Day: 11 March 2020

Germany’s Klöckner & Co suffered from falling prices and volumes in 2019, and ended the year with a net loss. It has entered the new year with optimism that this can be turned around, mainly because last year’s phase of windfall losses in a period of falling steel prices has now been largely overcome.

However, by the time that the distribution group announced its figures in Düsseldorf yesterday, the coronavirus has become a major wildcat factor that will not make things easier, warned ceo Gisbert Rühl.

Shipments fell by -7.5% to 5.65 million tonnes in 2019. This, combined with falling steel prices in the group’s main markets, of Germany/Europe and the US, saw revenue fall by -7.0% to €6.3 billion ($7.1 billion). The year ended therefore with a net loss of €55 million. “The effects of the steel price deterioration were considerable,” Rühl said at the press conference attended by Kallanish.

Before the coronavirus became so widespread Klöckner continued to expect an increase in shipments year-on-year for 2020, mainly because of healthy activity in its main customer sector, construction, in both Germany and the USA. Against that, prospects for the automotive and mechanical engineering sectors are bleaker, Rühl noted.

So far, the group has not yet felt any immediate disruption caused by the coronavirus, given that construction is not dependent on international supply chains which may break, Rühl explained. This, however, could well happen in the automotive and the mechanical engineering industries, which are already suffering from a slowing economy.

In a statement monitored by Kallanish confirming the closing of its deal to acquire UK longs’ specialist British Steel, China’s Jingye Steel has outlined its plans for investment in its new offshoot. Amongst other developments. It intends to introduce rebar production to British Steel’s portfolio.

Jingye says that it has pledged to invest £1.2 billion ($1.55 billion) “… to place the business on a more competitive and sustainable footing.” It plans to return British Steel to industry-comparable margins within five years, the Chinese steelmaker adds.

It lists five major initiatives which it is planning for the Scunthorpe-headquartered steelmaker. The two most interesting ones are the development of an electric arc furnace in Teesside and the building of a new rebar line. The former would bring melting back to north-east England while the latter development would provide some competition for the UK’s only rebar producer, Cardiff-based Celsa.

Jingye also plans to construct a new 250-megawatt power plant to serve the Scunthorpe site. The new plant is expected to be around a third more efficient than that it replaces. The Chinese steelmaker also foresees investment in the rolling mills to produce high-quality steel products to optimise the product portfolio. It will also enhance the current rail (medium sections) mill, Jingye confirms.

“It has not been an easy journey since we first announced our intentions in November but the longer I have spent in Scunthorpe, the more I have come to believe in the successful future of these steelworks and the employees that have made them famous throughout the world. Together, we can forge a new partnership that will mark the beginning of a new illustrious chapter in the history of British steelmaking,” says Jingye ceo Li Huiming.

Italian re-roller Marcegaglia confirms to Kallanish that its plants are fully operational, and no cancellations of orders have occurred.

“The Group has not encountered any problems in production or in the supply chain thanks to the plurality and different geographical location of the Group’s plants and the number and varied location of the suppliers available to it,” the company says.

The group has already adopted an extraordinary health protocol as a precautionary measure which also includes precise prevention measures within its offices and production plants. It has been implementing all the preventive provisions prescribed by the health authorities in full compliance with government directives to protect employees and visitors, Marcegaglia says.

The decree issued by Italian Prime Minister Giuseppe Conte on 8 March 2020 was aimed at limiting the spread of COVID-19 clarifies that “… goods can enter and leave the concerned territories. The activity of carriers and transport operators is a working requirement: the personnel who lead the means of transport can therefore enter and leave the territories concerned and move within them, to the limited purposes of delivering or collecting the goods.” In an amendment to this decree on 9 March Giuseppe Conte has put the entire country on lockdown. While steel companies are reassuring customers, deliveries are being delayed and the market is slowing significantly this week following the news that the number of deaths has doubled in the past 48 hours.

Alfa Acciai, the Italian longs supplier headquartered in the Brescia area, has announced that its production will be halted to collaborate as much as possible with the restrictive measures imposed by the local government. This is to stop the spread of the virus, according to local sources. The group will halt production at its Brescia plant, while the Acciaierie di Sicilia site in Sicily is understood to not be impacted by the decision. Brescia and Lombardy are the areas mostly impacted by the current coronavirus outbreak in Italy.

The company explained to the local media that it will continue to ship products to its clients, but production will be stopped to ensure minimum activity at the site.

Italian steelmaker Arvedi, located in north-west Italy, also issued a statement on Sunday to reassure its suppliers and customers. It said that its production and logistics’ operations, including shipments and receipt of deliveries, will continue in the coming weeks (see Kallanish 8 March).

German steel service center group Kloeckner is expecting steel prices to gain more stability this year but sees intermediate risk of “poor long-term profitability” amid a weakening economy and reduced steel demand, the company said Tuesday.

In the company’s financial report for 2019 published Tuesday, Kloeckner said that the outlook for the construction industry remains positive and that output cuts at steel producers and “an end to inventory rundown” should bring supply and demand “better into line” and lead to improved steel prices.

However, other customer markets such as the auto and mechanical engineering industry are not expected to grow, while an increase in steel capacity in the US could put steel prices under pressure in the NAFTA region.

“In anticipation of a slightly weakening economy in Europe and the USA with moderate steel price levels and reduced demand, we see an intermediate risk of Klöckner & Co facing poor long-term profitability,” the report said.

Kloeckner said it would work on its procurement strategy to combat the negative macroeconomic effects.

“In procurement, we will continue to systematically leverage the economies of scale we have over many competitors. We target major scale economies by focusing quantity requirements on suppliers who grant commensurate terms and by making intensive use of global procurement options,” the report said, adding that shipments are expected to increase again in 2020.

Overall, shipments at the Kloeckner group amounted to 5.6 million tons, down 7.5% year on year. Shipments decreased at all three Kloeckner segments in the US, Switzerland and Europe. The company said falling steel prices and weak demand resulted in a decline of around 7% in Klöckner sales to Eur6.3 billion in 2019.

Operating income (EBITDA) amounted to Eur124 million, down from Eur229 million in 2018.

Klöckner anticipates an increase in operating income for the fiscal year 2020 driven by the anticipated increase in the stability of steel prices as well as planned efficiency improvements and cost savings such as those generated through the growing automation of processes.

The share of sales generated via digital channels will be raised to over 40% this year and to over 60% by 2022, according to the company.

— Laura Varriale

Tata Steel Europe will lay off considerably fewer employees than originally announced under its “transformation” program designed to combat “very challenging” market circumstances, CEO Henrik Adam told employees late Monday. However, consultations on layoffs at the steelmaker will start as soon as early April as it speeds up its reorganization after losses last year.

“Although it’s good news that we are able to minimise the impact on our current employees, we need to progress with speed to secure the future for the business,” Adam warned.

The number of proposed job cuts throughout the whole Tata Steel Europe business — including some operations and offices outside Europe — is now to be reduced to 1,250, compared with the total of 2,950 that had been announced last November — comprising 1,600 jobs in the Netherlands, 1,000 in the UK and 350 elsewhere in the world.

Tata Steel Europe currently employs around 21,500. Its assets include the 3.85 million mt/year integrated Port Talbot steelworks.

“We have identified a range of measures, including not replacing employees who have retired or left the business, which would minimise job losses within the current workforce to 1,250 across the European business,” Adam said in a memo to employees following conversations with the European Works Council.

Although details of the transformation program are still being thrashed out with the Works Council, the priority is now to speed along arrangements to “urgently improve the profitability of the business as well as enable annual investments to accelerate the development of new high-value products and help decarbonise steelmaking,” Adam said in his note. Consultations will therefore start in early April on the proposed organizational changes with the relevant national employee representatives, he said.

Tata Steel Europe plans to make a specific push on packaging, automotive and engineering steel products as it lifts its profile as a higher-value products producer in a drive to improve its financial performance.

The company also aims to optimize production processes, supported by the application of big data and advanced analytics, and improve customer focus.

The transformation program was introduced November “to address long-term industry challenges as well as severe short-term market headwinds which have led to the business losing GBP76 million on an EBITDA basis during the first nine months of the financial year,” ending December 2019, Adam said.

“The transformation programme targets GBP650 million EBITDA uplift, GBP500 million of which is as a result of productivity improvements and increased sales of higher-value steels,” he added.

— Diana Kinch

Italian steel producers are still operating despite the coronavirus outbreak and the stringent measures put in place by the government. However, the situation is very fluid and could change in a matter of hours, sources said.

Monday night the Italian government extended the lockdown of northern Italy provinces to the entire country. Until at least April 3, under a government decree, all public events are banned; cinemas, theaters, gyms, discos and pubs are closed, and funerals, weddings and sporting events cancelled. All schools and universities will remain closed.

Under the new decree, people will only be able to travel between cities for emergency reasons and can face fines and up to three months in jail for breaking quarantine rules.

Steel production and order deliveries are still underway, but with special attention to new safety measures.

The strict action was taken after the number of coronavirus deaths in Italy rose from 366 to 463 on Monday, according to the head of the country’s civil protection agency. Nearly 8,000 people are infected, the majority in the provinces of the northern region of Lombardy, which has the largest concentration of steelmakers and re-rollers and where nearly half of Italy’s 23 million mt/year of crude steel is produced.

According to Italian newspapers, some of the regional governors where the outbreak is most severe, such as in Lombardy and Veneto, are seeking a stoppage of all work activities for two weeks and a quick restart, thereby contributing to situation’s fluidity.

Scrap dealers said that some leading Italian mills are considering a plan to make some stoppages now, as scrap prices were expected to rise after the rebound of Turkish prices, which are now on hold at around Eur240-250/mt delivered to mills for the E40 grade.

Some mills contacted by S&P Global Platts said they are pondering temporary stoppages but they want to do it in a planned way without disrupting their customers. “These are extraordinary times, but we have a good work ethic in particular in this part of Italy so we have to see how we can operate with our stocks,” said a market source in Lombardy. “We want to continue to serve well our clients but of course we have also to take care of our employees and help this situation go back to normality.”

“In Lombardy there are a lot of long [steel] producers and considering that rebar prices are not doing so well stopping production for two weeks could be not so negative,” a senior industry source commented. “Let’s put it this way 15 March could become like 15 August when mills stop for their summer stoppages.”

According to the weekly Platts price index, northwest European domestic rebar prices softened last Friday to Eur452.50/mt ex-works, down Eur7.50/mt on week, with Italian rebars reported around Eur400/mt FOB.

— Annalisa Villa