Tuesday, 27 January 2009

How Low-price Steel is affecting the Low Carbon sector

Clare says:

No-one can fail to have heard about the 3,500 job cuts made by Corus Steel (owned by the Indian giants Tata) this week, in the face of plummeting world demand for steel. Steel is one of the modern world’s most common raw materials, but it has been massively hit by the contracting automotive manufacturing industry.

Steel is also a key product in the manufacture of products used in onshore and offshore energy generation: wave and tidal turbines, gas turbines, waste heat recovery and, closest to my heart and mind, wind turbines.

So as this sector, the renewable energy sector, continues to grow will falling costs of steel translate to falling costs of manufacturing? WTG manufacturers will be able to buy the raw materials more cheaply, and these reduced costs should translate to the buyers as well. Coupled with less back-log in the order books, this will make turbines a lot more accessible to asset owners.

Last week, plans for the London Array hit the news again, with concerns from E.On and Masdar (partners in the project, with Dong Energy) over the economic viability of the massive £3million project. However, a spokesman for E.ON said that the falling costs of steel were a massive consideration for them, and could have a positive effect, helping them to bolster their economic case for the project (as reported in The Times Online)

Steve says:

Manufacturing’s influence on other industries is significant. Clare has been talking about how this may affect the wind turbine manufactures, but what other impacts are there?

There is a direct and clear correlation between the carbon market and the manufacturing industries. These heavy emitters form the basis of the multinational, multi-billion dollar emissions trading industry and its main principle relies on the market being liquid and working a similar basis to the other commodities like oil, gas or gold.

When demand for raw materials (such as steel) falls, it follows perfectly that manufacturing levels and output drops. As production drops the associated NOx, SOx and carbon emissions fall.

As emissions fall manufactures will be closer to, or even below their carbon target or ‘cap’ meaning there is an excess of tradable emission credits. With the carbon commodity being based on a liquid market – as demand falls, the price falls.

And this is clearly demonstrable over the last 4 weeks as the price of CERs has dropped from €16 to €11, which is a drop of over 30%.

To enable a recovery in carbon price we need manufacturing to up scale, which is all linked into the availability of credit and interbank loans – so get a move on and start lending!

By Clare Buxton & Steven Rogers
Sector Leads for Wind Energy & The Carbon Markets

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