Day: 25 March 2020

Buyers of coil products in north-western Europe tell Kallanish that lead times are already long, and already stretching until the end of the second quarter. That picture may be altered by the evolving coronavirus issue, but its projected influence cannot easily be assessed.

The high degree of utilisation at the mills was preceded by what one service centre manager calls a “… historic low in inventories” at the end of 2019. Earlier this year, all service centres had restocked with some urgency, “… so that temporarily we were facing lead times of four weeks. – I have never seen that,” he tells Kallanish.

The second quarter appears to be practically sold out so, “… you won’t get anything before July, and that applies to all coil categories,” he says. Other sources largely agree, although maybe to a different extent. Some say it is a question of price if volumes are required urgently. This would explain the price spread, they suggest.

Mills recently claimed that €520/tonne ($561/t) ex-works was a viable price for HRC and €620/t for HDG, which many buyers deny. Such peak values are quite likely achieved in urgent cases, while otherwise €480/t or €580/t respectively are a more likely target for big buyers. “The truth is probably in the middle,” the manager says. “The upward trend in prices has halted for two weeks now, but mills are still not willing to discuss price reductions,” he observes.

German consultant Andreas Schneider points out that the good utilisation says little about real market demand in the longer run. In accord with the manager, he suggests that it is mainly the busy end of a restocking cycle.

Jastrzebska Spolka Weglowa (JSW) is yet to feel any direct impact from Covid-19 on its coal or coke trade. The group’s coking plants are not affected by global logistical problems since they mainly use captive coking coal, the Polish miner says.

JSW’s external coking coal sales fell -3% on-year in 2019 to 5.8 million tonnes, although production was down only -1% to 10.2mt. Performance was impacted by the difficult situation in the coke and steel markets, which resulted in lower demand for coking coal. Unit mining cash cost, however, rose 8% to PLN 426/tonne ($100).

Premium hard coking coal fob Australia prices came down from above $200/t at the start of 2019 to below $140/t at the end of the year. Prices declined in the second half of the year due to curtailed coking coal purchases by China, lower-than-expected demand from India and reduced steel production in Europe.

Coke sales slumped -17% last year to 2.9mt, with output down -11% to 3.2mt, meaning capacity utilisation fell to 86.5% from 93.4% in 2018. Unit cash conversion cost rose 19% to PLN 161.7/t. JSW’s coke sales price fell -2% from 2018 to PLN 1,073/t fca.

“Without a doubt, 2019 was a year of global economic slowdown,” JSW chief executive Wlodzimierz Herezniak says in a note seen by Kallanish. “The crisis in the automotive industry, reduced demand for steel in Europe, and tariff war between the US and China contributed to the drop in international trading activity. Our current activities are therefore focused on intensifying sales and implementing measures to gradually increase operational and cost efficiency.”

JSW’s consolidated revenue fell -11.6% on-year in 2019 to PLN 8.67 billion ($2.03 billion), while net profit slumped -63% to PLN 649.6 million. Poland accounted for 52% of revenue, Austria for 15%, Czech Republic 10%, India 8% and Algeria 5%.

In late November last year JSW signed a PLN 1.7 billion deal to supply Liberty Galati with blast furnace coke for five years until end-2024.

The abrupt slump in customer demand caused by the coronavirus pandemic is forcing Austria’s voestalpine to reduce production in various areas, the company says in a statement monitored by Kallanish.

This includes reducing pig iron capacity at the site in Linz by around -20%, by temporarily shutting down a small blast furnace. Elsewhere in Austria, units of the group will go on short-time working. This is to reduce production but also “… with the clear objective of retaining our highly qualified employees within the group,” ceo Herbert Eibensteiner says.  

“Demand in key voestalpine customer segments has collapsed in just a few days,” he says. In order meet the required level of flexibility and to secure jobs as far as possible, short-time working is being registered at 50 units in European countries. Outside of Europe, voestalpine will implement alternative measures as appropriate in countries where no such short-time working models are available. Several sites in countries including France, Italy, Peru, Brazil, and the USA have already been temporarily closed.

“When our customers significantly reduce their level of demand, stop production, and supply chains temporarily come to a standstill, we need to react promptly,” Eibensteiner says. “In these difficult times, my particular thanks go to those who are still hard at work in production. They are making a vital contribution to maintaining our critical infrastructure at many plants,” he adds.

Italian stainless steel producer Valbruna is extending production stoppages to fight the coronavirus outbreak. This is in compliance with the measures imposed by the latest decree of the Italian Prime Minister on 22 March and until 3 April, Kallanish learns from the company.

Among the sectors that the government has decided to suspend are also the economic activities pertaining to group 24 of the Italian classification of economic activities (AtEco). This relates to stainless steel manufacturing, from melting to its processing.

As per the decree, up to 25 March the company is allowed to complete the necessary operations for the suspension of its production activities. This includes the shipment of goods in stock at the Vicenza and Bolzano sites as well as stock at peripheral sites located in Italy. Beyond 25 March and until the end of the suspension of activities, shipment of ready-made material available from stock is permitted to specific Italian customers. These must be part of authorised production chains and considered essential by the government, the company says in a note.

At the same time Cogne Acciai Speciali will not restart production this week as previously scheduled but says that it will guarantee the continuity of its customer service, Kallanish notes.

Indian automotive production fell -18% on-year in February to 1.65 million units, according to a Society of Indian Automobile Manufacturers (SIAM) note seen by Kallanish.

Passenger vehicle sales fell -7.6% to 251,516 units.

In the 11 months through February Indian automotive production slumped -13% on-year to 20.5m units, maintaining the same declining rate as after ten months. Passenger vehicle sales dropped -15% to 2.63m units.

Earlier this month SIAM president Rajan Wadhera said reduced sales are due to the economic slowdown and lower production of BS-IV class vehicles, which are not permitted to be sold after 1 April.

“Supply chain disruptions from China are also a concern, which may impact the production plans for companies going forward,” he added. “The auto industry is grateful to the government for issuing a notification of force majeure for coronavirus and 24×7 clearance of shipments at all customs formations.”

Indian auto ancillaries and original equipment manufacturers import around 27% of key input materials from China, according to India Ratings & Research. “The extended production halts in China after the Chinese New Year due to a substantial rise in Covid-19 affected population have created supply-side risks for domestic auto companies,” the credit rating agency says.

The industry could look alternatively at sourcing components either locally or from other countries such as Germany, South Korea, Japan and Thailand, which now account for around 33% of total input material imports. But this would be costly and supply may be insufficient to meet demand.

With India going into a three-week nationwide lockdown from 25 March, it is unclear how much automotive production will be able to continue in the nation. Manufacturers such as Maruti, Hyundai, Honda, Suzuki, TVS & Tata Motors have already opted to temporarily suspend their operations.

Analysts’ forecasts of Russian 2020 steel demand vary between flat and a drop of 10% and forecasts for non-ferrous metals demand are difficult to pin down because of the ever-changing impact of the coronavirus pandemic.

Following the 20%-25% drop in the ruble against the dollar over the last four to five weeks, Russian metals companies have become interested in ramping up exports to maximize foreign currency revenue. However, Europe, an important market for Russian commodities, has been hit hard by coronavirus, and the stringent quarantine measures put in place to curtail its spread have stalled trade.

In 2020, Russia may maintain stable steel production if producers succeed in growing exports despite the current period of contracting global demand, but in the worst-case scenario domestic, ferrous-metal consumption may drop by 10% from 2019, the year when household incomes rose for the first time and mortgage rates fell to their lowest in half a decade, Kirill Chuyko of Moscow-based BCS Investment Group said.

Depending on the extent of the virus’ spread in Russia and elsewhere, its steel demand may remain flat or, more likely, fall several percent this year, Andrey Lobazov at Moscow investment company Aton said. “Demand for steel is less susceptible to the shackles of COVID-19, the oil price crash and ruble depreciation than demand for non-ferrous metals, which may respond to the same challenges with greater volatility. Most steel is used in construction, an industry more resilient to swings in consumer demand and activity than automotive or jewellery,” the analyst said.

Analysts at Moscow-based investment bank Uralsib even reckon the ruble’s depreciation may lead to a short-term upswing in real estate demand as was the case in 2014, only the cycle of ruble interest rate cuts is over and will no longer support the mortgage market.

This year, global demand for non-ferrous metals will either decrease or grow at a much slower pace to the disadvantage of Russian non-ferrous metals producers because the bulk of their output is exported. For instance, Nornickel exports up to 95% of its products and Rusal 80%.

The coronavirus pandemic has already affected a few economies whose demand for steel and steelmaking raw materials is shrinking, while the slowdown in the infrastructure, power and automotive industries is going to reduce the uptake of copper, nickel and palladium, although Nornickel and Rusal can mitigate the impact on their cash flows by reducing investment and dividends, Uralsib said.

Nornickel, for example, has just announced the cancelation of its Arctic Palladium joint venture, saying it was vetoed by Rusal, which holds a stake in Nornickel. Analysts said another significant reason behind the cancelation could be Nornickel’s unwillingness to take on vast investment commitments in such uncertain times.

No doubt, primary aluminium demand growth is being affected by the global downturn in manufacturing, Rusal’s spokeswoman told S&P Global Platts.

Two weeks ago, Rusal expected 2020 global demand for aluminum to grow 1.3% to 66.1 million mt with 28.8 million mt to be consumed outside China (up 1.1%). Given the current context, this forecast was deemed out of date, but the impact of the coronavirus on demand was still being assessed and would depend on the duration of the outbreak, the spokeswoman said.

Long-term growth drivers were still there and would not be wiped out by the pandemic. Aluminum remained a metal of choice for lightweight solutions in the automotive sector. Its applications were growing in other industries too, including packaging, electrical and construction, and end-user demand, currently suppressed, was expected to stage a rapid recovery once the situation normalized, she said.

Russian metals companies are refraining from giving precise estimates as to how they see demand and production being affected this year, but forecasts for Russian GDP might offer a clue.

Lower oil prices and the corona virus pandemic will mean zero growth in the Russian economy this year, according to Uralsib analysts; they also expect a decrease in disposable household incomes. Household incomes are likely to shrink 0.5% after a 0.8% uptick in 2019. This will negate the effect of higher safety-net expenditure the government has committed to in the face of pandemic spreading over to Russia and affect personal consumption spending. The latter is one of the main economic growth drivers, along with government investment in fixed assets, both decisive for metal-intensive goods demand.

Uralsib remains somewhat upbeat on government spending, saying that despite oil price crash and highly turbulent markets, the government will not abandon plans to implement National Projects — a seven-year investment program worth Rb25.725 trillion ($326 billion) with 70% of this provided by the state. This year, government spending will ensure a 1.9% growth in capital investment (compared with1.7% in 2019) but will be offset by a reduction in private-sector investment, the bank said.

So far, this year’s targets within the National Projects scheme look unattainable. Only 13% of work that should have been financed in January-February was actually financed. The targets need to be revised by the government, said Alexei Kudrin, the chairman of the Russian Accounting Chamber, according to media reports and his own website.

— Ekaterina Bouckley

German stockholders started to reduce inventories again in February following an unusually brief restocking phase, according to the latest data from trade association BDS Tuesday.

Stocks were down steeply year on year too, the stockholder association said, particularly for flat steel. Flat steel saw a 18.4% year-on-year decrease to 1.2 million mt in February, whereas long steel stocks fell 8.4% year on year to 817,451 mt.

On a month-on-month basis, the data suggested stockholders started to destock again in February, making the typical restocking phase at the beginning of the year unusually short in 2020.

Flat steel stocks fell 1.5% month on month, while long steel stocks dropped 0.9%, the data show.

Sales of stocks were up for both long and flat steel stocks year on year, but exhibited a mixed picture on a month-on-month basis. While sales for long products increased slightly by 1.5% compared with January to 285,618 mt in February, sales of flat steel stocks decreased 8.2% to 551,946 mt.

German sources told S&P Global Platts that stockholders did not massively restock their inventories and started to sell again in February when mill prices were increasing, but the stability of prices was unclear.

Sources said the selloff is currently continuing amid the uncertainty for steel price developments as the coronavirus pandemic continues to rage in Europe, indicating that March numbers will show further decreases. Some sources said back-to-back purchases were being carried out.

— Laura Varriale

German steelmakers Saarstahl and Dillinger are currently running their two blast furnaces at the minimum that is technically possible in response to dropping demand amid the coronavirus pandemic, the companies said at a joint press briefing Tuesday.

Due to high idling costs and risks of damage to the blast furnaces by doing so, the company decided to keep the furnaces running at the lowest level technically possible. The BFs produce 4.6 million mt of pig iron per year for Dillinger and Saarstahl, both part of parent company Stahl Holding Saar.

During a virtual press briefing on Dillinger and Saarstahl’s 2019 results, board member Martin Baues said Saarstahl’s Voelklingen rolling mill is running at 50% production. The mill has a capacity of 500,000 mt of long steel products per year.

Around 60% of Saarstahl’s products are produced for the automotive industry and the mill does not expect car manufacturers to restart their production before the Easter holidays.

The plate mill in Dillingen is running at slightly less production than usual. Guenter Luxeburger, board member and sales director at Dillinger, said that the order situation would be “decent” but that the platemaker would be seeing drops in incoming orders and that some customers in France and Italy would be refusing to take their deliveries. Luxenburger added that large-scale projects, particularly in the renewable energy sector, would continue.

Both companies already had short-time production schedules for 2019 and this year and will continue to do so.

Last year was difficult for both companies with shipments at Saarstahl dropping 12.4% year on year to 2.1 million mt, already seeing effects from a weak auto sector. Shipments at Dillinger fell by 1.8% to 1.8 million mt.

Restructuring efforts at both companies are likely to be slowed by the current situation. Just ahead of the pandemic, the mills experienced better market conditions compared to last year.

— Laura Varriale

All UK steelmakers are still producing despite the COVID-19 outbreak and some restrictions put in place by the government, the UK Steel Association told S&P Global Platts on Tuesday

“The message from government is that there is no need for our businesses to close…we’re obviously aware of what is happening in the supply chain [regarding] automotive production, and at some point the rest of the supply chain will undoubtedly respond,” the association said.

In Europe, carmakers and major construction firms are shutting factories and work sites as the COVID-19 pandemic causes disruptions to supplies, staff shortages and collapsing demand.

SMMT, the UK Society of Motor Manufacturers & Traders, told Platts that so far in the UK car manufacturers that have temporary shutdowns are: Land Rover, Nissan, BMW, Toyota, Honda, PSA, Bentley, Aston Martin and Rolls-Royce.

In Italy, France and Germany as already reported, most of the steel plants have temporary shut down or they are working at their lower historical rates.

UK producers make about 7.3 million metric tons of steel a year, around 65% of the UK’s annual requirement. The industry employs 32,600 people directly in the UK and supports a further 41,100 in supplies chains.

On Monday, UK Prime Minister Boris Johnson outlined strict new measures to tackle the spread of coronavirus, including a ban on public gatherings of more than two people. He also ordered the immediate closure of shops selling non-essential goods. According to the government statement seen by Platts, business that will not need to close are: supermarkets, petrol stations, post offices, launderettes, bike shops, pet shops, hardware stores and banks.

At the moment there is nevertheless confusion in particular over whether workers should count their jobs as essential, with construction workers, taxi drivers and tradespeople unsure. Michael Gove, UK Cabinet Office minister, said Tuesday morning that construction workers should still be going to work while staying two meters apart and tradespeople, such as plumbers and electricians, could tend to emergencies in people’s homes.

— Annalisa Villa

Carmakers throughout Europe and the US recently shuttered car production as markets fell amid coronavirus, slashing demand for steel and aluminum. Many of the stoppages now appear long term amid government-imposed lockdowns and carmakers are responding to a new call – government demands to switch to the manufacture of ventilators and masks for hospital use.

Carmakers are obvious candidates for production of ventilators, which they already produce for use in car engines. The toll on metals consumption from this switch in activity will, however, be great, especially if this is for a prolonged period: the automotive sector is the second biggest consumer of steel after construction. Ventilators are, meanwhile, made primarily from plastics or other flexible materials, with only small parts such as valves and possibly some frames made of metal.

According to the World Steel Association, a car uses an average of 900 kg of steel, while automotive consultancy Ducker puts the average use of aluminum in cars at 179 kg.

US – 3D printing

The move is already well underway. In the US, Ford, General Motors and Tesla have responded to government calls to produce ventilators. Tesla founder Elon Musk’s news bulletin reported Monday that Tesla had donated 50,000 surgical masks and his SpaceX firm would ship 1,200 ventilators this week.

Ford has joined GE Healthcare in increasing production of a simplified version of the ventilators used for treating patients with the respiratory problems caused by the virus, the automaker said in a statement Tuesday.

Ford is also teaming up with US-based conglomerate 3M to develop a new powered air-purifying respirator (PAPR) using parts from both companies to meet surging demand from the healthcare sector. This new respirator could be produced in a Ford facility by automotive workers. To speed up the process Ford and 3M are looking to use existing “off-the-shelf” car parts like fans from the cooled seats in Ford’s F-150 truck for airflow. Ford is also planning to use its 3D printing facility to increase production of disposable respirators, starting from 1,000 units per month.

Ford is also evaluating a separate effort with the UK government to produce ventilators.

GM is teaming up with medical devices company Ventec Life Systems to enable ventilator production to ramp up.

UK carmakers await guidance

In the UK, the ventilator drive is being managed by the Cabinet Office.

Last week, the Department for Health and Social Care began delivering ventilator blueprints to more than 60 military engineering companies and car manufacturers, including Rolls-Royce, Airbus, Jaguar Land Rover and Unipart, according to specialist publication Wired. Their mandate was to help the National Health Service fight the virus by manufacturing 20,000 ventilators in their factories, to supplement the 5,000 currently used by the NHS.

Toyota and Vauxhall have indicated a readiness to assist in the UK.

Steelmakers are themselves unable to adapt their production to make ventilators, according to UK manufacturing and steel industry trade association Make UK, which says it has been “leading the charge in terms of identifying those manufacturers who can, and putting them in touch with the government.”

It makes sense for automotive producers to make ventilators, as 99% of UK automotive output is now halted, according to Mike Hawes, chief executive of SMMT, the UK’s Society of Motor Manufacturers.

“The car manufacturers are doing all they can to support production” of items such as ventilators, but “are waiting for government guidance,” an SMMT spokeswoman said.

A spokesman for Honda in the UK said the company has been contacted by the UK government about the feasibility of supporting the manufacture of additional ventilators.

“We have identified some potential areas where we may be able to provide support and have communicated this to government,” he said.

EU carmakers offer help

Germany’s Daimler said it has received “inquiries from the medical sector. We are currently checking how we can help by for example providing 3D printers or production expertise.”

The German car association VDA said the German car industry would be supporting medical engineering, but that companies first have to undergo quality control measures for safety reasons.

A Hyundai representative in Germany said: “Hyundai is looking into many opportunities to support the work against the COVID-19 virus and is already supporting in a variety of fields. The usage of production facilities and capacities is one measure the company is looking into.”

A BMW spokesman in Germany said if the company received any such requests, it would “of course be willing to support this. It would be conceivable, for example, to produce component parts for such devices with 3-D printers,” he said.

Toyota Europe, based in Belgium, says it has offered to help the UK government in increasing output of existing ventilator manufacturers to upscale production methods where it has expertise.

A Nissan spokesman in France said the company was “ready to support any initiatives where its manufacturing and engineering expertise can be useful.”

In Italy, where last weekend the government ordered suspension of nearly all industrial production, carmakers Ferrari and Fiat Chrysler are in talks with the nation’s biggest ventilator manufacturer to help to boost production.

Siare Engineering, which is based in northern Italy, where death rates from the coronavirus have risen sharply, is in talks with Fiat Chrysler, Ferrari and Italian parts maker Marelli to make some parts, source others and to possibly help with the assembly of ventilators.

— Diana Kinch with Annalisa Villa, Jaqueline Holman, Wojtek Laskowski, Len Griffin and Laura Varriale