notes, “that has an obvious impact on the pricing”. FX structuring expertise is particularly important to him and “really supportive whenever we need more of a deep dive into the strategy we are trying to implement”.
He uses Deutsche Bank’s Maestro on Autobahn platform for routine FX flows traded on the multibank platform. This takes all the reported exposure Primetals has on a group level and alerts Hamon of the FX trades needed to mitigate them.2
“Just imagine our treasury system where we have many people in the world every day inputting their foreign currency risk,” he says. “They’re adjusting cash flows and timelines because business is moving, customers prolong payments, or we might have to supply earlier than planned. All this data – thousands of lines of it – goes into Maestro, and based on this Maestro tells you that you need to perform these certain currency swaps.” This, explains Hamon, is the essence of managing the liquidity and dealing with non-strategic hedging.
A typical case where he would turn to the FX Structuring team at Deutsche Bank for strategic input would be when deciding whether to bid or not bid on a project. “Suppose we bid on a project in Mexico with a customer and the rates move against us because of Covid-19; we end up signing a project that is lossmaking from the outset. So we need to deal with this and potentially hedge ourselves with optionality accordingly.”
deaths of 270 people and destroyed an entire village.
There was nobody and nothing in place – I was asked to implement a treasury management system in as lean a setup as possible, while having to reach best- in-class standards
Climate change For Hamon, there are two megatrends in the steel industry: digitalisation and sustainability. Crude steel production makes up 8% of global greenhouse gas emissions. However, even if it became possible to extract it with zero emissions, iron ore still has to be got out of the ground, he adds. Two disasters in Brazil highlight the environmental and social costs of getting iron ore extraction wrong.3
In 2015, the collapse of the Fundão tailings dam, which was holding millions of litres of wastewater from an iron ore mine, devastated the local area and polluted the water supply for hundreds of thousands of people in the region, while the Brumadinho dam disaster in 2019, which ranks as Brazil’s worst industrial accident, resulted in the
Everyone wants stronger alloys for steel, so mining is not going to go away – but it needs to be done more responsibly, Hamon stresses. “Until a few years ago, the availability of scrap steel for recycling was still low in China, while most production required freshly mined pig iron, but now more steel can be used from scrap on more environmentally friendly solutions.”
This is helpful but falls short of fully meeting demand. As analysts Wood Mackenzie put it, “Virgin ironmaking is emission-intensive, so the first logical step to reduce emissions is to reuse available scrap. But scrap cannot meet all metallics requirements – stock is limited, collection infrastructure is fragmented, and scrap quality can restrict recycled steel’s use.”4
• Direct ore reduction using gas. Synthetic gas and natural gas have long been used in these processes, but the focus has now shifted to the use of hydrogen, which offers near-zero Scope 1 emissions. However, at the moment it is a trade- off with higher Scope 2 emissions from
The Wood Mackenzie analysis goes on to explain how “the two main ways to produce iron will follow different paths to decarbonisation”: • Smelting. But because coal is an integral part of the process, emissions are unavoidable and technology development is focused on the capture and re-use of CO2
; Figure 2: Virgin iron production and raw materials demand (million metric tonnes)
1,000 1,500 2,000 2,500
500 0
Iron production (hot metal + DRI)
2020 2040 base case Iron ore demand 2040 with accelerated scrap utilisation Source: Wood Mackenzie *Metallurgical coal is not consumed in DRI, which offsets part of the decline in hot metal production
Metallurgical coal consumption
-500mt (-22%) -340mt (-22%) -300mt (-27%)*
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