Displaying items by tag: Russia

Vietnam: High costs have resulted in the cancellation of four planned new integrated cement lines by a local cement producer. Viet Nam News has reported that the producer in question presently faces costs of US$59.9 - 64.1/t cement, with a net loss of US$8.55 - 10.30/t. Coal prices are US$237/t, more than triple those at the start of 2022 of US$85.5/t. Gypsum and diesel prices rose by 50% over the first half of 2022. The producer reportedly attributed the coal price rise to the effects of the Covid-19 conflict and the Russian invasion of Ukraine.

India: UltraTech Cement has imported a 157,000t shipment of coal from Russia for US$25.8m, which it paid in Chinese Yuan. ET NOW News has reported that this is the first instance of an Indian entity using the currency in international trade. The deal has a value of US$164/t, 50% below average South African coal prices and 20% below average Australian cement prices in India. The deal reportedly signals the possible end of Indian coal prince inflation in the medium – long term.

From 2027, the 27 member states of the European Union (EU) will begin to charge third country-based cement exporters for the CO₂ emissions of their products sold inside the bloc. The new Carbon Border Adjustment Mechanism (CBAM) is a lynchpin in the strategy to realise a 55% reduction in EU industries' CO₂ emissions between 1990 and 2030. Starving foreign cement industries of a source of income may also help to make them change their ways. A regional solution leveraged through an unfair head start, however, might cause progress to falter where it is most needed in the global fight against climate change.

Carbon leakage has hung over the EU’s Emissions Trading Scheme (ETS) since its inception in 2005. Cembureau, the European cement association, has reported a 300% five-year increase in third-country cement imports up to 2021, with spikes matching those in ETS credit prices. Companies from Turkey to Australia have produced and transported their cement into the EU, at great CO₂ cost, while benefitting from a competitive edge over domestic producers, it would seem. Lawmakers rectified the situation by maintaining free allocations of ETS credits to EU industries, including cement, which received US$92m-worth in 2021.¹ In the wake of the Paris Agreement, an emissions pricing mechanism on cement imports first came before a vote of the member states in February 2017.

In what would become a recurring theme, opposition from all sides of the issue defeated the proposal. Most interesting was the international response: Brazil, China, India and South Africa voiced ‘grave concern’ over the proposed CBAM. A Russian representative at the Department of European Cooperation lamented the possible necessity of ‘response measures,’ while US Climate Envoy John Kerry coolly urged the EU to wait until after the COP26 climate change conference in November 2021. The outbursts were surprising given that the mechanism clearly conformed to World Trade Organisation (WTO) rules: free allocations were always expected to phase out in a mirror image of the CBAM phase-in. The proposal eventually adopted on 22 June 2022 set the end date for both as 2032.

In 2020, the EU imported US$383m-worth of cement and concrete across its external borders, down by 17% year-on-year from US$463m in 2019.² Imports had previously more than doubled decade-on-decade from US$204min 2009. China accounted for US$167m-worth (43%) of cement and concrete exports to the EU in 2020, followed by Vietnam with US$34m (9%) and the UK with US$30m (7.9%). Other significant sources include Belarus (US$28m - 7.4%), Russia (US$13.8m - 3.6%), Bosnia and Herzegovina (US$13.5m - 3.5%), Serbia (US$13.1 million - 3.4%), Israel (US$13m - 3.4%), Turkey (US$12.6m - 3.3%) and the US (US$10.3m - 2.7%).

China

China’s first emissions trading scheme will be one year old on 16 July 2021. The scheme, covering more than twice the CO₂ emissions accounted for under the EU ETS, may lend an apparent synergy to EU energy policy and that of the bloc’s main trade partner.³ On the contrary, Chinese carbon credits cost 8.5% the price of EU ETS credits on 29 June 2022, with a growth rate of just 10% year-on-year compared to 53% in EU ETS credit prices. Unlike their European equivalent, they are also restricted to the energy sector. Chinese cement exporters are unready to meet the CBAM on its own terms. The inclusion of indirect emissions further disadvantages plants operating in China’s 57% coal-powered economy. Premier Li Keqiang has warned countries to be on their guard against a ‘new green trade barrier.’

These concerns ought to be considered in light of the scale and diversified nature of the China-EU trade partnership. The eventual inclusion of polymers, hydrogen and ammonia under the CBAM still does not extend its scope beyond 3% of Chinese imports to the EU by value, enabling China to retain the leverage it has previously proved willing to exercise against those who threaten the perceived interests of global trade.

China plans to reach net zero CO₂ emissions by 2060 through an energy transition in which it invested US$266m in 2021, more than the next six ranked countries combined.⁴ In the medium-term future, the CBAM may become a green bridge, connecting with Chinese emissions reduction policies in a single carbon border measure to raise money for developing countries’ sustainable transitions, as suggested by former governor of the People’s Bank of China Zhou Xiaochuan. Until then, China seems well positioned to ensure that a fair share of the costs arising from the CBAM pass to importers and the consumer.

Turkey

Turkey provided 3.3% of the EU’s cement and concrete imports in 2020, but the volume corresponded to 13% of Turkey’s total exports of the same. Thus, the country has a high exposure to any adverse effects of the CBAM – quantified at an estimated US$789m/yr by the European Bank for Reconstruction and Development.⁵ Turkey’s ratification of the Paris Agreement in late 2021 is among the positive outcomes of the CBAM. The country now plans to align with the CBAM. In this, the Turkish cement industry will rely on a share of a US$3.2bn loan from the World Bank, France and Germany.

The UN has yet to receive an updated climate action plan from the Turkish government in line with its pledges. Should Turkey fail to transition within the short timeframe provided by the CBAM, its cement sector might increase its existing focus on the West African market, where it holds 55% and 46% market shares for cement and clinker imports to Ghana and Ivory Coast respectively. The beleaguered industry has one greater refuge still: the US market, which consumed 18% of Turkish cement exports in 2020.

North America

Discussions of the CBAM’s impacts in Canada and the US are tied to those countries’ on-going deliberations over possible adjustment mechanisms of their own. At present, individual provinces and states are responsible for implementing carbon pricing. An international emissions trading scheme, called the Western Climate Initiative, already exists between the US state of California and the Canadian province of Quebec. The Canadian government is conducting a consultation on federal Border Carbon Adjustment (BCA) credits in the context of economy-wide pricing.⁶ Carbon border adjustment was previously an item on the US Trade Policy Agenda in 2021, but disappeared in 2022. President Biden pledged to impose 'carbon adjustment fees or quotas on carbon-intensive goods from countries that are failing to meet their climate and environmental obligations' during his candidateship in the 2020 US presidential election. On 7 June 2022, two weeks before the EU adopted CBAM, Senator Sheldon Whitehouse introduced a carbon border adjustment bill to the US Senate, which it referred to its Committee on Finance.⁷

North American legislators will need to follow the European Parliament in building a broad centrist majority in order to pass their CBAMs. If they succeed, the world will gain a low-carbon axis of cement markets, bringing their trade partners behind them.

Other European countries

The UK cement industry expects to pay an extra US$30.1m/yr on account of the CBAM.⁹

A November 2021 report by the Ukraine Resource & Analysis Centre (Society and Environment) concluded that Ukraine's 'largest and most technological' cement producers will experience no critical influence from the CBAM when exporting to the EU.⁸ At that time, the Ukrainian strategy consisted of an alignment with any future CBAM. On 31 May 2022, The European Business Association calculated Ukrainian cement producers' total CBAM tax bill as US$3.36m/yr.¹⁰

Montenegro introduced its own emissions trading system, modelled on the EU ETS, in February 2021, a move which Bosnia and Herzegovina and North Macedonia have both announced their intent to follow.¹¹

Norway has called for international acceptance of the CBAM, but questioned the practicality of including indirect carbon pricing.

An example of the possible adverse effects of the CBAM comes from the EU's ban on Russian cement imports in April 2022. The loss of the EU market was one likely contributor to a rollback of climate regulation there.¹²

Developing countries

Non-governmental organisation (NGO) Oxfam has criticised the CBAM's failure to include an exemption for the least developed countries. The EU's solution is an indirect one: it will put CBAM revenues towards its budget, from which international climate finance funding will be raised to an equivalent level. As Paris Agreement signatories, EU member states already expect to contribute to the achievement of US$100bn/yr in climate finance funds for poorer countries in 2023.

Oxfam has recommended that the EU do more to take account of its disproportionate contribution to cumulative global CO₂ emissions. This would include directly paying CBAM revenues into international climate finance and accelerating the phase-out of free ETS allocations.

Conclusion

On 22 June 2022, the most sustainable cement market in the world successfully harnessed market forces to its emissions reduction ambitions. The European cement industry will be able to celebrate the end of carbon leakage. Cement companies outside of the EU, however, now face increased costs and lower prices for their product. The legislation addresses some of the harm that it causes to less developed countries; those – like China, Turkey and Vietnam – in the middle will have to face it head-on.

So far, we have cited governments and lobby groups, but the real question of readiness for the CBAM lies with producers. Global cement companies, including those based in the EU, have implemented their sustainable cement technologies across all continents, and are beginning to reap the rewards of a new world where paying for pollution is unavoidable.

Sources

1. Sandbag, E3G and Energy Foundation, A Storm in a Teacup, Impacts and Geopolitical Risks of the European Carbon Border Adjustment Mechanism, August 2021, https://9tj4025ol53byww26jdkao0x-wpengine.netdna-ssl.com/wp-content/uploads/E3G-Sandbag-CBAM-Paper-Eng.pdf

2. Trend Economy, ‘Imports: European Union: 6810,’ 14 November 2021, https://trendeconomy.com/data/h2/EuropeanUnion/6810

3. Energy Monitor, ‘Carbon trading the Chinese way,’ 5 January 2022, https://www.energymonitor.ai/policy/carbon-markets/carbon-trading-the-chinese-way

4. China Power, ‘How Is China’s Energy Footprint Changing?’ https://chinapower.csis.org/energy-footprint/

5. Politico, ‘EU’s looming carbon tax nudged Turkey toward Paris climate accord, envoy says,’ 6 November 2021, https://www.politico.eu/article/eu-carbon-border-adjustment-mechanism-turkey-paris-accord-climate-change/

6. Canadian Climate Institute/L'Instut Climatique du Canada, 'Border Carbon Adjustments,' 27 January 2022, https://climateinstitute.ca/publications/border-carbon-adjustments/

7. Congress, 'S.4355 - Clean Competition Act,' 7 June 2022, https://www.congress.gov/bill/117th-congress/senate-bill/4355?s=1&r=6

8.Ukraine Resource & Analysis Centre (Society and Environment), ' The Impact of Carbon Border Adjustment Mechanism (CBAM) on the EU - Ukraine trade,' November 2021, https://www.rac.org.ua/uploads/content/624/files/impactcarbonmechanismcbamukrainesummaryen.pdf

9. Burke et al, 'What does an EU Carbon Border Adjustment Mechanism mean for the UK?' April 2021, https://www.lse.ac.uk/granthaminstitute/wp-content/uploads/2021/04/What-does-an-EU-Carbon-Border-Adjustment-Mechanism-mean-for-the-UK_FULL-REPORT.pdf

10. European Business Association, 'Ukrainian exporters to pay more than € 1 billion in carbon tax to the EU under the CBAM,' 31 May 2022, https://eba.com.ua/en/ponad-1-mlrd-yevro-podatku-na-vuglets-shhoroku-splachuvatymut-ukrayinski-eksportery-v-yes-v-ramkah-svam/

11. Balkan Green Energy News, 'Which Western Balkan countries intend to introduce carbon tax?' 18 May 2022, https://balkangreenenergynews.com/which-western-balkan-countries-intend-to-introduce-carbon-tax/

12. Climate Home News, 'Russian climate action and research is collateral damage in Putin’s war on Ukraine,' 26 May 2022, https://www.climatechangenews.com/2022/05/26/russian-climate-action-and-research-is-collateral-damage-in-putins-war-on-ukraine/

Ghana: Alan Kyerematen, the Minister for Trade and Industry, has blamed the increasing price of cement on negative currency exchange effects and growing fuel prices. He informed the Parliament of Ghana that the cost to import clinker has risen significantly, according to the Ghana News Agency. Kyerematen also noted that the cost of freight has surged due to the coronavirus pandemic and then the war in Ukraine.

Russia: Kaliningrad region is redirecting cement deliveries to the region to sea transport following the implementation of trade sanctions by neighbouring Lithuania. The first consignment of cement redirected from the railroad, on the Kholmogory dry-cargo carrier, is scheduled to be transported on the Bronka - Kaliningrad shipping route by the end of June 2022, according to Interfax. The Ursa Major cargo ship will also be used on the Ust-Luga - Baltiisk shipping route. Additional ships will be used to increase transport capacity to supply the Russian enclave.

Deputy head of the regional government Alexander Rolbinov said, "Now, with the support of the Russian Transport Ministry, the logistics of supplying the region with essential cargos are changing. In particular, we are fully redirecting cement deliveries to sea transport. We have already worked out with Eurocement the required amount of material for the construction industry, which will be packed in 'big bags' and shipped by the fleet. The situation is under the constant control of the governor."

The Kaliningrad region needs about 600,000t/yr of cement. Previously cement was transported by rail through the European Union (EU). However, EU economic sanctions in response to the war in Ukraine started being implemented directly by Lithuania from 18 June 2022. The Russian government has threatened Lithuania with retaliatory sanctions.

Boral admitted this week that high energy costs in Australia had forced it to reduce production levels. Chief executive officer Zlatko Todorcevski revealed to Reuters that the company was temporarily cutting back some unspecified areas of its operations. He also said that it was going to have to pass on growing energy prices directly on its customers.

This has followed mounting alarm at fuel prices in successive financial reports by the building materials company leading to revised earnings guidance being issued in May 2022. Bad weather was responsible for the larger share of the expected additional adverse impact to underlying earnings in its 2022 financial year but around US$10m was anticipated from rising fuel prices. Growing coal and electricity prices were said to be impacting its production and logistics costs, with price rises in January and February 2022 having proved insufficient to keep up with inflation. In a trading update in March 2022 the company said that its exposure to coal prices was unhedged for the second half of its 2022 financial year, to June 2022.

An energy crisis in Australia may seem hard to understand given that the country is one of the world’s biggest exporters of coal and gas. Yet, the country has faced a number of problems with its electricity generation sector in 2022 with disruptions to coal supplies to power stations, outages, ongoing maintenance and a cold winter that adversely affected the market. This led the Australian Energy Market Operator to suspend the country’s main wholesale market on 15 June 2022 in an attempt to stabilise the supply of electricity. New South Wales has also reportedly forced coal mines to prioritise the local market over exports. Energy minister Chris Bowen even asked the residents of New South Wales to try and reduce electricity use in the evenings in an attempt to prevent blackouts. However, with the consumer electricity market now looking more stable, attention has turned to industrial users such as Boral.

Global Cement Weekly has covered energy costs for cement producers a couple of times in the last year. There has been plenty of angst about growing energy costs on cement company balance sheets since mid-2021 as the logistics problems following the lifting of the coronavirus-lockdowns became clear. The biggest story at this time was an energy crisis in China that caused supplies to be rationed to industrial users. This then intensified with the start of the war in Ukraine in February 2022 and energy prices went up everywhere as economic sanctions were imposed upon Russia. One standout was Turkey where cement producers publicly raised the alarm about jumps in coal prices.

Recently, some North American lime producers such as Lhoist North America and the Mississippi Lime Company have been notably bold in announcing price rises due to energy costs and other factors. This week, for example, Lhoist North America said it had raised the price of its lime products by up to 45%. It cited the ‘challenging circumstance’ for all parties at an ‘unprecedented’ time. One alternative to the direct approach of simply putting up prices has been the use of energy surcharges. Japan-based Taiheiyo Cement announced earlier in June 2022 that it was going to introduce a coal surcharge for its cementitious products in September 2022 due to rising energy prices. Its system is based on the coal price with revisions planned every two months. The scheme will run for one year in the first instance. How customers will react to this remains to be seen.

We have looked above at a few disparate examples of the problems that energy costs have been causing cement and lime producers over the last month. These issues look set to continue in an acute phase while the war in Ukraine rages on, but the longer term trends from the economic recovery from coronavirus will undoubtedly last for longer. As examples in Australia and China have shown, local energy crises can easily spill over into the industrial sector as domestic users are prioritised. So, even if cement companies source their supplies carefully, they may face issues if the wider market struggles. Meanwhile, cement producers face the dilemma of justifying price rises to customers adapting to mounting inflation. Taiheiyo Cement has shown one way of doing this. The problems caused by surging energy prices to other cement companies look set to become more apparent in the next few months as reporting of the first half of the year emerges.

Russia: Akkermann Cement reportedly plans to invest US$442m in its construction of the upcoming 3.5Mt/yr Kaluga cement plant. The company says that it expects to complete the project in late 2027. State-owned Prime News has reported that, when operational, the plant will generate 400 new jobs in Kaluga Oblast.

Akkermann Cement acquired the site of the upcoming plant in April 2022.

Russia: Eurocement says that its subsidiary Peterburgcement’s Slantsy cement plant in Leningrad Oblast is undergoing an upgrade in order to co-process 100,000t/yr of alternative fuel (AF) in its cement production. The group claims that the upgrade will improve the efficiency of the 1.9Mt/yr plant and reduce its consumption of natural gas by 25%. The purported cost of the upgrade is US$1.77m.

Eurocement previously implemented the same technology at another of its cement plants in the Republic of Mordovia.

Russia: Local Press has reported that Altai Cement plans to start up Kiln 2 at its Altai cement plant. When operational, the kiln will double the plant’s capacity to 2400t/day.

Russia: A study commissioned by the National Association of Manufacturers of Building Materials and the Construction Industry (NOPSM), SM PRO and Soyuzcement, the national cement manufacturing union, has found that 80% of components required for repairs and upgrades to cement plants in Russia are manufactured abroad. The research was intended to assess the sector’s requirement for foreign equipment and to determine the prospects for import substitution. The results of the survey were presented in late May 2022.

Anton Solon, the executive chair of NOPSM, noted that Russian cement sector holds a ‘critical’ dependence on imported equipment. He said that domestic analogues were either ‘significantly’ inferior to imports or simply not available. The main equipment affected included separators, burners, drives, compressors and grinding mills. Parts for packaging lines, some types of quarry equipment, grinding media, refractories, additives and linings were also negatively affected. However, he did point out that low-efficiency and large-sized gas cleaning plants (including bag and electrostatic precipitators) were produced domestically. Vyacheslav Shmatov, the chairman of Soyuzcement, called for the development of local engineering products to remedy the situation.