Hello listeners and welcome to Plugged In - the Energy News podcast from Montel, where we bring the latest news issues and changes happening in the energy sector.

Even if you are enjoying your summer holidays on the 27th of July, you are unlikely to have missed a massive news story that was a $750 billion US EU trade deal.

As the two size reached agreement on EU imports of l and g and oil as well as nuclear products, there were some sectors that were left dangling at Trump's 50% tariff rate, steel, copper, and aluminum.

What long-term impact are we gonna see as a result of the higher rate and how is Europe's heavy industry coping and already very challenging macroeconomic and geopolitical climates?

Industry is certainly hoping that the European Commission Steel and Metals action Plan will alleviate some of the pain for the sector's hardest hits.

In this episode, I'll be speaking to the European Steel Association, Euro firm and European aluminum.

But first, I'm joined by our Brussels reporter, Fatima Sadouki.

A warm welcome to you, Fatima.

Hi, Richard.

We're talking about the US EU deal made in July a few months ago.

What were the key takeouts from that deal, from that agreement?

Fatima.

Yeah, so as part of the wider trade deal to put a 15% tariffs on EU export to the US, the EU committed to buy 750 billion worth of energy products over three years from the US through to 2028.

So this commitment has been met with a lot of skepticism by analysts and politicians together because they just say it's unrealistic based on.

A current imports, especially l energy imports.

But what the commission says is that it's not only going to cover gas, there's gonna be oil products, biofuels, nuclear products, and in fact, it says that a gas will represent the smallest parts of this amount.

Nuclear products nuclear fuels and contracts for large and small reactors will represent the biggest part of this deal.

Okay.

That's very useful, Fatima.

So I think we are talking in this podcast specifically about the steel and aluminum sectors.

Why were they not part of the lower tariff rates that the Trump administration introduced?

Yes, so you are right.

In the trade deal, the 50% tariffs introduced by the Trump administration are still in place.

Negotiations between the commission and the US are still ongoing.

And the aim here is to apply a quota system instead of the current tariffs.

One of the reasons for the quotas is because EU players and US players in the sector are struggling with the situation of overcapacity on global markets and especially regarding steal from China.

So one of the stated goals between in, in the talks that are ongoing is to cooperate on protecting their respective markets.

While ensuring security of supply between each other.

But it really, it's really unclear when a deal would be made.

The commission hasn't given any timeline and there is still a lot of uncertainty there.

And how have European steel and million associations, or how has the sec, how have the sectors responded?

In addition to the 50% tariffs the 15% tariffs on products that are still intensive by cars is putting a lot of pressure on the industry.

And this is only adding to the burden of high energy prices and the geopolitical uncertainty altogether.

The commission has presented this year as still and metro plan to help the sector tackle high energy prices and decarbonize.

We are expecting more measures to support it in, its in its trade and exports but what the industry is really calling for is.

Urgent actions and especially speeding up the introduction of quotas.

What they say is that the more the 50% tariffs are in place the bigger the risk that exports are going to be affected.

Thank you very much indeed, Fatima.

Very useful.

Thank you.

So what does steel and aluminum industry leaders make of the state of the market in 2025, I'm pleased to be joined by Axel Eggert director General of the European Steel Association, EUROFER, and Paul Voss, director General at European Aluminum.

A warm welcome to the podcast both.

Thanks for having us.

Paul, I'd like to start by asking you generally about the general sentiment in the ad aluminum sector at the moment.

What's it like?

Yeah, it's a challenging time.

I'm getting used to using that expression.

I started this job in February of 2022.

So on February 1st, the job was really about positioning aluminum in the European green deal and the energy transition.

By the end of that first month the war in Ukraine had started.

The energy crisis, the energy price crisis was in full swing, so we've gotten used to crises.

At the moment we are dealing with a series of structural challenges Chinese over capacity, which I'm sure that we'll discuss the turbulence from the tariff situation in the US.

And also the fact that here in Europe some key markets for us, key applications, notably building in construction, the automotive sector they're really sluggish.

So all this adds up to a very challenging set of circumstances at the moment.

And we'll cover some of those points in more detail later on the discussion, but Axel what about in the steel sector?

I'll ask you the same question.

What's the sentiment like at the moment?

Yeah, everyone in our industry feels really the heat coming up.

And this already for several years.

We have a huge problem with spillover effects of global steel over capacity on the EU steel market.

We have very high energy crisis in the EU compared to our competitors.

On top of that demand has been decreasing for quite several years now in the steel, and I think also aluminum using sectors.

So what happened over the last five years in the steel industry is that the demand broke down by round about 30 million tons.

That's round about 30.

A billion euros every year.

On top of that, we have now the new Trump measures, which will accelerate this process of also then reducing capacity eiling plans and layoffs of workers.

So we are in a very critical situation.

And from that point of view, the steel and metal action plan of the European Commission is now the centerpiece of supporting the whole manufacturing industry in getting back on its, feet.

I mean, I obviously that's a very important element that we'll, we'll go into detail later.

So challenging for the aluminum industry, critical for the steel industry.

And I think what my next question is really about the turbulent tariffs that you you mentioned there earlier, Paul, so what impact have you already seen as a result of the higher US tariffs that were introduced earlier this year?

There are several.

First, there's a general loss of confidence in the stability of the transatlantic relationship.

And I mean, that's a big structural problem that goes beyond aluminum or steel or anything else.

And even if the next American administration takes a more conventional approach to these issues, it is now understood that the United States is always going to be only one election away from a pretty radical departure from the status quo.

So that's a problem.

In practice, I mean there are two issues with the tariffs for aluminum.

The first is, of course, it will restrict access to the American market.

For the moment, shipments to the US continue at a more or less steady rate which suggests to me that the consumers are effectively eating the cost of the tariff.

But one.

Europe doesn't ship massive volumes to the US.

And two, I don't think that this will continue indefinitely because I would imagine that in time the American market will evolve and you will start to see more reliance on domestic production for the products that they currently import from the EU.

The bigger issue for us actually has been the distorting effect of the tariffs on the scrap market.

Perhaps we'll discuss this later, but the immediate consequence of the tariffs, the most important immediate consequence anyway, has been that the cost of scrap, the value of scrap in the US has shot up.

And as European companies were already struggling to retain the scrap here in Europe due to pressures from Asia this complicates an already highly problematic situation.

We'll get back to the issue of scrap.

That's one of my questions to follow up on Paul, but great that you mentioned it, Axel.

What is the impact on the steel industry of Trump's turbulent tariffs here?

Please remember that under the first presidency of Mr.

Trump in 2018, the US imposed section 2, 3, 2 import tariffs on steel and aluminum at 25%.

So at that time, well before 2018, we exported around about 5 million tons of steel products to the US.

In the course of the the years, the US has put in place some exemptions, tariff rate quota, but still the consequence was that last year still we were down 1 million tons, more than 1 million tons from the pre 2018 period, which we lost in our exports to the us.

So we exported last year, still 3.8 million tons.

But even worse on top of that is the deviation of huge trade flows from steel producing countries, which first exported to the US but after two thou 2018, had to look for new markets.

And of course, the European Union is a major open market worldwide.

So millions of tons ended up from other countries on the EU market.

So squeezing the EU market for EU steel producers.

So the impact was already huge.

We lost billions of euros through that first measure.

Now, the second measure under the second Trump administration earlier this year 50% tariff on steel, on derivatives and on aluminum and copper.

And that of course will materialize in the in the next few months.

We will see numbers at the end of the year.

But we feel already today the pressure on the prices in Europe for example by that.

But real numbers we will see by the end of the year.

But we fear that from the two point 3.8 million tons we exported, at least two-thirds will vanish.

On top of that, all the derivatives, so the downstream steel intensive products are also affected by that.

We could lose another few million tons and all that comes on top of the 30 million tons in steel production.

We already reduced in the last five years.

So the situation's really very critical.

And of course what we are hoping, but it will take a lot of time, is the sentence in the joint statement between the European Union and the US that they would work together on the tariff rate quota and on ring-fencing the countries, so the EU and the US from the spillover effects of over capacity in other countries of over the world.

But this process may take a lot of time and there is no obligation for the US to find a joint solution with the EU, because the statement starts with the words the US and the EU intend to consider the possibility of doing that and that.

From that perspective again the EU must act now for both aluminum industry and the steel industry in Europe.

I think we'll come back to the role of Brussels and the regulatory framework and regulatory policies later, Axel.

But I think you, you set the scene very well.

It's obviously a very difficult time for the steel sector and a lot of companies across Europe already severely in trouble.

But Paul I'd like to turn to, to scrap now for those listeners are unaware of what that is.

Could you explain what it is and then and say what the what the key issues for the aluminum sector that this EU, US steel exposes in terms of scrap.

Sure.

I mean there are effectively two ways to produce aluminum.

The first is what we call primary production.

So that's an electrolytic process where you run electricity through a smelter.

And you produce primary aluminum.

That's aluminum made for the first time.

The second is what we often refer to as the secondary route, and that's producing from scrap.

So that is metal that is already in existence, that is remelted and effectively recycled into new products.

Now in a climate of very high energy prices and in a political environment where circularity.

Is encouraged and privileged and needed, that secondary route of production becomes extremely important.

And the raw material for that route of production is scrap metal.

Now, traditionally the European market has found a kind of balance where it could consume most of the scrap that was available on the European market.

Some would be exported, and everybody lived quite happily with that.

Over the past four or five years, we've seen an increasing degree of what we describe as scrap leakage.

So that's the flood of scrap metal outside of Europe.

It applies for aluminum, and I believe it applies for steel.

For aluminum this is driven by two basic sets of circumstances.

The first is the pull to Asia.

So a lot of our competitors in Asia, and this is ultimately the destination of the metal is often India or China.

And sometimes it goes through other countries, can be Bangladesh, Thailand, Hong Kong on its way.

In any case, companies there are simply able to pay more often because they're working on a different model.

One based on over capacity, one based on large states subsidies, or one based on lower environmental health standards that make it very difficult for European procurers of scrap to compete for that metal.

So the metal flows there and increasingly, as I said a few minutes ago, the tariff situation in the US has created a distortion.

Which means there's an arbitrage opportunity for traders to send metal to the US market.

Now, where there is an increasing appetite for scrap and scrap is at a higher value.

All of this means that Europe finds itself structurally unable to compete for that material.

And in the absence of that material, what you have are recycling facilities which are effectively mothballed while we wait to see if there will be policy-driven solution because you, these are very seriously distorted markets.

This is a kind of market failure and I think what's required is a public policy solution.

For circularity and for our strategic autonomy, the leakage of scrub, it might sound like a kind of esoteric issue, but but it's extremely significant.

And it is right at the top of our list of concerns at the moment.

I never expected to spend so much time talking about scrap metal as I do these days.

No, that, it's obviously very important for your industry.

How about for steel?

Is the scrap issue similar there for your industry Axel?

Yeah.

Paul explained it quite well.

The situation for steel ferrous scrap is similar to that of aluminum.

We have roundabout 75 percent of steel producing countries globally outside the EU, have scrap export restrictions.

The EU didn't do anything about it.

We are living this for many years, for two decades at least.

The EU didn't act on this.

Now, at the same time, the EU has by far the most ambitious objective for decarbonizing its economy and its industry.

There are few other places in the world, maybe UK, Canada, that have a similar ambition, yet scrap is a key source for the decarbonization of the society and for reducing primary material input.

So I give you some numbers on steel.

We are exporting on average per year, 17 million tons of steel scrap.

And Paul gave you the reasons why this is exported because others can compete.

We do not have a level playing field on the scrap, costs on the scrap prices with our competitors.

So these 17 million tons, if you would keep these for the decarbonization and circular economy in Europe, we could save 28 million tons of primary raw materials.

We could save 30 million tons of CO2 emissions and we could save 35 terawatt hours of electricity, which we would otherwise have to consume if we would produce a primary steel with hydrogen or electricity.

35 terawatt hours of electricity is more than the country like Denmark or Slovakia consumes per year.

So it's a huge amount of electricity that is in the scrap.

So basically scrap is energy.

Europe is scarce of energy and we are not using this opportunity.

We are outpaced by un unfair trade from our competitors, which have themselves many export restrictions.

So we need to have also a measure that keeps at least a large part of the scrap within the EU boundaries.

We have huge unused shredder capacity.

What is happening is that the worst quality is being exported.

But we could use our capacity in Europe to improve the quality and use it in Europe.

We are not doing it.

So that must change.

In the interest of saying something positive and hopeful.

The EU back in March, in the steel and metals action plan that Axel mentioned.

Did explicitly refer to this problem and announce that it would reflect on the need for a solution to stem the flow of exports?

We are anticipating a decision on whether or not there's a need for a European measure on this before the end of this month.

Three, four weeks from now, we may end up having a slightly different conversation about shaping and finalizing this measure, but it's absolutely clear that something has to be done if we are to believe the encouraging rhetoric that we've heard from this new commission about protecting our industries, about standing up for Europe's competitiveness and Europe's interest.

This is a really important test case.

So what would you like to see happen then, Paul?

And for what should the commission do?

What should it put in place?

Yeah.

I, for aluminum anyway it's fairly simple.

We've looked and we've had external analysis, independent analysis done, and what we see is a gap of around 20 to 30%.

If Europe were to impose an export duty on the flow of scrap to all destinations outside of the European Union, then that gap would be closed and we would be able to compete on a level playing field.

We're not asking for the cessation of all exports.

Simply the opportunity for European buyers of scrap to compete.

And we think that an export duty at the level of 25 to 30% would rebalance the situation and allow us to keep the metal here in Europe, while allowing Europe to continue to function as a trading economy, a part of a global system.

We're not asking to, to close the borders, but to level the playing field.

That's an important point, Axel, I think.

What would else, would you, do you think the, that Brussels is doing enough to protect your industry and to keep heavy industry in Europe in terms of providing some relief potentially from energy prices, gas and electricity.

What would you like to see?

Yeah.

The steel and Metals section plan is, of course, outlining the measures which would be necessary to support both the aluminum and the steel industry in Europe to stay in Europe.

To have an increase in the capacity utilization, which for steel is today at around 65%.

That is nonviable.

We need to come to 80 to 85% capacity utilization, and all the measures should be designed to achieve that.

Because otherwise we will not be able in the future to provide the steel Europe needs for its manufacturing industry, defense, for decarbonization energy systems, et cetera.

We are asking a set and basically it's also within the Steel Metals Action Plan on five, six measures.

That is of course to tackle the global over capacity, the spillover effects of global steel over capacity.

Secondly, to fix the carbon border adjustment mechanism to make it effective force to reduce significantly the energy prices and costs for energy intensive industries.

The fifth to keep scrap within the EU, boundaries for the circular economy and decarbonization.

Six to have lead markets for for metals in Europe with European content and with green objectives.

And six of course financing support.

All this is part of the Steel Measures Action Plan.

But yet or so far we did not see much really materializing by today.

So we are waiting now for the next steps.

Legislative proposals, which will come up end of the months on scrap and on trade.

But on the energy front, we are quite disappointed because the measures which have been taken so far by the commission are not really reducing the energy costs for the open industry.

So that is a big problem and it has a lot to do that.

We have a system, the electricity market design in Europe basically sets the electricity price at the costs of the least efficient gas for fired power plant in Europe.

And we do not see that the lower cost of renewable production would be passed on to the consumer.

Neither to the households, nor to the industry.

And that's a huge problem.

Draghi has pointed this out in this report beginning of the year.

And the commission is not acting here.

If you pass on the CO2 costs of the energy transition in the electricity price, then of course we pay twice.

We pay first the carbon costs as an industry which we have.

When we want to decarbonize and invest in electricity and hydrogen based industry steel making, then we have to pay the higher electricity price, which includes up to 50% of the carbon price.

So this is completely absurd.

Sure.

So if you have yeah.

If you have that amount of renewable electricity, we also want to have a price of that electricity that is close to the production costs of the renewable electricity and not to the higher price of gas fired power plants.

Yep.

Paul what's your view here?

What do does the wholesale electricity market need reforming?

Do you need more measures in place to, to support industries such as your own, or should there be more done in terms of providing centers for long-term PPAs for the sector?

I'd like to go back to the wider question if I could of whether the EU is doing enough right now.

So this, anybody who wants to know what needs to be done for steel and metals really does need to read the Steel and metals action plan because I, we're in the business of complaining, right?

Lobbyists are never happy.

It's never enough.

I actually thought it was a really good document.

There is a blueprint there for acting to save these industries.

And I think there is a kind of societal consensus around the idea that we need to save these basic industries.

And I'm, you know, I represent aluminum.

I've learned to love aluminum.

It's great.

I'm sure Axel feels the same about steel.

But what I notice is that all of us, whether it's aluminum or steel, or chemicals, actually want to support one another because all these things belong, to part of a shared ecosystem.

And I think there has been a decision over the last year or so at least at the political and rhetorical level about the fact that we need to do what's necessary to protect these industries because we need them.

Then.

I'm always, I mean, I've been in Brussels a long time, and I try on one hand you're here to be the voice of your industry.

I also have a certain sympathy for the European Union in the sense that I know the way the policy cycle works.

So if all these decisions were taken about the need to fundamentally look differently at industry compared to, say the past five years where the single organizing principle of the EU was decarbonization in Europe as the world's first climate neutral continent.

If the organizing principle of this second Ursula von der Leyen mandate is going to be competitiveness.

Industry and decarbonization.

Then as I said we have a blueprint there.

What's important now is that we start to see it develop and it takes 1, 2, 3, 4 years to run through one of these cycles.

First big decision point coming up on scrap big decisions coming in the coming weeks and months on trade.

We need a fundamentally different approach to international trade.

The DNA of the European Union in the field of trade has been to maximize free trade and to maximize the number of free trade agreements that we could develop and so on.

I think there's a need to look at it slightly differently and look at trade policy as an instrument to protect.

European interest from unfair competition.

And again, we're not talking about closing borders here, but we are talking about giving European producers a level playing field on which to operate on energy.

I think it's no surprise that it's the weakest of the areas identified in the steel and metals action plan so far.

I think one problem is we have a structural weakness in Europe.

We are resource poor.

And that's a, and that's a fact.

And there are all sorts of opinions about the future of market design.

I believe this discussion will go on forever.

But what is perfectly clear is that we cannot operate indefinitely with energy prices that are 2, 4, 5, in some cases, 10 times higher than they are in other parts of the world.

Something has got to be done about this.

And I don't think it will be energy policy alone, but a suite of policies, industrial policy, trade policy, energy policy things like being thoughtful in the way that we design legislation.

The CBAM is a really interesting case.

The CBAM is here to protect us.

We consistently told this.

And I don't know how many times we've had to go back to policymakers saying this is okay as a theoretical project.

As soon as we look at the way it works in practice with conditions as they really are, we are concerned that it's going to do more harm than good if it's not significantly reformed.

Europe needs to be different in the future if we're gonna solve these problems.

I'm encouraged by a lot of what's been said in the last months, but what matters now is what's going to be done.

And like you said, it could be on the right track.

We could be having a different discussion in three or four weeks.

Fingers crossed that's the case.

And I think when we can, I'd like to have a, another discussion about CBAM and that would be a, that would be a very interesting discussion indeed with you guys.

But thank you very much for being guests on the plugged In podcast.

It's been an excellent and insightful discussion.

I hope you agree, listeners, and thank you for tuning in to this episode.

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