's natural gas infrastructure, including quality, transportation, distribution and safety standards, especially for industrial equipment. Legal reforms to support hydrogen development will also be needed, according to the report, targeting laws governing mining, water, hydrocarbons, nuclear energy, energy transition, environmental protection, electric power, bioenergy and geothermal power. For green hydrogen — generated with renewable energy — the focus would be on the latter five areas. These efforts align with Mexico's long-term energy plan (Prodesen 2023-2037), which envisions converting 12 combined cycle power plants, totaling 1.024GW, to operate on a 70pc natural gas and 30pc hydrogen blend between 2033 and 2036. AMH2 president Israel Hurtado said although Mexico's pipeline infrastructure could handle up to a 15pc green hydrogen blend, achieving a 30pc blend would require further technological advances expected over the next decade. Prodesen also identifies regions for hydrogen injection into pipeline networks, including Sonora, Sinaloa, Tamaulipas, Oaxaca, Veracruz, Baja California and the Yucatan peninsula. Yet new regulations will be crucial to establish a robust framework for hydrogen blending in existing infrastructure. The Sheinbaum's administration has committed to reducing carbon emissions and promoting clean energy, Hurtado said, with a $13.5bn investment pledge in renewables over six years and a target for 45pc of national power from renewables by 2030. AMH2 has built early connections with Sheinbaum's team, including Jorge Islas, her energy and climate advisor during the campaign, who now heads the energy ministry's (Sener) energy transition unit and supports green hydrogen initiatives. AMH2 leaders also recently met with energy regulator (CRE) president Leopoldo Melchi and commissioner Walter Jimenez, who expressed strong interest in hydrogen regulation. The association and CRE agreed to form a technical workgroup to develop clean hydrogen regulations collaboratively. Looking ahead, AMH2 plans to meet with energy minister Luz Elena Gonzalez and Mexico's economy ministry to further discuss the hydrogen strategy. But CRE's workgroup is on hold pending potential legislative reforms that could reorganize Mexico's energy regulators under Sener's supervision. Projects in development AMH2 has identified 16 hydrogen projects in Mexico, with eight in various development stages and eight announced. Primarily focused on green hydrogen, these projects represent an estimated $19bn investment. The largest, Helax, is a $10bn green hydrogen production facility in Oaxaca, connected to the Interoceanic Trans-Isthmus Corridor. AMH2 anticipates production to start within two years following initial permitting. The roadmap suggests that, even if only six projects are operational by 2030, the sector could generate 3.351GW and attract $1.8bn in investments. These projects are projected to bring in $2.5bn in revenue over six years and yield $1.9bn in tax contributions. By James Young Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Find out more
News

Striking Boeing workers to vote on new proposal


01/11/24
News
01/11/24

Striking Boeing workers to vote on new proposal

Houston, 1 November (Argus) — Boeing workers next week will vote on a third labor proposal from the aerospace manufacturer that could end a seven-week work stoppage that has halted production of several commercial aircraft programs. More than 32,000 Boeing employees represented by the International Association of Machinists and Aerospace Workers (IAMAW) will cast their ballots on 4 November after union leadership and the company struck a tentative agreement on Thursday. The new offer comes with a 38pc general wage increase (GWI) spread over four years and a $12,000 ratification bonus — both up from 35pc and $7,000, respectively, from Boeing's previous proposal that workers rejected on 24 October. Sticking points during contract negotiations have centered around pay raises, with workers seeking a 40pc GWI, and the reinstatement of employees' pension plans. The latter is not addressed in the company's latest offer. Boeing's machinists have been on strike since 13 September, putting a squeeze on the company's finances with output of its flagship 737 MAX aircraft stalled. Production of Boeing's 767 and 777 models also has been disrupted. If the deal is approved, the earliest workers could return to their jobs would be 6 November, with everybody having to be back by 12 November at the latest, the union said. By Alex Nicoll Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

US job growth slumps in October, jobless rate at 4.1pc


01/11/24
News
01/11/24

US job growth slumps in October, jobless rate at 4.1pc

Houston, 1 November (Argus) — The US added only 12,000 nonfarm jobs in October, reflecting the impacts of two hurricanes, a strike at aircraft manufacturer Boeing and a slowing trend in hiring prompted by high borrowing costs. The unemployment rate remained unchanged at 4.1pc, still close to a five-decade low of 3.4pc reached in early 2023, the Labor Department reported today. Last month's gains were far fewer than the 113,000 forecast by analysts surveyed by Trading Economics. Job gains for the prior two months were revised down by a combined 112,000 jobs, leaving September with a still robust 233,000 and August with 78,000 jobs. A Labor Department report earlier this week showed job openings in September were at their lowest since January 2021. Still, job gains for the 12 months through October averaged 194,000, a little higher than the 12-month period before Covid-19 struck the US beginning in early 2020, causing millions of job losses and a sharp but short recession. Today's employment report, the last before next week's US presidential election, cements odds of a quarter point cut in the Federal Reserve's target rate next week to nearly 100pc from about 96pc Thursday, according to CME's FedWatch tool. The Fed cut its rate by half a point in late September, the first cut since 2020, as it is just beginning to loosen monetary policy after the sharpest tightening in decades to battle surging price gains. Inflation has since moved close to its 2pc target and job gains have gradually slowed, even as the economy remains robust, growing by nearly 3pc in the second and third quarters of the year. Hurricane Helene made landfall in northern Florida in late September and slammed northwards into Georgia, the Carolinas and Virginia, leaving major damage in its wake. Hurricane Milton struck Florida on 9 October, within the period of both surveys used for the job report. About 32,000 unionized workers at Boeing have been on strike since early September. Job growth trended up in government and in health care and social services, which added 40,000 and 51,000, respectively, while manufacturing declined by 46,000, partly due to strikes. Construction added 8,000 jobs. Average hourly earnings edged up to an annual 4pc from 3.9pc. By Bob Willis Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

First northwest European HRC options trade on CME


31/10/24
News
31/10/24

First northwest European HRC options trade on CME

London, 31 October (Argus) — Options contracts settled against the Argus northwest European hot-rolled coil (HRC) index traded today for the first time since their launch on the CME Group exchange more than two years ago. An option on the northwest European HRC contract on CME (EHR) traded today at a premium of €20/t for the right to buy a strip for the first quarter of 2025 (50 lots or 1,000t of January, February and March) at €700/t. Options are a financial contract offering the right, but not the obligation, to buy or sell an underlying asset — in this case the EHR futures contract — for a specific price at a specific point in time. The right to buy is called a call option; the right to sell a put option. The buyer pays a premium to have this right, which is typically used to protect against an adverse market move. The Argus northwest European HRC index stood at €558.75/t on Wednesday, while the January-March futures contracts are currently trading at about €620/t, putting the call option above the current spot market price and forward curve for the contracts in question. Market participants suggested the trade could be part of a ‘short collar' strategy, in which someone who is ‘long' on the underlying futures contract (trading on anticipation of an upwards move) buys a put option (the right to sell at an agreed price) to protect their long position for a premium, but then sells a call option to receive a higher premium to offset the cost of the put. CME Group launched the EHR futures contract in March 2020. Since then more than 3.6mn t of steel futures have traded, with more than 1mn t this year alone. Open interest — a measure of liquidity measuring the volume of open contracts — currently stands at a record high of more than 230,000t. Options were added in May 2022. Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

Q&A: EU-GCC eye alliance anchored in energy, security


31/10/24
News
31/10/24

Q&A: EU-GCC eye alliance anchored in energy, security

Dubai, 31 October (Argus) — Russia's invasion of Ukraine in 2022, and the start of the war in Gaza last year hastened the strengthening of relations between the EU and the Gulf Co-operation Council (GCC) ꟷ something both blocs had long been striving for. Argus sat down with the EU's special representative for the Gulf region and former Italian foreign minister Luigi di Maio at the Future Investment Initiative in Riyadh this week to discuss his hopes for the future of the relationship. You spoke at the conference about a comprehensive EU-GCC trade agreement. Such a thing has been on the table for a while without really moving forward. Could the first ever EU-GCC summit two weeks ago in Brussels provide the push needed for it to happen? The final statement of the summit clearly emphasised the importance of finalising the negotiation in a positive way, and reaching the free trade agreement at a regional level as soon as possible. Then we can start tailor-made negotiations on trade and investments. This can work in complementarity with the free trade agreement, for instance, on investments and energy co-operation bilaterally. This doesn't mean we are going to kill the free trade agreement at the regional level, but there are some sectorial co-operations that we can implement. This is a very good starting point. I would say the summit was ‘the message' because although our co-operation agreement dates back to the late 1980s, it was the first ever summit. Of course, that also testifies to the gap that we have to fill. This is why the EU approved the new strategy and why there is a special representative to implement this strategy. And why we are working with the Gulf countries to negotiate and implement [it] as soon as possible. Riyadh is where we opened the first ever European Chamber of Commerce in the GCC. The EU and Saudi Arabia are going to sign an energy co-operation MoU by the end of the year. The text has been discussed, and now we will work for the signature. What are the elements of this energy agreement with Saudi Arabia? It is a new framework to co-operate, particularly, on renewables, hydrogen, and technologies linked to renewables. This is very important, and currently in the hands of the EU commissioner for energy, Kadri Simson, and Prince Abdulaziz bin Salman, the energy minister of Saudi Arabia. Speaking of hydrogen, Prince Abdulaziz spoke here about Saudi Arabia being one of the lowest-cost producers of hydrogen. We also know that hydrogen is a major element of the India-Middle East-Europe Economic Corridor [IMEC] agreement signed at the G20 summit in New Delhi. Is the IMEC project still on the table? And is this growing hydrogen relationship between the EU and the GCC part of it? First, the lesson we, the EU, learned is diversification. So, it's very important to implement our diversification policy on any kind of energy source. It is not only linked to oil, gas or hydrogen, or in general, technologies, raw materials and production. Then there is the issue of how much we can count on the suppliers. The Gulf countries like Saudi Arabia, the UAE, Qatar and others have always been reliable partners. This is why we see the energy co-operation as a pillar of our partnership. On hydrogen, there is a mutual interest to meet our ambitions. Our ambition, according to the European Commission's REPowerEU proposal, is for the EU to produce 10mn t of hydrogen on its soil by 2030, and import another 10 mn t. Saudi Arabia, the UAE and Oman are working with our companies and member states to export hydrogen to Europe. And I think the development of technologies and new projects around that will be at the core of our future co-operation. If you look at Vision 2030, here in Saudi Arabia, but even in the UAE and in the other countries, many of the goals are in line with our REPowerEU, NextGenerationEU, or the European Green Deal proposals. So there is momentum, and we are taking it. We are trying to fill the gap of the past. And the very important thing, not only about hydrogen, but even about the climate co-operation that is in our final statement [of the EU-GCC summit], is that it's not an "Una tantum" [one-off] event. We are working to have the ministerial foreign ministers' meeting in Kuwait next year and the next EU-GCC summit in Saudi Arabia in 2026. We have a long road ahead to implement the deliverables of the last summit, but also to improve our co-operation on renewables. There was a significant breakthrough at Cop 28 with the mention of fossil fuels in the final declaration. Do you see the growing EU-GCC relationship as a leverage to push GCC countries on their climate agendas and goals? The approach should not be that we push them on their climate agendas. We are working together. And thanks to the multilateral relations, ambitions and policies that we have, we can, even in view of Cop 29, co-ordinate in the same way we did at Cop 28. This is very important, because thanks to their influential foreign policy, on Africa, on central Asia, even sometimes on Latin America, and our ambitions and partners around the world, we can merge our relations to take another step forward on climate policy. But as you said, Cop 28 was historic, as consensus was the most ambitious result of the UN climate Cops, and I think we have to continue on this path together. It is not a matter of pushing someone. It's a matter of co-operation. Our level of partnership with GCC has to switch at a strategic level. We want to create a strategic partnership on peace and prosperity. This is our agreed ambition on both sides. Speaking of peace and prosperity, Iran is involved indirectly in the Russia-Ukraine conflict, and its direct confrontation with Israel leaves the GCC sandwiched in the middle. How do you see the EU working with the GCC to attain peace and prosperity, given the increased insecurity in the region? We share with the GCC the interest of peace, prosperity and stability of the region. Because if you look at these countries, what are they doing on Ukraine, like returning children and prisoner exchanges… They are very active, and we appreciate their efforts. So my perception is that the more we work with the GCC on regional stability, the more we will achieve results, because we have a common agenda. They will be very important for the future of the two-state solution, but also for the stability of Lebanon. Even for conveying messages of de-escalation to Iran. The channels with Iran have to be open… to convey messages about nuclear, ballistic missiles, about weapons to Russia for use against Ukraine, and the ‘Axis of Resistance' policy in the region, about the Red Sea and the freedom of navigation. We have to use all the channels we have and the channels the GCC have are precious because of the normalisation processes in the region, just like the Iran-Saudi Arabia one. By Bachar Halabi Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Generic Hero Banner

Business intelligence reports

Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.

Learn more