Day: 10 April 2020

Some Italian steel producers will resume activity later this week and have been authorised by Italian authorities to ship material and restart commercial activities, sources tell Kallanish.

Long producers Beltrame, Pittini, Ori Martin, Acciaierie Venete are reopening while ArcelorMittal Italia has received permission from Italian authorities to restart sales of its production from the Taranto steelworks. Some tube makers such as re-roller Marcegaglia will resume re-rolling and commercial activities, also by Friday.

On the stainless steel side, Cogne has confirmed its production restart this week together with the earlier-announced Acciai Speciali Terni AST resumption (see Kallanish 7 April).

However, distributors and most end-users remain closed and there is some concern regarding the potential of clients placing new orders considering the current problem of liquidity. At the end of March distributors’ clients were mostly unable to pay while distributors paid off all their outstanding invoices, sources tell Kallanish.

Sources believe that the market will need a couple of weeks to resume normal operations. The first steps towards a full reopening of the steel supply chain are expected to be taken as from Tuesday 14 April, according to Alessandro Banzato, head of Federacciai, in an interview during a webinar this week.

Numerous Members of the European Parliament (MEP) have written to the European Commissioner for Trade, Phil Hogan, in support of the reduction in EU safeguard quotas. This comes on the back of the fall in steel demand linked with the Covid-19 outbreak.

The letter, seen by Kallanish, was redacted by Italian MEP Massimiliano Salini and signed by almost 80 colleagues of various nationalities. It goes in the same direction indicated by Eurofer last week, calling for the safeguard quotas to be reduced significantly for the remainder of 2020.

“During the last month, the steel market outlook has changed fundamentally due to Covid-19,” the letter says. “Steel demand has fallen by over 50% in different sectors, EU steel consumption fell sharply and is expected to remain significantly down for the rest of the year. We believe that the current Tariff Rate Quotas in the Safeguard are obsolete, no longer reflecting the nowadays European market.”

The letter mentions the fact a new review of the safeguard system was already in place, as per the initial schedule. The MEPs therefore ask the trade commissioner to reconsider the volumes of quotas, to set them below traditional import levels. “In fact, we believe that to prevent this destructive scenario, the Commission should consider changing the Safeguard for the rest of 2020, to reflect the decline in real steel consumption,” the letter adds.

“Considering the global character of this crisis, the risk of deflection of imports towards the EU market is higher than never before. In addition, we must take into account the eventuality of any future increase of infections, which could lead to a re-imposition of the current measures, with devastating effects to European companies. We strongly believe that, allowing imports in large volumes, while recovering from the current situation, could cause additional devastating damages to the steel industry, especially considering its fragile situation,” the MEPs conclude.

More carmakers in Russia are resuming production after temporarily stopping last week. This comes as the coronavirus pandemic interrupted supply chains and led Russian authorities to declare a month-long paid national holiday until 30 April.

The Ulyanovsk automobile plant (UAZ) began restarting production lines on 9 April and will resume the assembly of cars on 13 April, says the Sollers group. According to the decree of the Ulyanovsk region government, no more than 25% of staff will be involved in the work and the engineering office will continue to work remotely. Earlier, Sollers Mazda in Vladivostok resumed car production on Monday.

Avtovaz will resume production of cars from 13 April, Kallanish notes. From 6 April only certain departments restarted working related to the development of new projects, accounting and reporting.

Automotive group Avtotor will also start work on Monday in the Kaliningrad region, after it suspended the work of the car factory in late March.

Russia’s largest heavy truck maker, Kamaz, resumed production from 6 April after consultations with federal authorities(see Kallanish passim). Some GAZ plants renewed production, while the schedule of the rest will be determined later.

Germany’s Volkswagen stopped the conveyors at its Kaluga plant, as well as the contract assembly line at the GAZ plant in Nizhny Novgorod, and postponed the restart until 17 April, the firm says.

South Korean automaker Hyundai, and Japan’s Toyota and Nissan postponed production at their plants in St. Petersburg until 30 April.

The termination of some carmakers’ activities is also due to the fact car dealerships were not included in the list of enterprises whose work is allowed during the presidential holiday, an automotive sector participant says.

Global steel demand will return to pre-coronavirus levels only towards the end of 2021, even if the health crisis is contained by the second half of 2020, says Fitch Ratings.

Steel prices will decline in 2020 despite some growth in the first quarter, primarily due to weakening demand but also due to the expected raw materials price decline. However, destocking achieved last year in Europe and the US should provide some support, the credit rating agency says.

Fitch has downgraded ArcelorMittal (AM)’s Long-Term Issuer Default Rating (IDR) and senior unsecured ratings to ‘BB+’ from ‘BBB-‘. The outlook remains negative.

The steelmaker is well-placed to cope with the impact of the coronavirus pandemic, with very strong liquidity of $10.4 billion of cash and committed credit lines against a short-term debt of $2.6 billion. However, the company will come under pressure from the coronavirus economic fallout extending through most of 2021, translating into material pressure on steel consuming industries, Fitch observes.

ArcelorMittal’s capital expenditure in 2020 will be reduced below previous guidance as the firm is idling crude steel capacities and finishing lines to align production with demand. Production cuts are expected to be more profound in Europe but output could be affected in other regions as the spread of the virus, especially in the US, has intensified recently.

“As demand-driven pressure will continue amid the coronavirus spread, we anticipate that steel margins will squeeze further exacerbated by AM’s relatively high cost position on the cost curve,” Fitch says in a note seen by Kallanish. “As a mitigating factor, we believe that government support will offset some fixed costs of temporary closures.”

Fitch forecasts ArcelorMittal’s Ebitda to decline by about -15% on-year in 2020, down from $4.8 billion in 2019. The steelmaker’s funds from operations (FFO) gross leverage reached 5.6x in 2019 despite efforts to preserve cash. Amid the current market, deleveraging will be further delayed due to weaker Ebitda and FFO generation.

Following Turkey’s largest steel pipe producer Borusan Mannesmann’s decision to pause output at some of its mills in Turkey, as well as its Vobarno plant in Italy, another major Turkish pipe producer, Erbosan Erciyas Boru, has also decided to pause output due to the COVID-19 outbreak, S&P Global Platts learned Thursday.

“As our coustomers’ orders fell notably both in the domestic and export markets, due to the expanding coronavirus outbreak, our sales and production activities were effected negatively,” the company said, adding that they have decided to pause output during April-July till the ease of the outbreak.

Erbosan Erciyas, which is a stock exchange listed company, is producing welded pipes, hollow sections and various industrial pipe qualities with a capacity of 200,000 mt/year. The company is exporting 50% of its prodcuts to export markets, like the US, EU and MENA region.

Many Turkish steel producer have paused their output in recent weeks as the expanding COVID-19 outbreak has hit demand and prices sharply. Turkish mills’ pipe export prices also fell significantly in recent weeks in line with hot-rolled coil prices in a sluggish market sentiment.

— Cenk Can