EU mulls expanded carbon border

Spanish Market: Electricity, Emissions, Fertilizers, Metals, Natural gas, Oil products, Petrochemicals
02/02/21

Refineries, paper and aluminium should be covered by the EU's forthcoming carbon border adjustment mechanism, alongside cement, steel, chemicals and fertilisers, say a broad cross-party group of members of the European Parliament.

Parliament's green, liberal, socialist and centre-right groups joined up to table a compromise amendment on the carbon border adjustment measure, which calls on the European Commission to propose, including from 2023, "all" imports of products and commodities covered by the EU emissions trading system (ETS), also when embedded in intermediate or final products.

Given the cross-party support, the parliament's environment committee is expected to adopt the amendment on 4-5 February, thereby setting a position ahead of the commission's formal legal proposal for a carbon border mechanism. And following an impact assessment, the group wants the carbon border to specifically cover the power sector and energy-intensive industrial sectors such as "cement, steel, aluminium, oil refinery, paper, glass, chemicals and fertilisers".

A key question for those sectors that will be covered is whether they can continue to benefit from compensation measures aimed at combating unfair competition by third-country firms not falling under the EU ETS or similar carbon pricing systems.

The committee's Green draftsman, Yannick Jadot, previously called for EU and national compensation for EU ETS costs to "immediately cease" as soon as the carbon border enters into force. Jadot had argued that this was the only way to make the EU's carbon border compatible with World Trade Organisation rules.

But another amendment, with broad cross-party support, now calls for implementation of the carbon border mechanism to go "hand in hand with the parallel, gradual, rapid and eventual complete phase-out of" current measures for EU firms facing competition from exporters in third countries that do not pay carbon costs.

The final legal text for the measure, expected to be proposed by the commission by the end of June, will have to be agreed by parliament with EU member states. EU leaders have called for such a measure to be up and running by 1 January 2023.

The commission is considering three core options for the carbon border measure, for a "few" sectors trading "energy-intensive raw materials internationally". These are an import tax, a new excise duty on carbon-intensive goods and a mechanism in the form of a notional ETS.

By Dafydd ab Iago

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23/12/24

Viewpoint: US east coast diesel oversupply to linger

Houston, 23 December (Argus) — The US Atlantic coast distillate market grappled with higher inventories and flat demand throughout most of 2024, dynamics that are likely to continue in the coming year. In the US Gulf coast, the main supplier of distillates to the Atlantic coast, refinery production has outpaced US domestic distillate demand, saturating the region with product shipped via the Colonial and Plantation pipelines. The US Gulf coast supplies roughly 70pc of all diesel consumed in the US Atlantic coast, with the majority shipped via pipeline. The four-week average for production of ultra-low sulphur distillates — including diesel (ULSD) and heating oil (ULSH) — in the US Gulf coast for the week ended 13 December was 7pc higher than levels from a year earlier. But overall US diesel demand was down by 2.1pc year-over-year and down by 1.9pc on the US Atlantic coast. In addition to soft demand, ultra-low sulphur distillate stocks in PADD 1B — which includes New York, New Jersey, Pennsylvania, Maryland and Delaware — in the week ended 13 December were nearly 36pc above levels a year earlier and 33pc higher than average levels recorded since the beginning of the Russia-Ukraine war in February 2022. Even with demand flat and inventories oversupplied, US refineries have not cut production. Heightened export opportunities, primarily to Europe, have created active trade flows between US Gulf coast diesel refiners and overseas end-user markets. Total distillate exports loading from the US Gulf coast year-to-date 2024 are 10pc higher than in the same period in 2023, with a 1.12mn b/d export average in 2024, compared to 1.02mn b/d loading in 2023. But not all of the additional supply is making it out of the Gulf coast. A 4.9pc increase in production in the Gulf coast means an extra 130,000 b/d of supply, while an increase of 10pc in diesel exports means an extra 100,000 b/d in outflows. Fluctuations in vessel availability and refinery production often prevent all distillate output allocated for export from being shipped from the US Gulf coast. As a result, incremental overproduction of distillates is redirected to the US Atlantic coast, with one market participant describing the Colonial pipeline as a "dumping ground" for excess product. Although economic growth in Europe remains flat, changes in the global supply chain following Russia's invasion of Ukraine are expected to sustain arbitrage opportunities for US producers to ship diesel to Europe. Shipping EN-590 gasoil — the European diesel fuel standard with a 10 ppm sulphur limit rather than the 15 ppm ULSD equivalent used in North America — from the US Gulf coast to Europe is easier than from the US Atlantic coast because of the US Gulf coast's larger refining capacity and export infrastructure, despite the US Atlantic coast's closer proximity to Europe. Although EN-590 and ULSD have similar low-sulfur requirements, EN-590 requires specific blending to meet European standards, a process better supported by US Gulf coast refineries. It does not appear that significant relief is on the horizon in the form of increased domestic demand. Diesel demand traditionally closely traces gross domestic product (GDP). But that correlation has been decoupling in recent years as the US economy has increasingly relied on non-manufacturing services to provide economic growth. Year-over-year GDP in the US grew by 2.8pc at the end of the third quarter of 2024, while diesel demand fell by 2.1pc during the same period, according to US Bureau of Economic Analysis data. While some economists are projecting US GDP to grow around 2.5pc in 2025, this is unlikely to lead to a spike in diesel demand. Continued demographic shifts and population migrations away from the US Northeast to the Sun Belt states also do not support increased demand forecasts. With narrowing refining margins, dwindling demand and sustained higher production, market participants could expect to face challenging economic conditions in 2025. By Cooper Sukaly Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: US LPG cargo premiums poised to fall

23/12/24

Viewpoint: US LPG cargo premiums poised to fall

Houston, 23 December (Argus) — The booming US LPG export market has fueled record spot fees this year for terminal operators that send those cargoes abroad, but those fees are poised to fall next year as additional export capacity comes online. US propane exports surged over the past two years, hitting an all-time high of 1.85mn b/d in the first quarter of this year, according to data from the US Energy Information Administration (EIA). Terminal fees for spot propane cargoes out of the US Gulf coast hit an all-time high of Mont Belvieu +32.5¢/USG (+$169.325/t) in mid-September. US propane production is expected to grow by another 80,000 b/d in 2025 to 2.22mn b/d while the outlook for domestic consumption is fairly steady, at 820,000 b/d next year — meaning even more propane will be pushed into the waterborne market. But that is dependent on US infrastructure keeping up with the pace of production. US export terminals in Houston, Nederland and Freeport, Texas, have run at or above capacity for the last two years given the thirst for cheaper US feedstock, largely from propane dehydrogenation (PDH) plant operators in China. This demand has created bottlenecks at US docks, and midstream operators like Enterprise, Energy Transfer, and Targa have rushed to ramp up spending on both pipelines and additional refrigeration to stay ahead of the wave of additional production. US gas output spurs LPG exports As upstream producers have ramped up natural gas production ahead of new LNG projects, most producers are counting on LPG demand from international outlets in Asia to offload the ethane and propane the US cannot consume. For the past four years, Asian buyers have been more than happy to oblige. US propane exports to China rose from zero in 2019, when China imposed tariffs on US imports, to an average of 1.36mn metric tonnes (t) per month in January-November 2024, according to data from analytics firm Kpler, making China the largest offtaker of US shipments. US exports to Japan averaged 480,000t per month throughout most of 2024, and exports to Korea averaged 460,000t per month in the first 11 months of 2024. China, Korea, and Japan received 52pc of US propane exports in 2024, up from 49pc in 2020, according to data from Vortexa. Strong demand in Asia has kept delivered prices in Japan high enough to sustain an open arbitrage between the US and the Argus Far East Index (AFEI). Forward-month in-well propane prices at Mont Belvieu, Texas, have remained well below delivered propane on the AFEI. In 2020, Mont Belvieu Enterprise (EPC) propane averaged a $143/t discount to delivered AFEI — a spread that has only widened as additional PDH units in Asia have come online. During the first 11 months of 2024, the Mont Belvieu to AFEI spread averaged a hefty $219/t, leaving plenty of room for wider netbacks in the form of higher terminal fees for US sellers, especially as a wave of new VLGCs entering the global market has left shipowners with less leverage to take advantage of the wider arbitrage. The resulting wider arbitrage to Asia has kept US export terminals running full for the last two years. So when a series of weather-related events and maintenance in May-September limited the number of spot cargoes operators could sell and delayed scheduled shipments, term buyers willing to resell any of their loadings could effectively name their price. This spurred the record-high premiums for spot propane cargoes in September. New projects may narrow premium An increase in US midstream firm investments in additional dock capacity and added refrigeration in the years ahead could narrow those terminal fees, however. Announced projects from Enterprise and Energy Transfer, in particular, will add a combined 550,000 b/d of LPG export capacity out of Houston and Nederland, Texas by the end of 2026. Enterprise's new Neches River terminal project near Beaumont, Texas, will add another 360,000 b/d of either ethane or propane export capacity in the same timeframe. These additions are poised to limit premiums for spot cargoes by the end of 2025. Already, it appears the spike in spot cargo premiums to Mont Belvieu has abated for the rest of 2024. Spot terminal fees for propane sank to Mont Belvieu +14¢/USG by the end of November. The lower premiums come not only as terminals resume a more normal loading schedule, but at the same time a surplus of tons into Asia ahead of winter heating demand has narrowed the arbitrage. The spread between in-well EPC propane at Mont Belvieu fell from $214.66/t to $194.45/t during November. A backwardated market for AFEI paper into the second quarter of 2025 means US prices are poised to fall more in order to keep the spread from narrowing further. By Amy Strahan Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: Protectionist policies muddy US PE outlook

23/12/24

Viewpoint: Protectionist policies muddy US PE outlook

Houston, 23 December (Argus) — Potential new tariffs combined with protectionist policies from other importing countries are clouding the outlook for growth in the US polyethylene (PE) market heading into 2025. US president-elect Donald Trump threatened a 25pc tariff on all imports from Canada and Mexico, and at times has threatened as much as a 60pc tariff on all goods imported from China. Any new tariffs open the US up to retaliatory tariffs from the three countries, which have historically been among the top destinations for US PE exports. Brazil, another major trading partner with the US, recently raised import tariffs on PE to 20pc. On top of that, Brazil is in the midst of an anti-dumping investigation into US PE, which if successful would raise the tariff on US PE by an additional 21.4pc, bringing the total tariff for US PE in Brazil to 41.4pc. US PE exports in the first 10 months of 2024 totalled roughly 11.6mn t, with 16.4pc sold to China, 13.3pc sold to Mexico, 10.8pc sold to Brazil and 7pc sold to Canada , according to data from Global Trade Tracker (GTT). US PE producers are increasingly relying on exports, particularly with new capacity still set to come online in the next two years. This includes a new 600,000 t/yr linear low density polyethylene (LLDPE)/high density polyethylene (HDPE) swing plant from Dow set to start in the second half of 2025, as well as 2mn t/yr of HDPE capacity from Chevron Phillips Chemical's joint venture with Qatar-based QE in 2026. Exports as a percentage of total US and Canadian PE sales has been growing since 2016, when it was less than 25pc to crossing the 50pc threshold for the first time in November of this year, according to data from the American Chemistry Council (ACC). ACC data combines the US and Canada and considers trade between them as domestic rather than exports. With the US and Canadian PE markets largely functioning as one, the potential tariffs on product from Canada could cause problems for US buyers as well as Canadian suppliers, whose competitiveness in the region could be limited by new tariffs. "It would be a huge problem," said one US PE buyer who purchases resin from suppliers in both countries. For one particular grade of PE, the buyer said there are only two suppliers, including one producer in Canada and one in the US. If tariffs were imposed on Canadian material, it would suddenly make that particular grade more expensive because it would mean the US producer would no longer need to match competitive offers from Canada. Retaliatory concerns While US buyers are concerned about having to pay new duties on imports from Canada, US producers are also worried about potential retaliatory tariffs from other countries, such as China, and new duties and potential tariffs in Brazil. US PE exports to China totaled roughly 1.9mn t in the first 10 months of 2024, an amount that could not be easily absorbed by many other countries if new tariffs limit sales into that country. And in Brazil, US PE exports totaled roughly 1.26mn t in 2024 through October, another huge chunk that is at risk if the new anti-dumping duties against US PE are implemented. "Brazil is a huge market for the US. It's a big deal," said one US trader. "Producers can ship to countries around Brazil, but that will not cover everything we are losing. Where will it all go?" New outlets are opening up for US product in places such as Europe, where some global capacity has shut down. ExxonMobil, for instance, announced in April it was permanently shutting down its Gravenchon cracker and associated derivative plants in France, including a 420,000 t/yr HDPE-LLDPE swing unit. With the closure of that plant, sources have said ExxonMobil is exporting more volume from its cost-advantaged US assets to the region. But there is a limit to how much US export volume can be absorbed because of shutdowns in other regions. While many market participants are hopeful that proposed tariffs will not materialize, the uncertainty is making it difficult to plan for 2025, sources said. "Speculating on it is a waste. You don't know what is going to happen first, you don't know what the reaction is going to be," said one buyer. "All you can do is try to get the lowest prices you can and work a little bit of flexibility into your contracts." By Michelle Klump Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: US steel glut may dampen prices, profit

23/12/24

Viewpoint: US steel glut may dampen prices, profit

Houston, 23 December (Argus) — Persistent steel oversupply in the US may continue to dampen domestic steel prices and steel mill earnings as the market faces weak demand and rising import volumes. Buyers told Argus the market remains oversupplied and has been for most of 2024, despite US steelmakers lowering production through the first three quarters of 2024. Raw steel production was 66.21mn short tons (st) this year through 28 September, a 1.11mn st decline from the first three quarters of 2023, according to weekly data published by the American Iron and Steel Institute (AISI). While steel production is lower, many US buyers believe steelmakers are still producing too much material, making it easy to buy spot tons. The Argus US hot-rolled coil (HRC) lead time crossed into 2025 in mid-December, and HRC lead times have averaged 4.3 weeks in 2024, down from six weeks in 2023. Facing these factors, US steelmakers see lower profits or even losses during the final quarter of 2024 and potentially into 2025. The five largest steelmakers by production capacity — Cleveland-Cliffs, Commercial Metals (CMC), Nucor, SDI and US Steel — reported combined profits of $3.55bn for the first three quarters of 2024 — $4.35bn lower than the same period of 2023. In recent fourth quarter earnings guidance, Nucor and US Steel said they could post a profit and loss, respectively, at levels not seen since the third quarter of 2020. Demand pressured by high rates A decline in demand has been the fundamental issue this year and is expected to continue to be moving into 2025. Many service centers reported lower steel consumption forecasts for 2025 compared to this year, outpacing any decline in US steel production. Automotive production and steel consumption from automaker Stellantis is said to have sagged recently as that company struggles to tamp down high vehicle inventories . High interest rates constrained demand and put pressure on buying trends. The Associated General Contractors of America's (AGC) chief economist Ken Simonson said recently that increased federal government project announcements have not led to more construction contracts, and that spending for major private construction categories are flat or shrinking. Nonresidential construction is one of the largest consumers of steel products. That lower trend in nonresidential spending is being masked by higher residential investment, with construction spending at $2.17 trillion on a seasonally adjusted annual rate in October, 5pc above the same period the prior year and up by 0.4pc sequentially. Much of the increase was from higher spending in residential projects. Coupled with this lower demand, new and better operating steel mills could intensify the supply overhang. US Steel recently started up its new 3mn st/yr Big River 2 flat steel mill in northeast Arkansas and after years of production issues, Steel Dynamics' (SDI) 3mn st/yr Sinton, Texas, mill is operating at higher rates. Australian steelmaker BlueScope also reported that it is continuing to work on improving efficiency at its Ohio-based North Star flat steel mill, which it completed an expansion to last year. Farm tractor sales, another consumer of flat steel, stood at 196,000 units through November, down by 30,900 units from the same period the prior year. The higher production is coming online as steel prices are falling. The Argus US HRC Midwest assessment had a third quarter average of $680/st ex-works, down by 27pc since the first quarter average. Import volumes adding to oversupply Lower global steel costs have led to stubbornly elevated import volumes, despite persistent US oversupply and short lead times. Import volumes rose to 22.3mn st in the first three quarters of 2024, up by 431,000st from the same period prior year, according to data from the US Department of Commerce. By Rye Druzchetta US steel mill profits, production, steel imports and prices Through 3Q 2024 Through 3Q 2023 Difference US steel mill profits ($mn) Nucor 1,740 3,739 -(1,999) US Steel 473 975 -(502) Cleveland-Cliffs -(307) 554 -(861) SDI 1,330 2,027 -(697) CMC 309 598 -(289) US production US steel mill utilization rate (%) 76.7 76.9 -(0.2) Raw steel production ('000st) 66,212 67,325 -(1,113) Imports Quarterly steel product imports ('000st) 22,301 21,870 431 Argus-assessed pricing ($st) US HRC MW ex-works $796 $911 -($115) US rebar MW ex-works $809 $904 -($95) Company filings; AISI; US Department of Commerce; Argus CMC fiscal quarters adjusted to most relevant calendar year quarter. Utilization percentage rate and production tonnage estimates based on AISI data through 28 September. Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: Low-carbon fuel battles tumble into 2025

23/12/24

Viewpoint: Low-carbon fuel battles tumble into 2025

Houston, 23 December (Argus) — Fights over North America's largest low-carbon fuel mandates will tumble into 2025, long after a contentious year spent updating the program. California's minority Republican lawmakers have seized upon fears that new, tougher targets approved in November to the state's Low Carbon Fuel Standard (LCFS) could hike today's pump prices by 15pc. Environmental opponents have sued the California Air Resource's Board (CARB) alleging regulators ignored shortcomings to push through those amendments. And fuel suppliers, meanwhile, continue to grapple with new demands on feedstock selection, certification and other decisions that will begin to tighten by the end of this decade. LCFS programs require yearly reductions in transportation fuel carbon intensity. Higher-carbon fuels including petroleum diesel and gasoline incur deficits for exceeding annual targets. Suppliers must offset these deficits with credits generated from distributing approved, lower-carbon alternatives to the state. California operates the oldest and largest among five operating programs on the continent. The program helped drive a surge in US renewable diesel production capacity that earlier this year cut petroleum's share to less than a quarter of the liquid diesel used in the state. Credit trade representing each metric tonne (t) of carbon reduction drives the incentives for renewable diesel, captured dairy methane or electric vehicle charging capacity used in California transportation. Credits peaked at $219/t in February 2020, equivalent to roughly $267.10/t in today's dollars. But spot credits have languished below $100/t since late 2022. Prices buckled under the growing weight of more than 30mn t of extra credits available for future compliance — enough to satisfy all the deficits generated in 2023 a second time, with another 30pc leftover. CARB staff estimated that the targets board members approved in November would reduce that reserve by more than 8mn t, or less than a third. Fuel producers warned that carbon reduction could stagnate under the smothering imbalance of new credits. Staff dismissed outside estimates of 65¢/USG increases to gasoline prices attributed to the tough new program targets, but declined to offer a competing cost estimate. Spot credit prices would need to more than triple to $250/t next year to hit gasoline prices that hard at the pump, based on Argus analysis. Pump prices make good politics Governor Gavin Newsom (D) has for two years sought and received state tools to scrutinize oil company profits on California fuel sales. Now a California state senate Republican bill would repeal the new targets and other newly adopted changes intended to restore incentives under the program. A state assembly bill would require any CARB new rulemaking or standard to undergo a cost analysis by the state's Legislative Analyst Office, a nonpartisan office that performs such reviews of legislative proposals. These Republican measures face a likely impossible climb through Democratic supermajorities in both chambers. But lawmakers noted the potency of fuel price complaints. A legislative session — framed in defiance of a new federal administration hostile to their climate efforts — opened with leaders acknowledging the need to balance costs. "California has always led the way on climate change and we will continue to lead on climate," speaker Robert Rivas (D) said on 2 December. "But not on the backs of poor and working people. Not with taxes or fees for programs that don't work." Similar battles have already spilled out of the state. British Columbia voters in October narrowly denied conservatives a majority on a platform that included ending the province's aggressive LCFS. National conservatives targeted Canada's carbon taxes in a campaign against Premier Justin Trudeau's wobbling government ahead of elections next year. As regulators update programs to drive ambitious transportation changes, voters will become more aware of where the changes are heading. By Elliott Blackburn Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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