Little impact to China's steel exports from EU's CBAM scheme

Longer term, China's steel industry will face higher export costs when exporting steel items to Europe after the European Union's Carbon Border Adjustment Mechanism (CBAM) comes fully implemented next year but for now, Chinese market participants believe that any immediate impact will be limited, Mysteel Global has learned. That China's direct steel exports to the EU are currently so tiny is the chief reason.

After being signed by EU legislators on May 10, the so-called CBAM Regulation officially entered into force on May 17 local time, though the scheme itself will only take effect from October 1 this year, and then only for a "transitional phase", as Mysteel Global has reported.

The CBAM is the EU's climate change response mechanism and is a crucial component in its drive to achieve a 55% reduction in carbon emissions by 2030 compared to 1990 levels, the European Commission had said in a statement.

To mitigate the risks of what the EU refers to as 'carbon leakage' - carbon-intensive products being imported into the EU's 27 countries - the mechanism essentially allows a carbon tax to be imposed on products brought in from non-EU countries. The CBAM "will initially apply only to a selected number of goods at high risk of carbon leakage: iron and steel, cement, fertiliser, aluminium and electricity generation," the European Commission had said.

Among the six industries of relevance to China, the country's steel industry will face the greatest challenge. In 2022, for example, among all Chinese exports to the EU in those six categories, it was exports of steel that ranked first in terms of value, being worth EUR 15.1 billion ($16.4 billion), according to data released by Eurostat.

Though the longer-term ramifications of the EU's scheme on Chinese steel producers and steel end-users could potentially be huge, discussion of the measure in Chinese steel-industry circles seems very limited, Mysteel Global notes, most likely because steel exports to EU countries remain limited.

For example, during 2022 when China exported 67.32 million tonnes for finished steel, only a tiny 3.89 million tonnes or 5.8% travelled to the EU, according to the General Administration of Customs of China. Chinese steelmakers are still focusing more on the domestic market and the proportion of exported steel is relatively small, a market participant noted.

The CBAM will be implemented in two stages, and the detailed carbon tariff policy will continue to be refined in the future, according to Fan Tiejun, president of China Metallurgical Industry Planning and Research Institute. According to his preliminary estimate, under CBAM the cost of exporting steel EU for the Chinese steel industry in the payment of carbon tariffs to the EU will increase by about 4-6%, roughly $200-400 million/year.

"The impact (of CBAM on China's steel industry) is manageable in the short run," Fan said in a WeChat post on the China Iron & Steel Association site. "In the long run, accelerating the green development and improving the national carbon market mechanism are two important ways for China's steel industry to respond to the profound impact of the future CBAM," CISA quoted Fan as saying.

Written by Carly Chen, chenziyi@mysteel.com
Edited by Zhenqi Yang, yangzhenqi@mysteel.com

Note: This article has been written in accordance with an article exchange agreement between Mysteel Global and SteelMint.