Day: 16 September 2021

Daniel Guinabert, Director General of EUROMETAL, participated in the Polish Union of Steel Distribution (PUDS) General Assembly 2021, organized on September 15, 2021.

The Director General of EUROMETAL spoke about the European steel market situation which is not only affected by the pandemic that is not over yet, but also challenged by many uncertainties.

Daniel Guinabert was invited to the general meeting along with ArgusMedia editor Colin Richardson.

The extension of EU safeguard measures on steel imports caused uproar among many industry participants, especially buyers, but the move may be of strategic importance to the bloc’s climate plans, Kallanish notes.

Consultant Andreas Schneider called the extension “scandalous” in a commentary piece written shortly after the announcement in June. The European Commission (EC) totally disregarded the interests and the troubles of steel-using industries, a sector ten times larger than all steelmakers taken together, Schneider noted. As a consequence, “this is a rare case that a decree from Brussels has encouraged the party concerned [mills] to bring up prices immediately,” he stated.

With extended safeguard measures in place, “you cannot make decent [business] planning”, a German service centre buyer tells Kallanish. Domestic mills “prefer to keep the market climate uncertain”, a status that has been sustained by the Commission.

Another manager says he is “outraged” and “speechless”. He asks: “How can you act this way at such a time and assist in blowing up prices?” But he points out that in the conflict of interests between steelmakers and buyers, the latter group had to do without the bargaining force of the strongest players in the game. Carmakers have lately preferred to remain low- key in public political debates. “Since the diesel scandal, carmakers seem to have lost reputation and lost influence. And they prefer to keep quiet,” the manager believes.

But there is yet another and more substantial explanation as to why the Commission acted like it did. The steel sector plays a key part in one of the mega challenges of the 21st century, the transition of all industrial activity towards zero carbon emissions. Major European mills have made this their declared target, and have assumed a global vanguard role in this game.

A Dutch industry observer says: “The last thing the EC would want in this endeavour are falling steel prices. That would make it very difficult for European mills to finance the transition to a more environmentally friendly way of making steel.”

Christian Koehl Germany

European steelmakers’ association Eurofer has reiterated its call to European Commission President Ursula von der Leyen to meet steel industry executives to negotiate a “European Green Deal on Steel”. This would include access to affordable low carbon energy, investment support for clean technologies and effective carbon leakage protection.

This comes after von der Leyen gave her State of the Union address on Wednesday. She set out the Green Deal as a major achievement and a cornerstone for the future of the EU. But the steel industry’s decarbonisation ambitions will be successful only if the EU’s Fit for 55 Package puts the right conditions and incentives in place, Eurofer points out.

“This is a make-or-break moment for Europe’s leadership; we must get it right in order to make the green transition economically and socially viable for everybody, including the steel sector,” Eurofer director general Axel Eggert says in a note sent to Kallanish. “The pandemic has shown that strategic autonomy is paramount in all industries: only with a steel sector in good health, can the EU pursue its geopolitical, climate, economic and social goals.”

The new Carbon Border Adjustment Mechanism (CBAM) should be applied until 2030 with the currently used EU Emissions Trading System (ETS) benchmark-based free allocation and indirect cost compensations throughout the EU, Eurofer says. This in order to support companies focusing on low carbon investment and to assess the CBAM effectiveness over time.

“Higher climate ambition and rising carbon prices – which doubled in the last year and tripled in the last two years – require strengthened carbon leakage protection as long as international competition doesn’t face comparable carbon constraints, if any at all,” Eurofer adds.

“We should not put European steel at risk by mistake or as an unintended collateral damage of other policies, as this could put the State of Union itself at risk in the coming years,” Eggert concludes.

Adam Smith Germany

There is little room to extend the life of primary steel production through blast furnace technology within the European steel sector, says UK-based research house Industry Tracker in a report published this week. Producers’ current balance sheets and free cash flow yields cannot meanwhile carry the cost of the transition to green hydrogen steelmaking.

Only a quarter of 2050 emissions budget remains among Europe’s top ten steelmakers. Of the companies with the largest share of their 2050 emissions budget remaining, only two – ArcelorMittal and Evraz – have more than the global average for blast furnace-based steel production, Industry Tracker observes.

The transition cost to green hydrogen steelmaking is estimated at $4-34 billon depending on asset base size. Companies will need subsidies, direct public funding and partnerships, Industry Tracker says. Six companies have secured public funding for projects to support developing and scaling early-stage technologies, covering on average 44% of project costs. “Public sector support will be key to the deployment of alternative low-carbon steelmaking,” the research firm comments in the report seen by Kallanish.

Just two companies – ArcelorMittal and Metinvest – have room to reline more than one blast furnace. This is largely a function of them owning more blast furnaces, which reduces the influence that one furnace has on their total emissions budget.

“Five companies – Tata Steel, Metinvest, Evraz, Severstal, and ArcelorMittal – must decide within the next five years whether to lock themselves into European capital assets of high transition risk,” Industry Tracker says.

In the firm’s ranking indicating exposure to the financial impacts of transition, SSAB scored best with 73/100, followed by ArcelorMittal and voestalpine with 66/100 and 60/100 respectively. Erdemir scored worst with 30/100, followed by Metinvest and Severstal with 35/100 and 36/100 respectively.

Companies based in the CIS region and Turkey lag behind their European counterparts in governance metrics such as scenario planning, target setting and climate related remuneration, Industry Tracker observes.

“European steel companies face increasing regulation with a more effective carbon pricing signal as allowances are phased out of the Emissions Trading Scheme (ETS) and a potential Carbon Border Adjustment Mechanism (CBAM) is introduced,” the firm comments. “There is also an opportunity for de-commoditisation of steel and end markets to develop for zero carbon steel products.”

Adam Smith Germany

The Italian government will invest in JSW Steel’s Piombino steelmaking facility through its financial arm, Invitalia, vice-minister for economic development Alessandra Todde said at a city hall meeting in Rome this week.

A source close to the matter says Invitalia and JSW are expected to sign a binding agreement in the coming weeks. Due diligence will follow in order to quantify the investment and the value of the Piombino mill, Kallanish notes.

A new industrial plan will be submitted thereafter, involving the revamp of all the mills’ equipment, Todde said at the meeting attended, among others, by union representatives, regional authorities and the Piombino city council.

Meanwhile, the economic development ministry will also meet “shortly” with the management of Liberty Steel’s Italian facility, Magona, also located in Piombino, to discuss state financial support. Authorities intend to relaunch the entire Piombino steelmaking and re-rolling cluster to support its competitiveness, Todde added.

Invitalia is also buying a majority stake in Italian steelmaker Acciaierie d’Italia, formerly known as ArcelorMittal Italia (see Kallanish passim).

Natalia Capra France

Thyssenkrupp (tk) has agreed to sell its Italian stainless steel mill, Acciai Speciali Terni (AST), to Italy’s Arvedi. The deal includes the associated sales organisation in Germany, Italy and Turkey.

AST currently employs around 2,700 people and generated sales of around €1.7 billion ($2 billion) in fiscal year 2019/2020.

The parties have agreed not to disclose the purchase price, and the closing of the transaction is expected in the first half of 2022, Kallanish learns from thyssenkrupp. The German company notes it is examining a possible minority shareholding in AST.

“We are pleased to have found a new owner for AST in the Arvedi Group, which will drive the development of the company with investments and innovations,” says thyssenkrupp’s Volkmar Dinstuhl, the current chairman of AST.

“This transaction is strategic for the whole Italian economy and represents an initial step towards new exciting developments,” says founder and president of Arvedi, Cavaliere Giovanni Arvedi. He adds that “we are very pleased that tk is considering a potential minority shareholding in AST”, which he says is proof of tk’s trust in the company.

For thyssenkrupp, the sale means the end of a process lasting many years, after it decided to part with its tradition of making stainless steel, and divested most activities to Outokumpu.

Earlier this summer, four companies were reported shortlisted for acquiring AST. Apart from Arvedi, these were Marcegaglia, Posco and Baosteel, according to union sources.

Thyssenkrupp’s sale of its Italian unit Acciai Speciali Terni, or AST, could go through in the next couple of weeks, with two Italian bidders – flat producer Arvedi and re-roller Marcegaglia – very much in pole position according to industry sources.

Marcegaglia has in the past confirmed its interest, and while Arvedi has not, nor has it denied interest. When contacted by S&P Global Platts both declined to comment.

AST, the only integrated stainless mill in Italy, is a strategic asset for the Italian industry so the government is watching very closely what is happening. Last week economic development minister Giancarlo Giorgetti said that “the sale of AST could be completed even before the end of the month.”

China’s Baosteel and South Korea’s Posco had been talked about as potential bidders for AST, although neither had confirmed their interest.

The possibility of the Italian government using its “golden power”, the power to limit or stop foreign direct investments and corporate transactions involving Italian strategic assets, is believed to have discouraged foreign buyers.

Closing of a deal is not expected to happen before the end of Q4 although it is unlikely that either Arvedi or Marcegaglia would have any antitrust problems, so the greenlight from the European Commission should come relatively quickly if they are the ultimate winners.

AST, which has a capacity to produce around 1.3 million of crude steel, of which 70% is stainless and the rest carbon steel, is seen as good a match for both the Italian companies.

Marcegaglia is the largest European steel re-roller and largest worldwide tube producer. Marcegaglia produces around 550,000 mt/year of stainless steel products and buys around 30% of its stainless black steel feedstock from AST.

If Marcegaglia were to buy AST, the company would not only acquire primary production but would also increase its stainless market production.

Arvedi, on the other hand, is also a buyer of Terni stainless hot and cold rolled coils, buying around 15% of its feedstock from Terni, according to industry sources.

Arvedi could also being interested in electrical steel, which it used to purchase from AST.

Sources close to the matter said that as the steel market had improved so much recently the deal’s value could rise to around Eur600-800 million.

Thyssenkrupp put AST up for sale in May 2020 as part of a wider restructuring.

Both the Italian government and Thyssenkrupp declined to comment when contacted by Platts.

Union sources told Platts that AST is expected to achieve its 2021 production target of 1 million mt.

— Annalisa Villa

China’s steel output cuts have gathered pace in September and are expected to widen further in the coming weeks as the country looks to cap 2021 crude steel output and emphasizes on lowering energy usage, sources said.

A few mill sources expected China’s steel output cuts to widen further in late-September or October, mainly as the overall cuts by mid-September have remained insufficient to keep the country’s 2021 crude steel output within 2020 levels. During January-July, China’s crude steel output was 8%, or 48 million mt, higher on the year.

More output cuts are expected to be seen in eastern and southern China in the coming weeks, also because Jiangsu, Zhejiang, Yunnan, Guangxi and Guangdong are still lagging behind their reduction targets of energy consumption.

In tandem with the accelerated steel output cuts, Chinese domestic hot rolled coil sales margins rose 41% to $165/mt on Sept. 13 from $117/mt on Sept. 1. The S&P Global Platts IODEX 62% Fe index dropped 15% to $123/mt over the same period from $144/mt.

Output cuts speed up

Hebei, the largest steelmaking province in China, has so far still been the only province on track to its annual steel output target, led by strict cuts carried out in Tangshan city from March. Consequently, the province has also been on track to lower its energy consumption target.

Steel mills in Jiangsu, Shandong and Liaoning — the second, third and fourth largest steelmaking provinces in China, respectively — have gradually launched steel output cuts since the start of September.

As a result, the crude steel output in both Jiangsu and Shandong are likely to drop more than 1 million mt on the year in September. In Liaoning, it may fall about 600,000 mt on the year, showed Platts estimates based on data from mill sources and traders.

Yunnan province is at risk of exceeding its 2021 energy consumption target, and has ordered local steelmakers to reduce crude steel output by 30% in September. This is expected to decrease its crude steel output in September by about 500,000 mt on the year.

Major mills in Guangxi province have planned to trim crude steel output cuts from late-September while electric arc furnace steel production in Guangdong and Zhejiang provinces might be dented in September due to energy consumption controls, market sources in southern and eastern China said.

Price uptick limited

China’s crude steel output is expected to trend downward in the remainder of 2021, as output cuts are political missions for steelmakers, some mill sources said.

However, even if the cuts are widened further in the fourth quarter, steel prices are unlikely to increase significantly, partly as falling iron ore prices have eased production costs, and partly because the impact from a slowing property market could be felt by the steel market in Q4, a few sources said.

The slowdown in property construction as a result of tightened credit to this sector may lead property steel demand to a year-on-year decline in the second half, and also dent the manufacturing of engineering machineries.

By mid-September, the recovery of infrastructure construction has remained milder than a year earlier, some steel traders said. China will accelerate the issuance of local government special bonds in Q4, but the support generated by the bonds to infrastructure may not take effect until early 2022.

Steel output cuts in China:
	Crude steel output target in 2021	Crude steel output year-on-year growth Jan-Jul	Platts estimates of actual crude steel output cuts in Sep
Hebei	Down 21.7 million mt on year to 228.07 million mt	-5.6 million mt	-0.4 million mt on month;null -4.5 million mt on year
Jiangsu	Within 2020 level of 121.08 million mt	+6.5 million mt	-0.5 million mt on month;null -1.1 million mt on year
Shandong	Down 3.44 million mt to 76.5 million mt	+5.8 million mt	-0.5 million mt on month;null -1.2 million mt on year
Liaoning	Within 2020 level of 76.1 million mt	+3.5 million mt	-0.5 million mt on month;null -0.6 million mt on year
Yunnan	—	+2.8 million mt	-0.6 million mt on month;null -0.5 million mt on year
Crude steel output targets and output cuts are based on state-owned media reports, mill sources and traders
Unit: million mt

European domestic steel sections prices weakened the week to Sept. 15, as sources cited weak demand in the market amid softening scrap prices.

S&P Global Platts’ European medium sections price (category 1, S235 JR) was assessed at Eur1,030/mt delivered Sept. 15, down Eur20/mt on week.

One distributor in the Benelux region cited a deal for 1,000 mt of beams at Eur1,040/mt delivered, noting that the demand for medium sections seemed to be picking up amid a return from holidays across Europe.

Waiting for a drop

Another Benelux-based distributor source, however, noted that customers are waiting for prices for long steel products to move lower since scrap prices are down on month. But mills are highlighting high energy and transportation costs and are reluctant to lower prices significantly.

“Transportation is difficult, costs are high, and deliveries are still an issue,” he told Platts. “But mills are starting to get a bit nervous because I hear that in Europe everyone is waiting.”

The source noted that demand will recover in the near term as different projects were progressing.

“People are speculating that prices will go down, but demand is still there, so after a certain point people will have to buy,” he told Platts, adding current tradable levels for medium sections category 1 were at Eur990/mt delivered Benelux.

“The port of Antwerp is full of material to be declared on Oct. 1,” he said. “I am still getting offers from Turkish mills for beams and merchant bars, but lead times are very long. They are offering November shipment or later, which is not suitable.”

The EU import quota for non-alloy and other alloy merchant bar and light sections of Turkish origin for the third quarter totaled 65,582.60 mt and was already exhausted by July 13. The fourth-quarter quota has the same tariff-free volume.

One European mill source noted that tradable values for category 1 medium sections in Germany were Eur10-Eur15/mt higher than in Southern Europe and cited tradable levels for Germany at Eur1,020-Eur1,040/mt delivered.

Beyond scrap costs

Although demand is low at the moment and scrap prices are softening, but it is a “common mistake” to just look at scrap costs, the source told Platts, citing elevated energy costs.

“OK, scrap has moved down, but there are other costs that are extremely high,” he said. “So, there needs to be a balance between all costs. Demand is quiet because customers are looking at raw material and thinking that scrap is down. So, it’s like a circle.”

Platts’ assessment for Southern European shredded scrap was at Eur432.50/mt delivered for September contracts, down sharply from Eur480/mt from August.

In Northern Europe, Platts’ September assessment for domestic shredded scrap was at Eur397.50/mt delivered, down from Eur440/mt in August.

European gas hit all-time record highs amid a tight global market and Russian supply concerns for the winter in case of a delayed commissioning of the Nord Stream 2 gas pipeline, Platts reported.

Platts assessed the benchmark TTF day-ahead contract Sept. 14 at a record high of Eur66.05/MWh, up from Eur10.43/MWh a year ago.

— Rabia Arif, Staff

European mills are finding their negotiations with automobile manufacturers more challenging for 2021, as chronic shortages of semiconductors and chips minimize the number of volumes taken, in turn hindering the automobile production process, sources said.

On the import side, HRC and HDG third quarter quotas are set to be exhausted by Oct. 1, with the possibility of buyers incurring a 25% duty on the material.

“The market is not as lucrative because of the automotive stoppages. The chip problem will impact the home appliance segment, so there will be problems with this sector,” an Italy-based trader said, though he did not expect prices to drop. “I don’t see why prices should go down anytime soon, because we don’t have a lot of quota [allowances], so availability is still tight.”

The lack of automotive demand was a sign of relief for mills with productivity and delivery issues. The freeing up of HDG on the market has meant that mills can afford to focus on processing late deliveries by reallocating volumes initially promised to automotive customers.

“We are normally fully booked until end of the year, but we have possibilities for small HDG projects,” a European mill source said. “Customers already have booking for Q1.”

The same source said they were able to sell CRC material for a lot more than HDG, with little competition on CRC due to tight market availability.

Prices for HDG were heard as low as Eur1,270-1,280/mt ex-works Ruhr, with deals secured at Eur1,290/mt ex-works Ruhr.

Automotive contract negotiations for 2021 were still at early stages, but current offers from mills have given clearer insight to the future of domestic spot pricing, with prices heard at Eur1,100/mt, nearly double the proposed contract prices intended for this year.

“Automotive negotiations will show us how prices will go, people won’t want to pay more than this,” a German distributor said. Italy is still feeling effects of import prices, so we are sitting back – our management is fearful of bigger stocks.”

— Amanda Flint