Day: 5 May 2020

On Monday the Italian government officially began lifting its nationwide lockdown on industry, services and business, after weeks of restrictive measures that were put in place to tackle the spread of the coronavirus. Construction and car manufacturing companies, key buyers for the top metals industries, were allowed to re-open, but only if they met safety protocols to protect the health of workers.

The re-opening of major steel- and aluminium-consuming business is expected to give these metals a much-needed boost, although is not clear yet how much this will help the Euro-zone economy get back on its feet.

Some Italian steel plants have already restarted operations in recent weeks thanks to the permission granted by local prefects, while most metals service centers were still shut down.

Italian steel producers lost 1 million metric tons to 1.3 million mt of crude steel output in four weeks of stringent lockdown and now they all have resumed production at around 40-50% of their capacity, with most of them filling pre-COVID-19 orders, mills executives confirmed. Industry sources said they are working with only about one month of market visibility.

Aluminum extruders were reported to be back at work too. “This is an important week in Italy, hopefully we will see some orders,” a European non-ferrous trader said.

“The Italians are opening. We started delivering ex-April quotas to all the extruders in the north and some to the south,” a European primary aluminum producer said. “The only sector I have heard is going well is construction, especially in central Europe, but a war is starting there as the Italian extruders are trying to gain their old market share.”

Italy is Europe’s second-largest steel producer, making 23 million mt last year. Total 2019 European steel production was 159 million mt, according to World Steel Association data.

According to trade association European Aluminium, some 20.7 million mt of aluminum were produced in Europe last year. Norway was the biggest primary producer. While Italy does not have primary aluminum operations, it is one of Europe’s biggest re-rollers and consumers of aluminum. According to Italian metals industry association Assofermet, Italy transforms around 780,000 mt of aluminium billets a year.

— Annalisa Villa, Emmanuel Latham

The social and economic hiatus caused by the coronavirus epidemic can turn out to be a classic case of a crisis that generates new opportunities, according to steel distribution group Klöckner & Co.

The German-based group is referring to the progress of digitalisation and to transferring its business to online platforms, which it has been pushing for the past four to five years.  “Now that there is a crisis, we can implement some of the measures faster,” Klöckner ceo Gisbert Rühl said during a conference call attended by Kallanish. The company’s share of online sales recently rose faster in comparison than it did in early 2019.

He gives the example of France, where the group had to temporarily close sites in March, and where several smaller sites will soon be abandoned altogether, but business has continued online. “Customers there will be forced to follow that conversion,” Rühl said. He notes that the company is undergoing more than digitalisation, but a digital transformation, and employees will be made to follow the conversion. Many jobs will no longer be the classic warehousing roles, but “… the orchestration of processes,” instead. He estimates that some 1,000 employees will be excluded from the transformation, and will be allowed to leave by the company.

Apart from the sales business on its own platform, Klöckner is also pushing Xom, a platform for materials purchasing that is open to third parties, and which has 70 suppliers. Due to enhanced recent activity, the company has just decided to invest another €3 million ($3.3m) this year in Xom.

Italian flat products’ output collapsed year-on-year in March, according to data released by local steelmakers’ association Federacciai, monitored by Kallanish. Long product output meanwhile has also slumped in March.

March flats’ output declined year-on-year by -30.5% to 830,000 tonnes. Over the first three months of the year output fell by -13.3% compared to the same period in 2019, reaching 2.6 million tonnes.

Italian longs output also fell in March, by -46.7% y-o-y to 662,000t. It was also lower over January-March, falling by -18.6% y-o-y to 2.6mt.

Crude steel production by Italian mills also tumbled in March by -40.2% on-year to 1.3mt. In the first quarter output fell by -16.2% y-o-y to 5.2mt. The Italian steel sector’s lockdown started at the beginning of March and was lifted on 4 May, Kallanish notes.

The European Commission (EC) has opened a written procedure in the ongoing review of the safeguard measures affecting steel imports. The intention is to gather comments on the impact of the coronavirus pandemic, Kallanish learns from an official document.

The decision to call for written comments is said to be “… exceptional”. All parties interested in providing evidence and comments are expected to do so by the end of the day on 7 May.

In an official written communication, steelmakers’ association Eurofer again asked the EC last week to further tighten safeguard measures due to the fall in demand in the sector created by coronavirus.

The association believes quotas should be cut by -75% for the second and third quarters and the allocation should be quarterly for all products involved. It also considers that the maximum cap for each country to use the existing quotas should be lowered from the current level of 30%. “Given the extreme uncertainty in the coming quarters, a review of the approach should be taken for Q4 2020 and for 2021 later in the year. This reduction in quotas volume can be balanced by a liberalisation of the current 25% out-of-quota tariff (e.g. to 22%),” Eurofer adds.

During recent weeks a number of other commentators have supported the requests originally made by Eurofer, but distributors and processors of steel have also widely criticised this approach. “The problem is that Eurofer’s lobbying power is very strong. The automotive sector (among steel end users) could raise its voice against the requests made by European steelmakers, but at the moment they seem to be having bigger issues to face,” a European trader says.

After the coronavirus-related production stop at its plants worldwide, Ford plans to have production for the majority of its European vehicle and engine plants restart this week, Kallanish hears from the carmaker.

Production at the German sites in Saarlouis and Cologne, at Craiova in Romania and at the Spanish vehicle plant in Valencia is to be successively ramped up, Ford says. Engine production in Valencia will start on 18 May, while the engine plants in Dagenham and Bridgend in the UK will start at a later date.

“Once we have overcome the initial peak of the coronavirus pandemic in Europe, we must adapt to the new environment,” says Stuart Rowley, president of Ford Europe. “Our return- to-work plan will focus on standards for maintaining a minimum distance between employees and further strengthening health and safety regulations,” he says. “It is important for our employees to know that we are doing everything we can to protect their well-being in the workplace,” he maintains.

Production will initially start at a low level, the company says. The focus will be on vehicles for which specific customer orders have been received. Facilities will be ramped up to full capacity in the coming months, depending on the performance of suppliers, national transport restrictions and demand in key markets such as Germany, Ford says.

Ruukki Construction, part of Sweden’s SSAB, tells Kallanish that it has completed the divestment of its Building Systems business.

The segment has been sold to Donges Group, which is fully-owned by the German-based investment company Mutares. Ruukki Construction will now focus on profitable growth in its product businesses within the Roofing and Building Envelopes businesses.

“Our strategy is to pursue profitable growth in our product businesses Roofing and Building Envelopes. We’re pleased to have found a new owner who is better positioned to develop Building Systems, which is of a project-type of business,” says president of Ruukki Construction, Sami Eronen.

The divested business had sales of around SEK 1.5 billion ($152 million) in 2019 with a slightly positive operating profit. Building Systems employs some 500 persons, who will transfer to the service of the new owner under their existing terms and conditions of employment. No value for the deal has been disclosed.

European steelmakers’ association Eurofer, expects that demand from major steel-using activities will decrease on average by -58% due to the ongoing coronavirus crisis, Kallanish learns from a document sent to the European Commission.

The assessment of the demand reduction was made in a report sent to the European Commission to explain the reasons behind Eurofer’s request for drastic limitations related to the safeguard system for imports (see related article).

According to the association (citing external researches) the automotive industry is likely to experience the biggest downturn. “Vehicle sales are down more than -10% on forecast levels and no ramp-up is possible due to supply chain problems,” the association says.

“As far as mechanical engineering is concerned, studies explain that the sector will see both supply and demand shocks lasting until the first quarter of 2021 in the worst-case scenario, with catchup effects not seen before Q2 2021. Eurofer’s own analysis also confirms that EU steel consumption is currently low, will further drop massively in Q2 and Q3 2020, and will remain at low levels in the imminent future,” the association adds.

For the construction sector, the impact is reported to be more moderate in terms of steel demand. The sector is expected to be responding to the difficulties later, as projects are put on hold, planning is stalled and confidence is lost.

In terms of imports, Eurofer is concerned that the pressure will increase on the already suffering European steel market. “Our analysis is that Q2 2020 imports are not going to decrease significantly, as purchases and shipments were already concluded during the previous quarter. Import material is therefore coming in, while business is currently being concluded for Q3 2020. The volumes that are still coming (and will continue to come) to the EU market, will further aggravate the market situation (volume-wise), with the dramatic drop in EU steel demand. Recent import levels of hot-rolled flat and hot-dipped metallic coated [… products] are a good example of this,” the association says.