Day: 19 May 2020

Only two steelmakers worldwide have carbon emissions reduction targets aligned with the Paris Agreement aim to keep global temperature increases to 2 degrees Celsius or below, an environmental disclosure agency analyst said Friday.

Moreover, some major steelmakers have shown no evidence of setting any emissions reduction targets so far, Tom Crocker, research analyst from CDP Global, told a virtual conference organized by the Brussels-based International Stainless Steel Forum, linked to the World Steel Association.

Nordic and US-based steelmaker SSAB and South Korea’s Hyundai Steel have set goals to achieve carbon neutrality between 2040 and 2050, with SSAB aiming to reach carbon neutrality by 2045 throughout its entire operations, Crocker noted in a presentation entitled Support for future investment versus carbon footprint development.

These are the only two steelmakers globally whose emissions targets are aligned with a pathway to keep the Earth’s temperature rises below 2 C, he said.

The premise of the Paris Agreement, signed in 2016 within the United Nations Framework Convention on Climate Change, is to hold the increase in the global average temperature to well below 2 C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5 C above pre-industrial levels, recognizing that this would significantly reduce the risks and impacts of climate change.

While 60% of steelmakers have now set emissions reduction targets, and many have set internal carbon prices, a considerable number have apparently still not set climate targets, which they need to do to be transparent, Crocker said.

“Hesteel, Nucor, Gerdau, Baotou Steel and Beijing Shougang show no evidence of setting an emissions reduction target,” the CDP analyst told the event.

US-based Nucor and Brazil-based Gerdau Group did not immediately respond to email and telephone inquiries by S&P Global Platts seeking clarification on the analyst’s statement.

CDP describes itself as a not-for-profit charity that runs a global disclosure system for investors, companies, cities, states and regions to manage their environmental impacts and receives data from companies and organizations from more than 90 countries.

“The physical impacts of climate change are a significant risk for the steel sector,” Crocker said in his presentation. “Water stress” is already impacting 40% of steelmakers globally and securing a sustainable water supply will be of crucial importance for the sector in the future, he said.

In addition, “investors are increasingly scrutinizing the transparency of companies’ reporting on environmental issues, to allow for consistent benchmarking,” the CDP analyst said.

Many major steelmakers including ArcelorMittal and Tata Steel have now set internal carbon prices to use in their operations, Crocker said.

In the case of ArcelorMittal, the world’s largest steelmaker, the internal carbon price has been set at $18-30 per metric ton of carbon, while in the case of Tata the price range starts as low as $10/mt, according to data presented by the analyst.

— Diana Kinch

European Union steelmakers need to be cautious about restarting capacity as COVID-19 lockdowns ease, as they risk producing into a demand vacuum which will intensify downwards pressure on prices, analyst and mill sources said. Although mills continue to restrict production, this is still outpacing demand across Europe, they said.

As much as 18.9 million mt of steelmaking capacity was taken offline in Europe during the market slump caused by the pandemic – more than in any other global region – and so far only pockets of production have come back on stream in countries including Italy, France and the UK, in line with restarts in the automotive and construction sectors, according to data from VTB Capital Research, S&P Global Market Intelligence (MI) and S&P Global Platts.

In Italy, the EU’s second biggest steelmaking nation with 23 million mt crude steel production last year and the first to officially restart steel production in late April/early May, mills are working at just 40-50% capacity. In Germany, the EU’s biggest steelmaker, restarts may be slower: steelmaker Thyssenkrupp said it expects a production cut of 20-30% of its capacity to last into the summer while Salzgitter plans to continue with reduced production amid a gloomy outlook for the rest of the year.

With 39.7 million mt of crude steel produced in 2019, Germany saw crude steel output fall 10% on year in Q1, with further falls likely this month as more mills put workers on reduced working hours effective early May.

“The worst contraction of the German economy since 2009 is not where the current crisis will end,” ING Economics warned Friday. “The second quarter will be more dreadful.” Germany’s economy shrank 2.2% in the first quarter, compared to the previous quarter, albeit slightly less than the overall eurozone’s 3.8% contraction in the same period, ING reports.

“Steelmakers are wisely proceeding cautiously to avoid piling more pressure on prices by increasing output at a faster pace than demand resumes,” Phillip Price, advisor to Fetch.AI’s Mettalex, a decentralized commodity exchange, told Platts. “The severe economic impact of the lockdown is only now starting to become clear. …While a gradual restart should support some improvement in demand…with national deficit forecasts at unprecedented levels, discretionary spending will likely be limited and central governments will likely have limited remaining resources in order to stimulate demand for some time to come,” he said.

“Steelmaking conversion margins remain under intense pressure and will likely be the key deciding factor for increased capacity utilization across the continent.”

Some steelmaking capacity, for instance in Poland, is widely expected not to return to the market for months.

Slow restarts in automotive, construction doubts

Steel consumption forecasts have been slashed or withdrawn and the overall economic outlook downgraded, with normal business conditions not seen returning before the third quarter. European Steel Association Eurofer said the construction industry – accounting for around half the region’s steel consumption – may perform better this year than other steel-consuming sectors. However, in the automotive sector, the second-biggest steel using sector, where performance is very tied to consumers’ disposable income levels, “it will take time before new orders will translate into new deliveries due to persistent transport and supply chain issues, which will remain in place for some time.”

Up until early May, Platts’ estimates were that the slow nature of restarts in the automotive sector – which came to an almost complete halt in the EU between late March and early April – meant that metals consumption in that sector was still around 50,000 mt/day of steel and 10,000 mt/day of aluminum lower than pre-COVID-19 levels.

Automakers including Renault and SEAT have reportedly returned to 33-40% working in Spain. However, Volkswagen was reported by the Financial Times this week to have paused production of four key models just weeks after reopening its manufacturing headquarters in Wolfsburg, due to weak demand for new cars in Europe, amid forecasts by Moody’s that global car sales would shrink by a fifth in 2020, and by as much as 30% in western Europe.

In construction, major UK firm Taylor Wimpey announced in the first week of May it is making a return to production, using PPE equipment.

At the height of the lockdown, some 65% of UK construction sites by value had closed down, but by the first week in May that figure was down to 37%, according to data provider Glenigan, reported by Construction News. Still, UK-based GMB Union said in a statement Friday it is in urgent talks with construction giant JCB in an attempt to save nearly 1,500 jobs following a fall in demand due to coronavirus.

Steel output to fall in 2020

2019 itself wasn’t a great year for European steel, with a fall in apparent steel consumption of 5.3% on a weak manufacturing sector, according to Eurofer, and record high import levels eroding prices, leading the European Commission to beef up its import safeguards system. Early forecasts indicate this year will be far worse: MI analyst Ronnie Cecil said in a May 14 webinar he expects EU crude steel production to slump 10% to 141 million mt, barely above the 139 million mt of the 2009 economic crisis.

Steel pricing under pressure

An incipient steel price recovery in Europe early in 2020 following losses last year has been cut back in no uncertain terms by the pandemic.

European finished steel prices are taking a dive due to persistent demand slumps despite ramp-up efforts by key customer markets. The hot-rolled coil EXW Ruhr price – a benchmark for flat steel and heavily affected by the auto shutdowns – decreased around 11% since the beginning of March to Eur428.50/mt ($463/mt) EXW Ruhr on Friday, according to the daily Platts TSI Northwest European HRC index. Northwestern European mills have tried to hold offer prices up and searched for buyers outside Europe, but have had to make concessions over the past weeks.

Increasingly more competitive import offers ex-Russia and Turkey for flat steel are putting additional pressure on domestic European price levels amid the demand slump.

Construction steel has also seen downward trends following weak demand, although rebar import quotas for some countries such as Turkey have been exhausted and European buyers have to look more into sourcing material domestically. Rebar prices have weakened further after intermittent price gains in late March as scrap supply tightened due to restrictions on scrap collection. While European scrap is firming again after a brief drop in late March, rebar did not follow the movement and fell since early April by 4.2% to Eur455/mt EXW NW Europe Friday, according to the weekly Platts TSI Northwest rebar assessment.

Broker expects ‘protracted’ lower demand

Ricardo Evangelista, senior analyst with online broker Activtrades, says that despite the economic restart in some European countries, “the lowered demand for metals is likely to be protracted,” keeping downward pressure on steel prices for some time. “The coronavirus fallout triggered the deepest global economic contraction since the second world war and the recovery won’t be V-shaped,” he said.

“The slowdown was too pronounced and many doubts remain, regarding the full extent of the virus impact; should we expect a second and third wave, and if so what will be their economic impact? How long before there is a vaccine or a cure? Will demand for cars and other heavy industry products go back to pre-crisis levels, in a post-COVID-19 world? Despite the lockdown easing, the future remains uncertain.”

— Diana Kinch, Laura Varriale and Annalisa Villa

The return of automotive demand for flat steel has been slow to materialize in Europe with calls for state-funded car-incentive schemes to spur demand, sources told S&P Global Platts.

A German distributor said although prices are climbing in China, domestic European prices are still “under pressure” with mills looking for volumes in June. “They (the mills) have to give discounts to secure any quantities.”

The return of the automotive industry in stages has been slow to materialize into meaningful demand, according to the same source, who said, “Here in Germany, the automotive industry restarted two weeks ago, with just one shift. Volkswagen has idled some of their assembly lines because sales are low. People are waiting for a car-buying incentive program to boost private car sales and demand.”

An Italian mill source said he would wait before taking any kind of position, due to uncertainty around prices. He added the market would need to wait to see if there was stability in Asia and if there would be “some effect in Europe” of the antidumping probe around Turkish hot-rolled material, as well as the European Commission’s revision of safeguard quotas.

A Northern European mill source was pessimistic on automotive demand returning quickly.

“Steel distribution was down 70% in April and for May everyone hopes this will improve to 50%, but I am not so sure that is achievable. In the construction sector, this should be the busy period right now but with social distancing I am not so sure the demand will come back as expected.”

June would be key time for European mills when order books would be thinner resulting in shorter lead times in steel coils, the mill source said, adding the outlook from there on would be highly dependent on summer maintenance shutdowns, if mills would cut additional weeks of production either side of the planned outages, and the EC review of safeguard TRQ system.

As European market sources look to the Chinese market, HRC gained $8/mt Friday as Platts assessed HRC SAE1006-grade FOB China at $409/mt, up 3.8% from the year-to-date low of $394/mt seen on May 7.

However, Chinese HRC prices are still down some 19% from pre-pandemic levels, and in the period since Wuhan emerged from lockdown on April 8, Chinese HRC has posted only five days of gains out of 24 assessment days.

The Platts TSI hot-rolled coil index was calculated Friday at Eur428.50/mt ($463.25/mt) ex-works Ruhr, declining Eur2.50 day on day and Eur8 week on week.

In Southern Europe, HRC gained 50 euro cent for a second straight day and was assessed at Eur414.50/mt ex-works South Europe, down Eur4 on the week.

Cold-rolled coil was assessed unchanged on the day at Eur522.50/mt ex-works Ruhr, but ending the week down Eur2.50.

— Len Griffin, Amanda Flint

European hot-rolled coil pricing slipped Eur1 lower Monday with steel inventories and liquidity management an ongoing concern, sources told S&P Global Platts.

A Nordic-based buyer lamented there were no new construction or automotive projects for his export business, and said he was not interested in making any new contracts anytime soon.

“We are looking to cancel the contracts we have – they’re simply too large of volumes for us to take on. Everyone is looking at their liquidity right now. We don’t want our stocks to be that high if we don’t have orders that will utilize it,” he said.

The same source said he was seeing conservative buying activity from customers seeking volumes for “very urgent” delivery.

“Any [resurgence] in demand is from re-opened orders that were placed well before the shutdown. We’re now able to send material to France and Italy,” he said.

An Italian distributor source said there would be a gradual recovery in activity in May through to July, but said stock levels would remain high until June “at the earliest.”

When asked about the current demand sentiment in Italy, the same source said market prices were still under pressure from a “very low repurchasing attitude.”

“Mills will try to increase their capacity higher than 50%, but they will need to balance this with the demand,” he said.

A German service center noted that although lockdown measures were easing with more industries back to work, the demand story was unchanged.

“The market is extremely under pressure like in 2009 — the only thing is that stocks are not as overloaded, so this is the most positive point to come about from all of this,” he said, adding that mills were actively trying to get rid of material.

Demand remained lackluster and it was now becoming clear that steel inventories have reached elevated levels with some service centers and stockholders offering to sell at discount to cover short term financing requirements, a Benelux-based service center source said.

“Some mills have not stopped producing during the lockdowns and outside Europe, there has been continuous production which is why there are now huge volumes of imports available to come to Europe and this is the reason for the Eurofer safeguard letter,” source said.

“But if the EC cuts the safeguard quota but then does nothing further to reactivate demand then it is a pointless task — at the moment all service centers have high stocks and end users also.”

“In Europe during the lockdown service centers and stockholders stopped operations, closed shop and demand fell to zero, so there was no invoicing and no turnover, but mills continued to produce and now there are further incoming mill flows but the SSCs cant take any more material,” the source said, adding that some Italian service centers were now close to breaching credit limits as a result and were actively looking to dispose of inventory to raise funds.

“I got an an inquiry from a south European SSC who asked if I was looking to buy stock and when he sent over the stock list this was for 4,000 mt of coils — which makes me think that some mills or service centers will not survive this downturn.”

The Platts TSI hot-rolled coil index was calculated Monday at Eur427.50/mt ($465.16/mt) ex-works Ruhr, and at Eur413.50/mt ex-works South Europe, slipping Eur1 in both regions.

Cold-rolled coil lost Eur1 day on day and was assessed at Eur521.50/mt ex-works Ruhr.

— Len Griffin, Amanda Flint