President-Elect Barack Obama's reported plan to implement a cap-and-trade policy to reduce carbon dioxide emissions could make the integrated steel industry noncompetitive, according to a noted steel analyst.
Charles Bradford, president of New York-based Bradford Research Inc./Soleil Securities, said a cap-and-trade policy could put Northwest Indiana's large steelmakers out of business because of its high cost.
The Alliance to Save Energy and other environmental organization are urging the president-elect to make good on his campaign promises to focus on energy efficiency, including a economy-wide cap-and-trade program, as a key solution to the nation's energy, economic, and environmental challenges.
"He (Obama) wants cap and trade where people have to pay for their carbon emissions," Bradford said. "Integrated steelmakers put out three times more carbon emissions than the minimills."
Integrated steelmakers, such as U.S. Steel Corp. and ArcelorMittal, produce steel using a two-step process, first by heating a combination of iron ore, coke and limestone in blast furnaces to produce pig iron, which is then made into steel in basic oxygen furnaces.
Minimills melt steel scrap metal in electric furnaces to produce steel.
Bradford said the integrated companies currently are losing their competitiveness.
"In the summer they (integrateds) were the low cost producers because the price of prime scrap was $878 a ton, now its $133 a ton," he said. "At the same time (the integrateds) steelmaking costs are $600 or closer to $700 a ton. The minimills are under $300 (per ton) when you add conversion costs."
However, because minimills use considerably more electricity than integrated steelmakers, their costs could rise if energy production would become more expensive under a cap and trade policy.
U.S. Steel Corp. spokesman John Armstrong, wouldn't comment on competitiveness issues between U.S. steelmakers. U.S. Steel's concern is that any U.S. carbon reduction program could put U.S. manufacturing as a whole at a disadvantage in the global marketplace and force manufacturing offshore, he said.
"Our biggest concern about (carbon dioxide) reduction schemes is that unless developing countries are held to the same standards, industry will go offshore," Armstrong said. "One of the ultimate paradoxes is that it would increase rather than decrease (carbon dioxide) emissions because developing countries don't have the same efficiencies in production of electricity, and don't would have stringent emission requirements and could generate more (carbon dioxide)."
Nancy Gravatt, spokeswoman for the American Iron and Steel Institute, said the steel industry is "very energy intense and its processes involve carbon.
"It's part of the process so its obviously a major concern as to what type of legislative approach will be taken for carbon reduction," she said
Global manufacturing competitiveness is a big concern, Gravatt said.
"Coming into office in an economy in financial crisis, President-elect Obama would have to take U.S. manufacturing competitiveness into consideration as he evaluates climate policy," she said.
The steel industry has advanced a global steel sectorial approach to a policy on climate change, Gravatt said.
"It would be approach that holds foreign manufacturers to comparable standards so U.S. jobs stay in America," she said. "It would be more be more harmful to the environment if U.S. manufacturers migrate to foreign lands where they won't have to deal with U.S. emissions standards."
