Day: 7 April 2020

After a good start to 2020 with encouraging results, Belgium-headquartered steel wire specialist Bekaert is projecting significant impact from the Covid-19 pandemic in the second quarter of 2020, Kallanish learns from the company.

In this context, and as part of other actions to mitigate as far as possible the impact of the pandemic on the financial position of the group, “… the board of directors has decided to propose to the annual general meeting of shareholders on 13 May to reduce the dividend payment by half and to postpone the payment from 18 May 2020 to 20 November 2020,” the company says in a note.

The board of directors also intends to reduce its fees by -10% in line with the salary reduction for the executive and senior management, the group says.

Italian stainless steelmaker, Acciai Speciali Terni (AST), is restarting production after having received authorisation to do so from local authorities. This follows the stoppage linked to the coronavirus emergency in the country and workers’ strikes to force the shutdown.

Ceo Massimiliano Burelli requested the authorisation to resume work to be able to produce and ship outstanding orders, a member of the mill’s trade union tells Kallanish. He adds that production will be heavily reduced compared to usual levels due to a collapse in orders. The unions have warned authorities in a letter that reopening the mill may represent a danger to the health of the workers and have asked that for a rigid control of safety measures to be implemented.

Meanwhile other stainless steelmakers remain closed in Italy together with distributors and re-rollers, Kallanish notes.

The UK construction sector saw rapid falls in both output and new work in March, according to the latest IHS Markit/Chartered Institute of Purchasing and Supply (CIPS) survey monitored by Kallanish. Employment fell at the fastest pace since September 2010 while business expectations slumped to the weakest since October 2008.

The headline seasonally-adjusted IHS Markit/CIPS UK Construction Total Activity Index dropped to 39.3 in March from 52.6 in February, to signal the steepest fall in construction output since April 2009. Survey respondents overwhelmingly attributed reduced activity to the impact of the Covid-19 pandemic.

Both the steel-intensive sub-sectors of civil engineering and commercial building recorded a fall in output during March. Civil engineering activity (index at 34.4) saw the steepest rate of decline, followed closely by commercial building work (index at 35.7). The steep fall in commercial building will affect UK demand for sections and rebar.

Lower workloads and business closures resulted in a marked reduction in staffing numbers across the construction sector during March. “The latest survey indicated the steepest pace of job shedding since September 2010,” Markit/CIPS says.

The latest data also indicated a slump in business expectations across the UK construction sector. Survey respondents are more pessimistic about the year ahead outlook than at any time since October 2008.

Liberty Galati has reduced production and implemented partial technical unemployment following slowing global economic activity on account of the Covid-19 pandemic, the firm’s spokesman tells Kallanish.

This comes after the firm implemented various measures to try maintain normal operating conditions, such as replacing contractors with its own employees and reducing costs. The company is working with unions and authorities to minimise the social impact associated with the move.

“The purpose of the measure is both to protect the interests of employees and ensure the long-term sustainability of the steel plant’s operations,” the spokesman says. “We look forward to returning to normal working conditions as soon as possible.”

He did not respond to a request for comment on the rate of the production cut or if all production units were affected equally.

Liberty Steel said in February it plans a $1 billion ten-year investment programme at Galati that includes major upgrades to its casters, rolling mills and coating lines, which will enhance the unit’s product offering (see Kallanish passim). Also planned is the installation of an electric arc furnace to reduce emissions and the steelworks’ dependency on imported natural resources.

The works also recently carried out the machining of two roughing stands at its hot strip mill, which it said should lead to cost savings in terms of reduced spare parts consumption and downtime.

Liberty Galati has a 3 million tonnes/year crude steel production capacity, selling to the construction, marine, oil, gas and wind energy sectors. Production in 2019 was foreseen at 2.1mt versus 1.7mt in 2018. The planned investments will see production surpass 4m t/y over time.

Sales by Germany’s steel stockholding distributors were -4.3% lower than the year before, totalling 10.7 million tonnes in 2019, according to their association, BDS.

The year had begun modestly, with sales of between 900,000-954,000t in each of the first five months, BDS notes. An unusually weak June (858,000t) was followed by a surprisingly strong July close to the 1 million mark with 999,000t.

As from August, inventories were gradually brought down until December, when deliveries were carried out only in the month’s first two weeks before closures.  At the end of the year, inventories stood at 2.03 million tonnes, their lowest since 1996. Kallanish heard earlier this year from industry sources that distribution inventories had reached an unprecedented low at the beginning of 2020. This then led to strong replenishment in January, with prices increasing especially for coil products.

Prior to that, sales were particularly weak and prices deteriorated in the course of 2019, for both flat products and for merchant bar. The only product group that saw an increase of sales was rebar, BDS says.

Italian steel trade association Assofermet is urging the government to let the Italian steel industry resume work by reopening mills and warehouses starting as from 14 April.

“Considering the impact on the economic, production and distribution system [… the association] is compelled to insist that the government makes some key decisions without which the impact on the economy will be catastrophic and irreversible and not without significant implication on the country’s social stability,” Assofermet says in a note sent to Kallanish.

If the authorities decide not to lift the lockdown on the industry, Assofermet is proposing a partial resumption of activities for the entire steel value chain, from producers to end user sectors.

A system of loans and credit lines guaranteed by the government could be implemented for steel companies, Assofermet suggests. This would address the issue of a lack of liquidity and allow companies to implement the investment needed to resume activities.

Alessandro Banzato, head of Italian steelmakers’ association Federacciai, has called for the country to begin discussing strategies for the reopening of production, even partially, by mid-April. Italy has been in lockdown for two weeks and most steelmakers have been forced by the government to stop production to comply with the total closures imposed by the latest emergency laws. According to Banzato, 95% of the steel sector is halted (see Kallanish passim).

Italian steel trade association Assofermet is asking the European Union (EU) to leave its steel safeguards system unchanged. Antidumping duties should also not be extended on the date of expiry, Assofermet adds. These are necessary measure to restore competition to a sufficient level within the EU market, the association claims

In a letter to European Commission president Ursula Von Der Leyen also sent to Kallanish, Assofermet says that, due to the spread of Covid-19, the European steel market is under pressure. “The increasing protectionism is weakening our industries. Forcing them to pay for more expensive steel is not the way to recover competitivity. An additional level of protectionism would only create an artificial steel price increase in the EU market, allowing EU steel producers not to follow the path of innovation and to sit on guaranteed profits… The recent request by EU steel producers to additionally tighten the steel safeguard system would be detrimental for the all the EU steel industry.”

“The wide system of protection measures in place (17 anti-dumping duties, anti-subsidy duties and also the safeguard system on imports from non-EU countries) represents something unprecedented in our economy and is a means for shifting profits to the steel producers at the expense of steel distributors and end-users. This is making the downstream businesses less competitive,” the association warns.

ArcelorMittal Italia has received permission from Italian authorities to restart sales of its production from the Taranto steelworks, Kallanish notes.

The authorities had instructed the steelmaker on 26 March to maintain minimum production and to halt commercial activities at the Taranto site. ArcelorMittal Italia management then appealed against the decision whilst warning that a prolonged block on commercial activities could lead to the idling of the hot-end of the plant.

The appeal was answered on Monday, allowing ArcelorMittal Italia to restart commercialising its production, provided safety measures are ensured and limited output is maintained.

In Italy the government has extended measures to keep most Italian steel companies idled until 13 April. A number of steel producers such as AST (see separate article) are restarting operations after having received special approval from the authorities.

The Europe-wide outbreak of coronavirus has hammered automotive production.

The following are key facts about the Europe wide automotive manufacturer shutdown.

Tradeflows:

Automotive is the largest consumer of aluminum in Europe, accounting for:

• 11,000 mt estimated daily lost aluminum consumption
• 170,000 mt estimated total lost aluminum consumption

Automotive is the second-largest consumer of steel in Europe, after construction:

• 55,000 mt estimated daily lost steel consumption
• 890,000 mt estimated total lost steel consumption
• Society of Motor Manufacturers and Traders, UK, revised its outlook for new car registrations in 2020 by 23%, following a 44% drop in new registrations in March.

Infrastructure:

• 100 automotive assembly plants in Europe are shut down, removing an estimated daily production of 61,000 automobiles.
• FCA’s plants in Italy, Poland, Serbia all halted production on March 14, with an initial intention to reopen on March 27.
• Daimler closed its European plants in Germany, France, Hungary and Austria on March 17.
• The first shutdown occurred on March 13 and since, production lines across Europe have been going cold as automakers responded to logistical problems hampering supply lines and also attempted to maintain worker welfare. As of March 26, all major European car manufacturers had halted output.
• With the automotive sector a major consumer, European aluminum and steel industries have experienced a marked drop in demand. 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.
• The loss of the second-largest steel-consuming industry in Europe has seen a number of steelmakers cut production, with Voestalpine and ArcelorMittal even idling blast furnaces. In aluminum, shutdowns have been seen at secondary producers, recyclers and extruders, all of which sell heavily into automotive. Although smelter shutdowns are yet to be seen, there have been suggestions that European smelters have shifted their production towards P1020 grade.
• Tyre producers Pirelli & Michelin have stopped production in Europe in reaction to automotive producer shutdowns, weighing on SBR prices in Europe.

Prices:

• After initially dropping €60/mt on March 21 as most major automakers in Europe shut down production, secondary aluminum prices have remained steady since at €1,350-€1,400 ($1,457-$1,511)/mt for 226 alloy, with most participants focusing on crisis management. Most aluminum alloy players have either partially or fully shut down production in the weeks since, or moved to short-time work in the face of exceptionally reduced demand.
• European aluminum billet premiums have lost $35 since the shutdowns began, drawing them down to their lowest level since September 2018, when Platts began assessing billet. The impact of the production pauses on demand has hammered an already oversupplied market.
• Hot rolled coil ex-works northern Europe (Ruhr) started January 2020 at prices of €435/mt ($469/mt), even lower than the €450/mt price in January 2009, having upturned since then to €474/mt in early March 2020, possibly due to the impact of production cuts.
• Prices of cold-rolled coil started to stagnate in February, following a brief price hike early in the year, seeing slight decreases during the coronavirus crisis. Buying activity fell drastically during the crisis as key consumer markets, such as automotive, stopped production.

Emmanuel Latham, Jacqueline Holman, Diana Kinch, Staff

Eurofer, the European steel association, has called for tougher measures to help the region’s steel industry survive, as the coronavirus outbreak has severely damaged steelmakers, forcing massive cuts in production.

“Our industry is fighting for its survival. The impact of COVID-19 is emptying order books [and] idling entire facilities. With all instruments at their disposal, governments and the EU should prevent COVID-19 from dealing the ultimate blow to our industry – a sector that has repeatedly been recognized as being strategic for the Union,” the association wrote in a letter last week to European Commission President Ursula von der Leyen.

Eurofer wants more stringent safeguard reviews, more new import restrictions and new regulations to withstand global virus impacts.

Safeguards and imports

According to the association, the current import safeguard quota level should be drastically reduced immediately for a period of six months and by about 75% “to align them with the devastating situation.” The tariff level of 25% could be reduced after a review of the situation for the last quarter 2020 and beyond.

“This measure is proportionate, transparent, temporary and consistent with WTO rules. It enables the supply chain to continue to function in this crisis, while expediting the recovery that will follow,” Eurofer stated.

The latest EC data from March 31 showed the global quota for hot-rolled coil had a large unused balance of 1.575 million mt still available for import, with the quota balance being boosted by the 1.196 million mt that was not used at the end of December 2019 being carried over to the first quarter of 2020.

Eurofer also proposed to implement emergency import restrictions outside the context of safeguard measures, as permitted under Article XXI of the GATT 1994 agreement.

The safeguard measures do not cover products imported from undeveloped countries.

Increasingly, aggressive import offer prices have emerged in Europe via importers looking to place material from Russia, Asia and Brazil.

Hot-rolled coil offer prices have moved lower following a weakening of the Russian ruble and better offers reported from Asia where mills are looking to fill demand wherever they find it following the COVID-19 lockdowns.

China, having accumulated larger steel inventories in the lead up to Lunar New Year and expected to have added to those inventories during their February/March lockdowns, might also offer notable volumes to international markets, sources told S&P Global Platts.

However, due to longer lead times in buying imports and elevated supply chain risks, sources said domestic material would for now remain a safer option due to the uncertainty in the very short term within Europe. The Platts TSI HRC CIF Antwerp index was assessed at Eur422.50/mt Friday, down from Eur467.50/mt on March 20, a decline of Eur45/mt.

Over the same period, HRC ex-works Ruhr declined from Eur482.50/mt to Eur473/mt, a decline of Eur9/mt.

Eurofer also asked the EU to recognize steel mills as “essential” to the EU and member states’ fight against the pandemic and encourage regional and local governments to keep them operational during the crisis.

Green steel and carbon leakage

Eurofer addressed the issue of carbon leakage as well. In order to avoid it due to the CO2 cost in power prices under the EU Emissions Trading System (EU ETS), Eurofer is seeking a reset of benchmark-based indirect cost compensation from a current maximum of 75% back to the original 85%, and an agreement to apply it in all EU member states.

The association is seeking a force majeure clause in the EU ETS to guarantee that COVID-19 related production and CO2 emission cuts will not reduce the amount of post-2020 CO2 certificate allocations.

Eurofer highlighted that they want to continue discussions on national and EU levels to bring about a “Green Deal on Steel” as they welcomed the measures taken so far, including flexibility in EU state aid rules, allowing for fast support for the industry and its customers.

— Annalisa Villa, Len Griffin