RE:energy cost vs gas It's not natural gas they use currently, it's a type of diesel, specifically bunker fuel.
Cost-wise, one of the reasons they keep using the burners they do is because many if not most of those pelletization plants use bunker fuel to power their furnaces. Its some of the lowest quality, cheapest fuel available. Dirty, awful stuff but, inertia aside, this fuel is so cheap that even with the carbon penalty, it remains one of the main reasons they keep using this stuff.
That's why the hydro-electric availability is so crucial; plasma torches of this size use insane amounts of electricity. Fortunately both Brazil (where VALE is) and Labrador (where RIO TINTO's pellet plant is) offer hydro-electric capactity at a level that few countries can compare.
As carbon penaltiese start escalating, likely even non-hydro electricity using plants may want to switch, as the penalty not to do so will be too punitive.
The incoming increases to carbon tax (the "stick") will mesh with govt policy changes (the "carrot") to help push things forward. Timing is coming together nicely. In addition, there's a unique opportunity for the big miners to automate and reduce labour costs under the guise of reducing GHG admissions.
For more info, I wrote a long post awhile back, on here or another forum, about how this is all set up and how PYR can benefit due to timing, reprinted below:
** long post **
Carbon Penalties, Govt Incentives, Change In Government Policy… And A Unique Labour Cost Opportunity In The Steel-Industry Have Merged To Benefit Pyr With the recent investment announcements by various CDN steel companies, more clarity has emerged to provide even more support to the solid position PYR finds itself in long-term with regard to the steel industry, at least in Canada. And the key factors are perhaps a little different than what is generally understood.
Background: Steel Producers Moving Forward with GHG Reduction Efforts Despite Major Hurdles In the past few months, both ArcelorMittal (Dofasco in Hamilton) and Algoma (at their Sault Ste. Marie location) released news about big measures they plan to take to reduce GHG emissions, with both companies planning to phase in electric arc furnaces (EAF) to replace blast furnaces.
The obstacles are not small, and a huge effort will be required. The Algoma plant in northern Ontario (Sault Ste. Marie) for example, that just announced building two EAFs, lacks the electrical infrastructure. The budget alone for electrical upgrades will be $30 million, and even after the 30-month build is complete they can’t come online fully, as "there is a transition where we would be required to continue to operate our existing facilities – blast furnace and coke oven batteries – because the grid power supply is not available to run both electric arc furnaces simultaneously… And then once grid power became available, the idea would be that we would shut down the blast furnace/coke oven battery and transition to running both electric arc furnaces at full capacity."
Add to that a massive increase in natural gas usage… "From a strictly natural gas perspective . . . there would be an initial increase in natural gas usage, in the order of about about 100,000 tonnes of carbon dioxide."
And new toxins released… "As we transition away from coke oven/ blast furnace-type operations, we will change many of the contaminants that are emitted from our facility… The benzene and BaP [benzo(a)pyrene] kind of contaminants will be eliminated as a point source of emission."
Source:
https://www.sootoday.com/local-news/latest-on-algoma-steels-big-switch-to-electric-arc-steelmaking-3975529 Yet, despite these challenges, they are moving ahead nonetheless.
But why? Why now?
The public relations answer is to reduce greenhouse gas emissions and be good corporate citizens.
The corporate truth is perhaps a little more complicated, and hides one reality behind others:
Reason #1 is because of fast-approaching financial pain – specifically in the form of taxes, penalties, and expiring govt agreements.
Reason #2 lies beneath the surface, but is perhaps something just as important: the steel industry sees an opportunity to use reduction of GHG emissions to impact competitiveness by altering labour costs through automation.
To explain…
PYR has said repeatedly that sales of PYR’s product line are not dependent on govt rebates; while that’s true, in that rebates alone aren’t the precursor to sale of electric plasma torches to replace diesel burners, it’s also clear that the “penalties” for emissions weren’t large enough to force change upon the steel-makers – especially in a competitive environment.
The two-headed tactic of government rebates backed by penalties has always been in play in some form or another for several years. Alberta introduced a reporting program for large CO2 emitters in 2003, and carbon taxes have existed in Canada since 2007 when the province of Quebec first implemented a carbon tax on the energy sector.
But the resistance to change by the steel producers has long been undermined (and easily offset) by a mixture of competitive cost pressure, inadequate infrastructure, and lack of both corporate and political will.
So what’s different now?
1/ The Carrot -- Significant Changes in Govt Policy. Deadlines are approaching, and the government is willing to play ball.
In 2017 the Government of Canada mandated a performance agreement for the iron ore pellet sector in Canada to reduce air pollutants, specially sulphur dioxide.
The signees of the document were:
- ArcelorMittal Mining Canada G.P. at Port-Cartier Quebec.
- Iron Ore Company of Canada (Rio Tinto) in Labrador City.
The agreement has a deadline of 2026. But despite running out of time to meet the targets, little to no progress was being made towards those goals. The key reasons were a lack of electricity infrastructure and, well, money.
But when the Canadian federal government decided to bail out the financially crippled but much needed Muskrat Falls hydro-electric project in Labrador, with $5.2Bn of federal funds, combined with a massive increase to the federal government’s carbon reduction rebate program “The Net Zero Accelerator Fund” in Spring 2021, from $3bn to $8bn (with the majority of the increase reserved for large carbon emitters), it not only provided the eastern Canada steel industry with the electricity they will need to eventually end many of their blast furnace and bunker fuel production processes, but also indicated game-changing funds were being made available to make the necessary large-scale changes.
Source:
https://www.ic.gc.ca/eic/site/125.nsf/eng/00039.html and
https://thenarwhal.ca/muskrat-falls-hydro-dam-trudeau-bailout/ Perhaps more importantly, in July 2021, when the federal government agreed to give ArcelorMittal Dofasco $400 million to help fund their switch to EAF, and $420 million to Algoma Sault Ste Marie to do the same, it was clear a major change to government policy surrounding the steel industry was being signalled.
Additionally, and something that has gone somewhat under-reported, the most recent federal budget included the proposal for the introduction of an investment tax credit for companies investing in carbon capture, utilization and storage, a reduced corporate tax rate for manufacturers of zero-emission technologies, and expansion of an existing cleantech tax write-off to include production of renewable fuel and hydrogen from low-carbon electricity.
Source:
https://www.canada.ca/en/department-finance/programs/consultations/2021/investment-tax-credit-carbon-capture-utilization-storage.html But the initiatives being presented are not done in isolation, and throughout the multi-year process to get these funding agreements up and running, it’s a given that the steel-makers were not just included as observers, but helped draft the criteria. Context is key, as is the timing of all these changes.
Which leads to the next part that can help answer the question “what’s different now?”.
2/ The Stick -- The Impending Doom of the Carbon Tax Increase. In all likelihood, the change in government policy to include massive funding support was really only added as a carrot to counter “the stick” – the dramatic pending increase in carbon tax that would hurt the steel-makers in a way that is almost irreparably unfair.
But why is a carbon tax and a goal to reduce GHG emissions from large producers unfair?
Because Canadian steel-makers are already producing steel with the world’s lowest carbon footprint, and penalizing the leader with hundreds of millions in carbon taxes would not be justifiable, at least comparatively.
That’s right, Canadian steel had the lowest or second lowest carbon intensity, depending on the steelmaking method, of 15 countries studied in a major international report titled “How Clean is the US Steel Industry?”
From the report: “As can be seen Canada and Mexico have the lowest and China has the highest weighted average CO2 emissions factors of fuels in the steel industry.” In fact, Canadian-made steel in Canada has a carbon footprint of two-to-four times less than international competitors.
Source:
https://static1.squarespace.com/static/5877e86f9de4bb8bce72105c/t/60c136b38eeef914f9cf4b95/1623275195911/How+Clean+is+the+U.S.+Steel+Industry.pdf and
https://www.globalefficiencyintel.com/new-blog/2020/cleanest-dirtiest-countries-primary-steel-production-energy-co2-benchmarking To put into perspective how big a hit to the bottom line of Canadian steel producers the carbon tax increase will be, consider that today, the carbon tax per tonne of CO2 is $40.
The carbon tax is set to increase to C$50 in 2022.
And $15 more a year, every year, until 2030, when it will reach $170.
Source:
https://www.canada.ca/en/environment-climate-change/services/climate-change/pricing-pollution-how-it-will-work/carbon-pollution-pricing-federal-benchmark-information/federal-benchmark-2023-2030.html and
https://cdn-ceo-ca.s3.amazonaws.com/1gpn64t-carbon-price-increases.png
Using ArcelorMittal Dofasco as an example, it has one of Ontario’s largest industrial carbon footprints, emitting about 4.8 million tonnes of greenhouse gases each year.
Source:
https://www.thespec.com/news/hamilton-region/2021/07/29/hamilton-dofasco-announcement.html At the current price of $40 per tonne, their *carbon tax hit is $192,000,000… PER YEAR. At $100 per tonne, it’s $480,000,000. At $170 per tonne, it’s $816,000,000.
*NOTE: this is the benchmark fee, not what they actually pay. For large emitters, compliance payments or tonnes owed are set as a fraction of total facility emissions, so they actually pay a much lower fee based on this benchmark in an effort to protect competitiveness. For example, the average cost signal in Canada is exceptionally low for large emitter programs, ranging from $1.80 to $25.60 per tonne, with an average price per tonne of $4.96
Source:
https://climatechoices.ca/canadas-carbon-pricing-update/ Both ArcelorMittal Dofasco and Algoma Steel have committed to reduce their annual greenhouse gas emissions by three million tonnes each within the coming decade. Because of construction time, it won’t happen all at once, so they will be suffering under a higher yearly payment for several years.
So the government grants of $400MM to each company to help “with the construction” is likely also being used to help offset some of the higher carbon taxes they will pay until such time as electrical furnace switchover has fully occurred.
But even if Dofasco will reduce their CO2 emissions by 3 million tonnes as they are proposing, it still leaves close to 2 million tonnes that they won’t be able to reduce, and they’ll be paying a much higher cost than today’s carbon tax rate. Instead of paying carbon tax on 4.8MM tonnes at $40 per ($192,000,000), they’ll be paying for 1.8MM tones close to $100 per ($180,000,000) in the year they their EAFs are up and running. Rising to $170 per tonne a few years after that.
In other words, even with the change to EAF, their carbon tax hit will be getting significantly worse over time.
Something, then, appears to be missing. Why agree to such a plan (which they definitely had a hand in) if the taxes will be the same or worse within a few years?
Which leads to perhaps the final part of the equation as to “why” this is actually happening…
3/ Automation -- The Opportunity to Lower Labour Costs. Canadian steel producers have for years been in a situation where they can’t compete on price, primarily due to labour costs. In fact, in Canada, labour represents the highest component cost of the steel-making operation, even more than energy consumption, which is second.
Source:
https://www.nrcan.gc.ca/sites/www.nrcan.gc.ca/files/oee/files/pdf/industrial/SteelBenchmarkEnglish.pdf Compared to low cost producers overseas, the impact of higher labour cost has been dramatic, and almost led to the total collapse of the Canadian steel industry in 2014 when, with the help of government subsidies, China shipped 552,535 tonnes of steel to Canada, including 138,893 tonnes of rebar that the Canadian Border Services Agency determined to be dumped (dumping is defined as the export of a product at a price that is lower in the foreign market than the price charged in the domestic market).
Almost overnight, cheap imports gained a 44% share of the Canadian steel market. The impact was immediate. Stelco, a 100 year old producer in Hamilton Ontario, was brought to the brink of collapse when, seeing a 96% decline in profits in a single year, eventually filed for bankruptcy (but was eventually bought by US Steel, flipped to another company, and now back to being publicly traded).
Source:
https://www.ourcommons.ca/Content/Committee/421/CIIT/Reports/RP9041990/ciitrp07/ciitrp07-e.pdf and
https://www.usw.ca/news/publications/policy-research-and-submissions/the-case-for-canadas-steel-industry The Canadian steel industry employs approximately 22,000-25,000 workers, with each job indirectly supporting a minimum of three other jobs. The Canadian Steel Producers Association estimates the average annual salary within the industry to be $70,000 a year (in 2017).
That’s $1.75Bn in labour costs.
For decades in the steel industry, productivity and output has been increasing as the number of people employed in the industry is decreasing. Notably, says a column in Bloomberg, "a crucial issue facing metals-producing industries isn’t foreign competition — it’s automation."
Source:
https://www.politifact.com/factchecks/2018/mar/08/noah-smith/has-automation-driven-job-losses-steel-industry/ Source:
https://www.bloomberg.com/opinion/articles/2018-03-07/trump-s-tariffs-on-steel-aluminum-will-do-more-harm-than-good Like any industry, technological change has tremendous impact, but an “old” industry like steel-making has been using many of the same manual processes since the early 20th century. Electric arc furnaces are changing that, and as a result, there are assumptions that labour costs will decrease dramatically with the shift to EAF. With steel-making being one of the last major unionized large industries, the potential conflict is obvious.
The concern over EAFs causing so much automation as to reduce the labour force was such an issue at Algoma Steel, that the head of the Algoma union refused to attend the Prime Minister’s $400MM award announcement.
Source:
https://www.sootoday.com/local-news/why-mike-da-prat-boycotted-the-prime-ministers-algoma-steel-announcement-3935767 And perhaps they have a right to be worried. Some new steel factories in Europe are getting by on dozens, rather than hundreds of workers. A plant run by Voestalpine in Austria opened in 2017, and employs only 14 staff to make 500,000 tons of robust steel wire a year. Compare that to mills built in the 1960s that had as many as 1,000 employees producing similar capacity.
Source:
https://www.popularmechanics.com/technology/infrastructure/a27043/steel-mill-austria-automated/ and
https://www.bloomberg.com/news/articles/2017-06-21/how-just-14-people-make-500-000-tons-of-steel-a-year-in-austria According to the World Steel Association, over the past 20 years, the number of worker-hours needed to make a ton of steel industry-wide has fallen from 700 to 250, as new control processes and innovations such as casting steel closer to the shape of the finished product have improved productivity.
“The steel plant of tomorrow will be mostly automated, with digital controls affording workers the chance to become supervisors and researchers of more technologically advanced production processes such as casting and rolling."
Source:
https://spectra.mhi.com/from-muscle-to-memory-the-new-trend-in-steel-plants When the advantages of electric arc furnaces are listed, “programmable and automated” is virtually always included on the list.
Source:
https://www.linkedin.com/pulse/advantages-electric-arc-furnace-steel-making-jean-lee-/ And studies show both labour cost and production cost can be lowered when EAFs rely more on automated than manual operation.
Source:
https://www.hindawi.com/journals/jen/2014/620695/ The net of all of this, is that there is an argument to be made that steel-makers – especially those in geographies like Canada that are under labour-cost pressure vs their overseas competitors – have long seen the benefits of automation, and are now possibly taking advantage of the trend to reduce GHG emissions to expedite their automation goals.
Newly automated systems will demand a smaller workforce, reducing labour costs and allowing the companies to both further offset the rising carbon taxes while being more cost-competitive.
PYR’s electric-powered induration torches are by nature designed to be part of the modern, electrically- and programmically-driven evolution of many industries. While these industries may be under public and governmental pressure to reduce emissions, it may be the rare opportunity to reduce labour cost through automation (but under the guise of carbon reduction) that has finally moved them to act.
Zaphod wrote: There's a lot of talk about it reduction in pollution but what is the cost difference between a plasma torch and using conventional natural gas.