HLG Ad-Hoc Group 3

Energy & environment factors affecting the competitiveness of energy-intensive industries Ian Goldsmith

Steelmaking made simple

Steel scrap

Iron Ore Coal/Coke Natural gas Oil Electricity

Blast Furnace Oxygen Steelmaking Secondary Steelmaking

Steel scrap
Coal/Coke Electricity Natural Gas
Electric Arc Steelmaking Continuous Casting

Key Steel Industry Statistics

Steelmaking by process route (2004) 3%

Steel Production by Region

(millions of tonnes) 2005 Global 1106 (+/- 2004) (+50)

EU 25
USA China

186
94 348

( -7)
( -5) (+72)

BF/BOS EAF Other

34%

63%

In 2004, over 90% of global steel was continuously cast EU 25*, China, NAFTA, Japan, Korea >95%
*But, Poland <80%

Regional steel slab production costs

($/t, ex works, 2005, weighted average of regional plants covered)

324

316

311

300

260

252

227

EU15

N America

Japan

China

FSU

India*

Brazil

* Tata, SAIL and Jindal only Sources: WSD

Raw materials (global effect) and energy (local effect)

Raw materials (indexed)
Year 2000 = 100

Energy prices
p/therm /MWh

500

70

UK Electricity (RHS) UK Natural gas (LHS)

60

50 400 50 40 30

300

Coal Scrap
30 20 10 00 01 02 03 04 05 06
YTD

200

Coke Iron Ore

100

Germany Electricity (RHS)

02 03 04 05 06
YTD

10

01

Note: Market prices FOB Source: Corus

Note: UK Wholesale electricity and natural gas forward prices Source: Heren Energy report Exchange rate: /1.50

Global electricity prices

(2004 Electricity prices for industrial customers, /MWh)

102

Current Price ~70

Very large industrial customers: ~35

54

51

48

47

41

40

38

35 23

Japan

UK

Neth*

Poland

Germany*

US

France

Brazil

Norway

Russia**

* Estimated ** 2003 Sources: IEA Energy Prices and Taxes Q4 2005, Datastream, Corus

Steel is a global industry

Global steel export volumes 1975-2004
400 45%

350

Exports as % of global production volumes (right hand scale, %)

40%

300 35% 250

Export volumes (left hand scale, mt)

30%

200 25%

150

100
19 75 19 76 19 77 19 78 19 79 19 80 19 81 19 82 19 83 19 84 19 85 19 86 19 87 19 88 19 89 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04

20%

Source: IISI

Competition drives cost reduction

oil injection and burden preparation hot blast temperature >1200 C oxygen enrichment

800

Reducing agent consumption (kg/t hot metal)

top pressure

600

theoretical minimum level of carbon demand 414 kg /t hot metal oil

burden distribution improved sinter quality coal injection

coal

400

200

coke
1955 1960 1965 1970 1975 1980 1985 1990 1995 2000

0 1950

Competition drives energy efficiency

Legislation overload
EU: IPPC Directive EU Emissions Trading Scheme Packaging & Packaging Waste Directive Landfill Directive Trans-frontier Shipment of Waste Regulations Waste Framework Directive EU Polluting Emissions Register Air Quality Directives National Emissions Ceilings Directive Large Combustion Plant Directive Water Framework Directive REACH ELV Directive WEE Equipment/RoHS Directives Energy Using Products Directive

UK: Environmental Protection Act 1990 (Contaminated Land Regulations) Landfill Tax Hazardous Waste Regulations Producer Responsibility (Packaging) Climate Change Levy

Renewables Obligation
Air Quality Objectives

Impact of Environmental Policy

Electricity prices and EUETS allowance prices are related

Estimated effect of EU ETS on UK electricity prices is over 25% of the increase since 2004 UK electricity companies have increased profits by ~800m/year
(Source: IPA report for UK Government Nov 2005)

Examples of effect on Corus UK Renewables Obligation = 9m in 2006 (by 2010 this will be over 13m) UK Climate Change Levy = 6m (index linked from 2007) EU ETS >20m (Including energy cost increases plus administration, verification etc)