Day: 2 April 2020

Lost vehicle production across the European Union due to plant closures as a result of the coronavirus pandemic already exceeds 1.2 million units, the European auto manufacturers’ association, ACEA, said Tuesday.

According to data compiled by ACEA, “EU-wide production losses due to factory shutdowns amount to at least 1,231,038 motor vehicles so far,” the group said, adding that the average shutdown duration is 16 working days at the moment.

“Production losses are obviously set to increase if shutdowns are extended or additional plants are brought to a halt,” ACEA added.

The jobs of at least 1,110,107 Europeans working in automobile manufacturing are affected by the factory shutdowns, the group said, adding: “This figure only refers to those people directly employed by car, truck, van and bus manufacturers — the impact on the wider automotive supply chain is even more critical.”

In total, 2.6 million direct manufacturing jobs are provided by the EU automotive industry, with vehicle makers operating 229 vehicle assembly and production plants across the region, ACEA said, with the wider auto sector providing indirect and direct jobs for 13.8 million people in the EU.

“Right now, the primary concern of ACEA and all its members is to manage the immediate crisis facing the auto industry, which has essentially come to an abrupt halt — something the sector has never experienced before,” Eric-Mark Huitema, ACEA’s director general, said in the statement.

Last week, ACEA, along with associations representing automotive suppliers, tire and rubber manufacturers and motor trade and repairs, sent a joint letter to Ursula von der Leyen, president of the European Commission, requesting discussions with the EC to assess the impact of the pandemic.

“We believe this could provide a good basis not only to assess what could be done to mitigate the impact on our sector in the short term, but also to prepare an exit strategy for when the worst of the health crisis is behind us,” they said in the letter.

As the industry focuses on dealing with short-term issues arising from the coronavirus crisis, “other activities inevitably suffer,” the letter said.

“No production, development, testing or homologation work occurs for the time being. This upsets the plans we had made to prepare ourselves for complying with existing and future EU laws and regulations within the applicable deadlines set in these regulations,” it said, adding: “We believe therefore that some adjustment would need to be made to the timing of these laws.”

The industry groups stressed, however, that “it is not our intention to question the laws as such nor the underlying objectives of road safety, climate change mitigation and protection of the environment.”

— Andy Blamey

UK manufacturing activity moved firmly downwards in March as Covid-19 began to take its toll, Kallanish learns from the latest sectoral survey by IHS Markit and the Chartered Institute of Purchasing and Supply (CIPS). The Purchasing Managers’ Index (PMI) fell by 4 full points, business optimism slumped to a record low and supply chain disruption intensified.

The seasonally adjusted IHS Markit/CIPS PMI fell to a three-month low of 47.8 in March, down from 51.7 in February and the flash estimate of 48.0.

Output fell to the greatest extent since July 2012 following a similarly severe reduction in intakes of new business. The impact was also felt in the labour market and through supply chains. Transport delays and shortages of raw materials led to the steepest increase in vendor lead times in the 28-year survey history, further disrupting production.

Vendor delivery times lengthened to the greatest extent in the 28-year survey history amid reports of input shortages, transport disruption and delays in receiving goods from overseas. International shipping and border delays were also mentioned.

Little more needs to be said. The UK government’s coronavirus-inspired social distancing policy will continue to seriously affect British manufacturing into the foreseeable future. The under-pressure steel sector meanwhile really did not need Covid-19 following the hit it took from Brexit.

Production volumes during the shutdown of Ferriera Valsider and Metinvest Trametal, both part of the Metinvest group, are forecast to decrease to 40,000 tonnes, Kallanish learns from a company note.

Last month the Metinvest Group halted the two rolling facilities in Italy due to the Covid-19 pandemic and the Italian government’s decision to suspend the operation of steel mills in the country.

The group is not excluding the fact that the Italian government may impose additional restrictions under which the shutdown at the two plants will be extended. “At the same time, the availability of semi-finished products inventory will allow to resume the normal pace of operation immediately after the release of quarantine, if there is a demand for steel products.” Metinvest says.

In the event of an extension of restrictions imposed on Italian plants and continued instability in the European market, Metinvest is also forecasting a decline in production at its Ukrainian plants (see separate article).

Italian coil output is at a minimum. Only ArcelorMittal Italia at its Taranto facility, Arvedi and Marcegaglia are producing at a heavily-reduced capacity and are only supplying those sectors that are considered as crucial during the pandemic.  

Ferriera Valsider is located in the province of Verona, in northern Italy, and its production capacities are 400,000 tonnes/year of plate and 600,000 t/y of hot rolled coil. Metinvest Trametal is a quarto plate re-roller located in San Giorgio di Nogaro, also in northern Italy, with a yearly capacity of 600,000/tonnes of quarto plates.

Southern European coil import activity has ceased during the last ten days due to the coronavirus outbreak, despite the fact that prices from exporters have decreased significantly, Kallanish learns from sources.

All traders contacted note that price indications are only nominal, as there is no activity taking place. “We sold the last batch of coils at the port in Italy last week, since then everything has been silent and new orders for new production are not being discussed,” a trader notes.

Due to the fall of scrap prices traders say that Turkish exporters could well be at $450/tonne fob and below for HRC. “The reality is if you have cash you could get amazing deals at the moment,” another source says.

Meanwhile some are mentioning South Korean suppliers as being very competitive, with nominal HRC import prices potentially falling as low as €420-430/t ($459-470/t) cfr South Europe.

Going forward the situation remains uncertain. Many traders believe that the lack of import orders could continue beyond the current lockdown. “Banks are not interested in supporting new orders from traders of steel products at the moment and I feel like this will continue beyond the lockdown,” a trader says.

Demand for steel products in Russia fell by -20% on-month in March, says Russian distributor BVB Alliance, Kallanish notes.

This was caused by the uncertainty surrounding the spread of Covid-19, a shortage of working capital for businesses, an increase in rental costs and increased competition, the firm says. Russian transport companies have also increased the time and cost of delivery.

At the same time, there has been an increase in the prices of a number of categories of alloy steel products for special applications.

Logistics restrictions in Europe, China and Taiwan have led to a -50% reduction in the volume of carbon and alloy steel imports into Russia. Since the introduction of quarantine measures in a number of countries in the CIS and Europe, logistical issues have seen exports decline by -35%.

Due to the drop in demand for steel, BVB Alliance has reduced its marketing budget, the firm says.

The company is a major alloy, stainless and carbon steel distributor and wholesaler in Russia and the CIS. Its main suppliers are Severstal, Chelpipe, MMK and other Russian steelmakers. The company has 14 warehouses in Russia, and four in Kazakhstan, Belarus and Kyrgyzstan. Its main Markets are America, Africa, Asia, the Caribbean, Europe, Oceania, and the Middle East.

Polish authorities plan to carry out a tender in mid-April to sell ISD Huta Czestochowa (HCz), a source close to the Polish heavy plate producer tells Kallanish.

This comes despite the fact Sunningwell International Polska’s 12-month lease of HCz does not expire until September. The investment firm signed an agreement to lease the plate mill in September 2019 and restarted production the following month (see Kallanish passim). It is expected to partake in the latest tender.

It is not clear whether Polish steelmaker Cognor or UK-based Liberty House plan to participate, after both bid for the plate mill last year when it was seeking an investor following its insolvency. Metinvest, itself a producer of plate in neighbouring Ukraine, has also been touted as a potential investor. The situation has, however, been complicated by the outbreak of Covid-19. None of the three firms responded to requests for comment before deadline.

The Czestochowa district court, which last acted as HCz’s administrator, also did not respond to request for comment.

Electric arc furnace-based HCz has an 800,000 tonnes/year slab capacity and 1.2 million t/y capacity of heavy plate.

Major steel companies in Spain could maintain output following an “… interpretative note” published by the country’s National Ministry of Industry on 31 March, Kallanish notes.

According to the authority`s statement “… the manufacturing industry is considered essential insofar as its activity is necessary and is intended to provide the goods and materials necessary for the development of essential sectors.”

The Royal Decree also establishes that those plants whose prolonged shutdown causes damage that makes it impossible or difficult to put them back into production or create a risk of accidents, may remain open. Spanish Industry Minister, Reyes Maroto, requested that the steel sector must maintain minimum activity, taking as a point of reference what happens during weekends or holidays. Electro-intensive industry cannot be halted, so its activity must be ensured although with less mobility of workers, Maroto adds.

Companies and their workers that are involved in import and export activities are also exempt from the application of compulsory paid leave. This is because they are organised in such a way to supply or fulfil international contract commitments, the Spanish government says.

Automotive production in Europe is currently being hard-hit by the spread of coronavirus and the consequent stoppages at factories across the continent. ACEA, the European automobile manufacturers’ association, calculates that the loss of production is expected to surpass 1.2 million vehicles, including cars, vans, trucks, buses and coaches.

Plants are being shut down for around 16 days on average across Europe, ACEA says. The association notes that production losses could increase if stoppages are further prolonged.

The biggest impact should be in Germany, the largest automotive producer in the continent. Germany should lose production of some 360,000 vehicles due to the stoppages. The second most-impacted market will be Spain (237,000 vehicles), followed by France (113,000 vehicles).

According to the European steelmakers’ association Eurofer, the automotive sector accounts for 18% of total steel consumption in the region. After a challenging 2019, automotive production was expected to grow by around 1% y-o-y in 2020, this outlook is set to be dramatically revised downward in the coming weeks, Kallanish notes.

German steel distribution group Klöckner & Co believes that it will take more than a year until business returns to where it was before the coronavirus crisis.

“My prognosis is one to two years until the global value-added chains are back to functionality and consumers spend money as they used to,” Klöckner’s ceo, Gisbert Rühl says in an interview with Handelsblatt. The company is maintaining operations, but Rühl notes that “… the coming weeks will be very hard,” because the consumer chain is coming apart. Klöckner therefore has introduced short-working at most of its sites.

Unlike in France where steel distribution has stalled, the steel distribution sector In Germany could in fact continue to operate. Other major companies however appear reluctant to provide details to what extent operations are being reduced or, indeed, if any interruption to services is imminent.

Some smaller plate distributors tell Kallanish that they feel no impediment to business so far, but, as one concedes, “… we are looking from week to week and will see what April will bring.” Another one is more pessimistic in outlook: “I have the impression that the market is suspended in a state of shock, and everyone is looking ahead to what the state of the epidemic will be after Easter,” the source says.

It is striking that none of Germany’s big steel distribution groups are offering an update on any business disruptions on their homepages. Austria distributor Frankstahl presents an upbeat attitude in its customer bulletin. “Many customers are positively surprised that we are still available. And in fact, we are,” it says, and directs customers to its webshop “… which gives you access [… to products] even in times of social distancing.”

Turkish crude steel production in February grew 8.2% year-on-year to 2.9 million tonnes, with January-February output up 12.7% to 5.9mt, according to the Turkish Steel Producers’ Association (TCUD).

February finished steel consumption was 3mt, up 68.3% on-year, with two-month use up 63.3% to 5.7mt.

Exports, however, decreased -8.9% in February to 1.7mt, and -12.6% in value terms to $1.2 billion, due to the coronavirus impact on the international steel market. January-February exports decreased -4.9% to 3.6mt, and -9.6% to $2.5 billion.

February imports, however, increased 31.2% to 1.1mt, and by 14.8% in value to $857 million. Two-month imports increased 40.4% to 2.6mt, and 16.3% to $1.8 billion.

In January-February, the ratio of exports to imports decreased sharply to 138:100 from 177:100 in the same period of the previous year.

February output growth was restricted, despite the consumption surge, by increased imports, TCUD observes. “In order to prevent imports, which have increased tremendously in recent months, and the foreign trade deficit, which has increased by 86% in the first two months of the year, protection measures must be taken against the imports of products that have domestic production,” says TCUD general secretary Veysel Yayan.

The coronavirus adversely affected steel consumption in Europe in February, but had little impact on Turkish consumption which continued to improve due to the base effect, Yayan adds.

“In March, however, it is predicted that Europe and the US will have very different figures and the decline in consumption in those regions will accelerate while the increase in steel consumption in Turkey is expected to start slowing down,” he comments.

Yayan has repeated calls for Turkish mill production stoppages – which he considers temporary – to be supported with measures that will enable a strong restart.

On the other hand, global crude steel production reached 143mt in February, an increase of 2.8% on-year. Two-month production increased 1% to 294mt, Kallanish notes.

Among the top 15 steel-producing countries, Iran recorded the highest production growth of 40.5% in January-February. Turkey was ranked second in production growth terms. Germany’s production continued to decline, falling -10.9% to 6mt.