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The EU plans to introduce new CO2 emission standards for car producers by 2015. However, only French and Italian producers offering small cars currently comply with these standards, while German producers may find it difficult to comply with stricter regulations. Such a situation could also have implications for the steel and aluminium industries as car producers are likely to increase their usage of aluminium so as to reduce the average weight of their vehicles.
Reducing CO2 Emissions and Demand for Steel
In order to cut greenhouse gas emissions, the EU plans to introduce stricter environmental regulations for car producers. Manufacturers will be obliged to ensure that production fleet will not emit more than 130g of CO2 on average by 2015 (down to 95g by 2020).
However, at the moment, it is mostly Italian and French producers which comply with the requirements and are likely to meet the 2020 regulations relatively easily. Meanwhile, in order to comply with tightening regulations, German car producers are likely to cut vehicle weight in order to reduce CO2 emissions. Given the fact that composite lightweight materials are not economically viable yet, the German car industry is likely to increase its usage of aluminium, thus adversely affecting steel producers.
Average CO2 Emissions in 2012, g/km
Source: European Environment Agency
Implications for Aluminium and Steel Demand
Aluminium consumption in the German car industry has increased over the years. In 2012, the German aluminium market was worth €16.6 billion, with the car industry being its second largest consumer.
In 2012, the average passenger car contained 120-150kg of aluminium, with this figure set to increase to 250kg per unit by 2025. German carmakers have been pioneers in terms of aluminium usage, with demand from manufacturers such as Audi and BMW constantly increasing due to tighter CO2 emission requirements.
As the car industry’s supply chain is rather localised, German aluminium producers are likely to benefit most from this trend, with the first signs already visible. The fifth largest aluminium producer globally, Hydro Aluminium, plans to nearly double production capacity at its Grevenbroich plant to meet rising demand from the car industry. Expansion is expected to be completed by the end of 2014, with annual production capacity standing at 50,000 metric tonnes.
However, such developments could adversely impact steel producers, especially in Germany. Germany is the second largest steel producer in Europe, with production reaching 46 million tonnes in 2012 and ThyssenKrupp accounting for more than half of total production.
The car industry was the second largest steel consumer in Germany in 2012, generating demand for steel worth €9.8 billion. However, stricter CO2 requirements could change the situation as car producers are replacing steel with aluminium. Currently, steel accounts for 80% of cars’ weight, but this share could decline to 50% by 2020.
This could be disastrous for steel producers such as ThyssenKrupp, which is already struggling with weak global demand and overcapacity.
If You Can’t Beat Them, Join Them
Sensing difficult times ahead, German steel producers are already investing in lighter steel production, integrating other high-strength metals such as magnesium.
ThyssenKrupp, for example, has invested €300 million in production plants in Bochum and Duisburg. Such investment is expected to help the steel producer improve the production technology of flat-rolled steel, which is primarily used by car producers.
Moreover, in May 2013, aluminium sheet producer Novelis and ThyssenKrupp signed a cooperation agreement for the development of aluminium blanks for the car industry. New production techniques will make car bodies lighter and stronger as combination of aluminium and steel allow the elimination of reinforcements and the overlapping of joints, making a new type of car body more appealing for car producers. Similar co-operations are likely to be seen in the future as steel producers could find it difficult to invest alone due to the weak economic climate.
Such developments could be beneficial for premium German car producers trying to reduce the weight of their vehicles. However, application on cheaper cars would be more complicated as composite metals are more expensive than conventional products. Despite this, new composite metals could save European steel producers, at least for now.