H1 Case Study Question 1 Answers

Question 1 The market for steel Figure 1 Global composite steel price index Note: Global composite steel price is a weighted av erage of the lowest transacted cost of all steel products converted into US dollars. 2004 = 100. Source: www.bloomberg.com Extract 1: Global steel market The recent Eurozone sovereign debt crisis has created a lot of uncertainty in the steel market. This uncertain macroeconomic environment – with distressed financial markets and large government budget deficits – has led to countries implementing a number of austerity measures . In fact, certain parts of the world have suspended investment in large-sc ale infrastructure projects. As a result, steel demand has not rebounded as strongly as predicted. Meanwhile, growth in Chin ese steel production has changed the country from a net importer of steel to a net exporter of steel. Other emerging economies, such as South Korea and Taiwan, are also installin g newer steel capacities. There is now significant over-capacity in the global steel sector. Source: Global steel outlook 2011 and 2012; Ernst & Young’s Global Mining & Metals Center Extract 2: Environmental aspects of steel production The primary process of steel production fr om iron ore involves three basic steps: First, the heat source used to melt iron ore is produced. Next the iron ore is melted in a furnace. Finally, the molten iron is processed to produce steel. This production of steel from ore is the most energy intens ive and emits the most carbon dioxide. The main source of pollution comes from the use of coke - a solid carbon fuel – to melt

and reduce iron ore. Water pollution also come s from the water used to cool coke after it has finished baking. Source: www.steel.org and www.oecd.org Extract 3: The Kyoto Protocol The Kyoto Protocol is an international agreement to reduce greenhouse gas (GHG) emissions. The major features of the Kyoto Protocol are summarised below: 1. Binding targets are set for 37 industrialized countries and the European community to reduce GHG emissions by an average of 5.2 per cent (based on 1990 levels) by the year 2012. 2. Recognising that develope d countries are principally responsible for the current high levels of GHG emissions in the at mosphere, the Protoc ol places a heavier burden on developed countries. 3. Countries must meet t heir targets primarily through national measures. However, the Kyoto Protocol offers them an additional means of meeting their targets by way of Emissions Trading – known as “t he carbon market". The countries are allowed to trade amongst themselves ri ghts to emit six greenhouse gases. If a country reduces emissions below its agr eed limit, it will be able to sell the additional reduction as a credit. So if a country is finding it difficult to cut emissions, it will be able to buy these credits from other countries. Source: United Nations Framework Convention on Climate C