Day: 12 August 2021

Swiss Steel Group expects the supply situation in the raw material markets to remain volatile in the second half of the year.

“In particular on the scrap market we see a continuing trend of price increases combined with supply shortages,” says the company’s new ceo Frank Koch during a teleconference attended by Kallanish. “Among the raw materials important to Swiss Steel Group, the clear upward trend in average monthly prices for grade 2/8 German scrap continued. Overall, the average scrap price in the second quarter was 17% higher than in the first quarter of 2021.”

Another problem is steel products delivery delays due to the recent floods in Germany and other parts of Europe.

“We are trying to reduce the impact from the floods on our logistic with help of the company’s production sites in Switzerland and France,” Koch says. “However, we do not expect major disruptions due to the traditional summer holidays in Europe this month.”

“With regard to positioning for future success, in Q2 we have completed the legal merger of the two Swiss business units and are now working on optimsing and harmonising the operational and organisational structure,” he adds. “Also, we have launched an innovative sustainability project in one of our French operations to extract alloys from waste materials which will significantly reduce our usage of natural resources and at the same time improve our carbon footprint. This project emphasises our ambition to address the demand for sustainable, climate-neutral production of specialty long steel products in Europe.”

Swiss Steel also warned that the new Covid-19 infection rates are currently rising in most parts of the world and potentially could lead to a new wave of restrictions and shutdown measures.

Svetoslav Abrossimov Bulgaria

thyssenkrupp recorded an order intake of €8.8 billion ($10.3 billion) in its third fiscal quarter – almost double the figure for the prior-year period of €4.8 billion. Revenue increased by 51% to €8.7 billion.

The adjusted Ebit amounted to €266 million, up significantly from the prior-year loss of €693 million and also from the prior quarter that still saw a loss of €220m. Almost all segments of the conglomerate contributed to this performance. In particular, its distribution unit Materials Services posted record earnings, Kallanish hears.

Here, the continuing strong rise in material prices and the tangible recovery in warehousing and distribution resulted in a substantial increase in order intake by €1.6 billion and sales by €1.4 billion, to €3.6 billion and €3.3 billion, respectively. Adjusted Ebit also reached a new record of €232m, a significant increase on the prior-year loss of €75m. This is attributable, on the one hand, to the increased prices for steel caused by the materials shortage and, on the other hand, to the effects innovations and optimisation, it notes.

The steelmaking unit, Steel Europe, increased order intake by €1.6 billion to €2.5 billion, and revenue by €1 billion to €2.4 billion. With significantly higher selling prices, business grew strongly, especially in the automotive and component supply industries. Orders from industrial customers and steel service centres also rose significantly. Ebit here came to €55m, after a loss €317m last year. The figure is smaller than that achieved with distribution, as the effects from the unit with its mainly long-term contracts will come with a delay (see related story).

Christian Koehl Germany

thyssenkrupp group is optimistic that it will translate the steel market’s peaking spot prices into its long-term contracts with its major customer industries.

The steel unit of the German group does business mainly on annual and other long-term contracts, as its high-grade strip products address the automotive and white goods industries.

“We operate on a different rhythm than our competitors. Spot business accounts only for 10% of our total,” group cfo Klaus Keyberg said during a conference call attended by Kallanish. “The positive effect on earnings will come. We’ll just see it later than our competitors.”

“This is a good thing, but our long-term contract structures mean there is a delay in increased raw material and steel prices feeding through to our revenues and earnings,” he explained. The delay of spot prices tracing through is between 6-12 months, he detailed.

Carmakers lately reported extraordinary profits, which makes Keysberg “intuitively” optimistic that the higher prices can be adequately implemented in the ongoing negotiations.

“We have the dynamics of the market, as we have the demand – carmakers could sell more cars than they are able to produce,” he said. He did not comment on the question of a call participant, if the outcome figure could include an extra “cushion” that goes beyond the spot prices.

The group’s steelworks has temporary production restrictions due to the relining of blast furnace 1 initiated in Duisburg in the third quarter and planned to be completed in mid-September. This measure was due at this time and could not be postponed, Keysberg reiterated. He conceded that the measure brings a production loss, which he assessed with “a low six-digit figure,” leaving unclear whether he meant revenue or tonnage.

Christian Koehl Germany

China’s steel output cuts remain at a smaller scale so far in 2021 even as the country’s largest steelmaking city Tangshan continues to target aggressive reductions for the rest of the year, a development that will likely result in oversupply and pressure prices in the near term.

China has been looking to curb steel output expansion in 2021 as part of its broader plans to meet its carbon goals. The country has been exercising tighter environmental controls aimed at the steel industry in recent times, including nationwide output cuts.

Tangshan, located in northern China’s Hebei province, is expected to reduce its crude steel output more than the required target in 2021.

However, most Chinese steel mills were still planning or were in wait-and-see mode as regards steel output cuts, according to the China Iron & Steel Association, or CISA.

If steel output cuts outside Tangshan remain on a smaller scale in August and September, soaring steel inventories are likely to cause oversupply and weigh on steel prices even as seasonal demand is seen making a comeback in September, some sources said.

According to CISA, nationwide steel output cuts were necessary as the move could help cap iron ore prices, reduce emissions and avoid oversupply at a time when overall steel demand is expected to decline in the second half of 2021.

Dilemma for mills

However, the association admitted it will be very challenging for the steel industry to strike a balance between meeting tough output cut targets and guaranteeing sufficient steel supply for downstream users in the second half of 2021.

Some market sources said keeping production at normal levels in Q3 and reducing production all at once in Q4 has remained the best strategy for most steel mills.

As a result, China’s steel output cuts might be limited in the third quarter, especially with a likely easing off of power shortages in Guangxi, Guangdong and Sichuan provinces in mid- or late August, they added.

So far in August, besides power shortages reducing steel production in the three provinces by around 27,000 mt/day, steel output cuts outside Tangshan city have been mainly implemented by only some major state-owned companies.

According to market sources, steel inventories were currently the second highest in history after the level seen in 2020. “The hot-rolled coil inventories at some warehouses in Guangdong are already [at] a record high,” one source said.

Steel mills are looking to produce flat steel more than long steel due to higher profit margins, while some traders were aiming to bump up their stocks in anticipation of larger steel output cuts later this year that would boost steel prices.

“But all these moves could instead undermine flat steel prices in the upcoming strong season,” the source added.

Tangshan cuts may exceed target

Tangshan is planning to cut its annual crude steel production in 2021 by 12.37 million mt on the year, according to sources.

However, the city already ordered its steel mills for huge production reductions in March, which could eventually lead to an annual steel output reduction of 14.2 million mt in 2021, according to S&P Global Platts calculations based on data of Tangshan city bureau of statistics.

Some Tangshan-based mill sources said local mills would unlikely ramp up production from current levels during the second half of 2021 and through early 2022, as the city is aiming to improve its air quality for the Winter Olympics. This event will be held in Beijing and Zhangjiakou in February 2022.

Meanwhile, Tangshan has also restrained local mills for commissioning new iron- and steel-making and coking facilities until March 13, 2022.

According to capacity swap schedules, Tangshan-based steel mills plan to commission a combined crude steel making capacity of 9.4 million mt/year in the second half of 2021, based on closures of old facilities of 10.8 million mt/year capacity.

Due to improved technology, new facilities could usually produce more than their designed capacity, thus leading to net capacity expansions, some sources said.

— Staff

German steelmaker Salzgitter expects European hot-rolled coil prices to continue “sideways at a high level” of around Eur1100/mt ($1,293/mt) for the rest of this year and into Q1 2022 with some fluctuations in coming months, on a continuing shortage of material in the market, company executives said Aug. 11. The company will restart blast furnace C amid strong demand, it said.

The company is confident it will be able to place volumes in the market from its 600,000 mt/year capacity blast furnace C, which will restart in November, Gunnar Groebler, CEO since July 1, told analysts on a call to discuss the company’s H1 results, described as the best since 2008. He noted that volumes lost in early June during a lightning strike will be recouped during the year, with market prospects for the rest of the year looking excellent.

Salzgitter’s main Flachstahl site typically produces almost 5 million mt/year of crude steel and around 3.5 million mt/year of rolled steel.

“We see a strong Q3,” Salzgitter CFO Burkhard Becker told analysts on the call. While in Q4 some seasonal impact is foreseen, during holiday seasons, the executive indicated that there could be an improvement as regards the semiconductor shortage issue. “We don’t see a significant negative impact,” in this area, he said. “We see the Eur1100/mt level continuing quite normal,” he said.

Around 65% of Salzgitter’s sales are typically to the automotive sector, where production has been impacted this year due to a shortage of semiconductor computer chips.

Results rebound

Salzgitter reported a “significant” on-year improvement in H1 earnings before tax of Eur305.7 million, compared to a pre-tax loss of Eur127.8 million in the same 2020 period, when COVID-19-related factors had led to a “tremendous” slump in end-markets including the German automotive sector in April 2020, Becker noted. The steelmaker’s participation in German copper products producer Aurubis contributed Eur91 million to the positive result.

For the whole of 2021, the company foresees a pre-tax profit of between Eur400 million and Eur600 million, and a return on capital employed “tangibly above” the previous year’s level, Becker said.

H1 sales of Eur4.43 billion outstripped the Eur3.63 billion of H1 2020 and are seen increasing to more than Eur9 billion for the whole year.

Guidance seen ‘conservative’

The company’s results were better than expected in Q2 in a “robust pricing environment,” said Alan Spence, analyst at Jefferies International. The analyst believes “group guidance looks conservative,” as Salzgitter “highlighted positive market conditions with a lack of material forcing customers to continue to buy material at current prevailing prices. SZG noted the current supply shortage will continue to persist well into the end of the year, with prices slated to remain ‘around’ the Eur1100/mt mark.”

S&P Global Platts assessed Northwest European hot-rolled coil stable at Eur1150/mt Aug. 11 ($1,349.76/mt) ex-works Ruhr, around multi-year highs. Sources said there was no significant spot availability left in the Ruhr region for the fourth quarter.

Becker noted the company’s H1 earnings had been driven by its Trading division which had been able to buy at lower prices and from inventories and then resell at higher prices due to the dynamic increase in prices throughout the period. Now that prices have stabilized “we don’t expect the Q2 profit level to be repeated,” he said.

With hot strip prices having reached record levels towards the end of H1, the flat steel business segment will contribute much more to H2 earnings than Trading, although steel plate prices haven’t yet shown such a significant improvement, he said.

The Mannesmann tubes division reported “an improved business situation [in H1] at the precision tubes group, with medium diameter line pipes and stainless steel tubes also registering an increase in bookings,” Becker said.

Blast furnace

Blast furnace C, to be restarted in November, has been off stream since around autumn 2019, originally due to maintenance but then the halt was prolonged due to low demand, a Salzgitter spokesman said.

“In the meantime slabs were supplied by our JV Huettenwerke KruppMannesmann (HKM) due to their surplus of slabs caused by very low large diameter pipeline tube demand. In normal times the related plate production consumes a significant volume of slabs from HKM,” the spokesman said.

— Diana Kinch