European mills propose green steel premiums

Some European steelmakers have started to propose green steel premiums in long-term contract talks with automakers and their general supply chain.

An Austrian steelmaker has tabled a €55/t green steel premium in its first talks with automotive customers, although the value appears to be negotiable. A German producer has requested "compensation" for strip produced through its electric arc furnace, as it is costlier than traditional blast furnace-based production.

While understanding the need to decarbonise, and needing to in their own supply chains, some automakers think mills are trying to profit in the short term by passing off the costs of carbon offsets, and are pushing back as a result. Some carmakers are also in no rush to enter contractual talks, given the fading momentum in the coil spot market.

Tata Steel has already introduced a carbon surcharge, which was initially €12/t and subsequently moved to €16/t. It implemented it close to the top of the market, meaning customers had little choice but to accept. It is now trying to bake in the €16/t into its longer-term contracts, having already achieved it in the spot market. The surcharge is designed to help it pay for the increasing cost of carbon going forward.

China Steel Taiwan, which supplies companies in the European automotive supply chain, has also announced it will charge a carbon surcharge from next year. The company, as with other overseas producers, will have to pay a carbon border tax once the European Union's carbon border adjustment mechanism (CBAM) begins. The transitional phase of CBAM starts in 2023 and will be fully operational by 2026.

Under CBAM, importers will pay an equivalent carbon cost to the EU's emissions trading system to acquire certificates that allow them to sell into the region.

Automakers push for carbon neutrality

Automakers are pushing to reduce the carbon intensity of their supply chains, in line with the European Union's Green Deal that mandates carbon neutrality by 2050.

Mercedez-Benz AG wants to make its fleet carbon-neutral by 2039 and 90pc of its suppliers have already signed an "ambition letter", agreeing to supply it with carbon-neutral products in the future. Those that do not sign will not be considered for new supply contracts, the company said. Earlier this month it signed a deal with SSAB, which will see fossil-free prototype parts for body shells delivered to the carmaker. Neither company would comment on the price of the steel, or any attached premium, with a senior SSAB saying it was commercially "sensitive".

SSAB has also delivered the first steel rolled using HYBRIT technology, which involves using fossil-free hydrogen rather than coal and coke as a reductant, to Swedish automaker Volvo. The company plans to be carbon-neutral by 2040, and to be a fully electric car brand by 2030. General Motors has also said it will be carbon-neutral by 2040.

By Colin Richardson