Global steel industry faces changing credit risks due to carbon transformation

In a recent report, Moody’s Investors Service stated that due to the different regulatory environments in steelmaking production lines and across the industry, the global steel industry’s move from high-carbon emission processes to low-carbon transitions has caused various issuers to Credit risks vary.

“Decarbonization of the global economy may make the steel industry’s energy and carbon intensity review more stringent. The industry accounts for 6%-7% of global carbon emissions,” said John Thieroff, Moody’s vice president, when demand growth is strong. Reducing carbon intensity will be a challenge for the steel industry.

One of the major risks faced by steel producers is that local emissions regulations vary by region. Moody’s believes that the biggest challenge for emission reduction is China’s developing market, which actively commits to reducing emissions. In contrast, most developed countries have already formulated strong policies and steel companies have also adjusted this. However, tightening these policies in the future will be challenging, especially for companies that do not use modern technologies and processes.

Although there are many uncertainties in the regulatory aspects of emission reduction measures in various jurisdictions, it is clear that some steel industry companies have adjusted more easily than others. For example, the poor profitability of the industry will affect many steel producers’ investment in clean technologies and process flows. The poor profitability of the industry also reflects the tilt of the rating companies of the industry to the high-yield level (as of February 2018, 25 of the 36 evaluated steel companies were high-yield), highlighting the effective emissions of the company in the future. Investment challenges.

The differences in production lines will also determine the success or failure of companies in the global steel industry in the transition to low carbon. Blast furnace steelmaking companies will bear most of the risks, and steel producers using electric arc furnaces may be more likely to achieve their goals.

The combination of product types of steel producers will also be another important consideration. For companies that have a relatively large share of non-transportation terminal markets (especially the construction industry that constitutes half of the global steel market demand), the risk of being replaced is relatively lower. As the car’s electrification progresses, automakers seek to reduce the weight of their vehicles to accommodate heavy-duty batteries. For example, the use of light-weight materials such as aluminum and carbon fiber will increase the existing high risk of substitution for steel companies.

The report pointed out that the industry has not realized the technical solutions for large-scale carbon emission reduction in the industry in the near future. Carol Cowan, Moody’s senior vice president, said: “The new steelmaking technology that can significantly reduce the carbon emission intensity is still in the early stage of development, lack of commercial or technical feasibility, and is unlikely to be widely adopted in the next 10 years.”

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Post time: Mar-26-2018
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