Day: 4 January 2022

The sentiment in the European coils market hinged on hopes that a global semiconductor chip shortage will ease in first quarter 2022, resulting in higher prices for steel producers who have resorted to discounts due to weak automobile production.

The European coils industry endured a tumultuous 2021, from material shortages leading to record-breaking prices, followed by a slump in steel demand from the automotive sector that derailed the domestic market.

North European hot-rolled coil prices ended the year at Eur922/mt, following record-breaking June prices at Eur1,190/mt ex-works Ruhr. HRC Italian prices also hit a record in June at Eur1,145/mt ex-works Italy, but have since declined by Eur309/mt to Eur836/mt.

Heading into 2022, following two unprecedented years of production cuts, ramp ups, record lows and highs, two issues are likely to determine supply and demand in the spot market: material uptake by the automotive industry and the fate of trade barriers, such as import quotas and anti-dumping duties on steel imports into the EU.

Automakers relinquish steel volumes

Global automotive manufacturing demand and production has fallen since September following severe steel shortages during spring and early summer, as the chip shortage worsened. Steel inventories piled up because previously agreed auto volumes were returned.

Some European mills were funneling available steel volumes for exports, while others were confident that peripheral sectors, including heavy machinery and construction industries, would be able to absorb the surplus.

“The cancellation of orders by automotive has forced EU mills to try and move volumes to export markets in order to not contaminate domestic prices,” a European mill source said.

A German mill source said they were bearish on spot price development early 2022.

“I expect the price to be under pressure in Q1 still. Auto is still weak,” the source said. “There are gaps in orderbooks, but it won’t force a price erosion.” The supply chain was likely to get rid of the excess stocks before significant buying resumes, according to the source.

In December, some automakers said they were confident about the chip shortage easing between Q1 and second half 2022, raising steelmakers’ hopes for volume gains.

“There are positive signs — hopeful signs for automotive,” a UK trading source said. “The only concern is, although there’s a backlog of two million cars, there isn’t much of an order book beyond that.”

EU car output increased by just 3.1% in the first three quarters of 2021 to reach 7.6 million cars built, which was 3 million units lower than the pre-pandemic volume in 2019, data from the European Automobile Manufacturers Association (ACEA) showed.

“Auto is going to call up more volumes. Service centers have to ship a lot in January so their stocks will shrink,” a second mill source said.

2022 automotive contracts sealed

Long-term auto contract negotiations were already in full swing as spot prices declined, following lower uptake at automakers through second half 2021.

Discussions had stalled as mills tried to achieve Eur1,000/mt and above for HRC and Eur1,200/mt for hot-dipped galvanized steel, while automakers kept a meticulous watch over spot price development and raised the stakes for negotiation.

HDG 2022 contract prices settled at Eur1,200-1,250/mt delivered Europe toward end-Q4, and around Eur1,000-1,050/mt delivered Europe for HRC.

A European mill source said their Q1 outlook was focused on securing March orders with a “much better view” on automotive demand. The source said several automakers had already announced additional work shifts due to easing chip shortage.

“Auto has been low during the last quarter and it hit the mills — auto represents 20% of total production. That happened, but it’s over now,” the source said.

EC reviews steel import safeguards

The European Commission’s periodic review into its steel import safeguard measures, which will also assess changes in the US Section 232 tariffs Jan. 1 and its effect on steel trade flows, has been advanced from an expected February or March 2022.

Market participants will have until Jan. 10 to submit opinions on the current safeguard measures and the Section 232 changes. The commission will also assess whether a 3% annual increase in liberalization under the current safeguards is justified.

“I think the safeguard review being pulled forward is also going to help stop the decline [in prices]. There’s no need for anyone to push now,” the UK trader said.

‘Other countries’ steel quota to determine prices

Market participants in Southern Europe said the HRC steel import quota for ‘other countries’ in April 2022 could determine the direction of Italian prices, as inflows from India and Turkey will likely take advantage of the spare capacity in that quota.

“From April, we’ll be able to enter into ‘other countries’ quota, so we could be helped in this way,” an Italian service center said.

A second service center source said the wide array of import options would become more “relevant for setting pricing in Q2.”

Concerns about an eventual exhaustion of the import quota would be offset by a Section 232 tariff decision and an increase in Q1 automotive demand, a mill source said.

“Mills have the door open to the US, where prices are far higher, so this will offset lower import prices,” the source said. “If you look at Q2, European availability still has good tonnages that could be delivered to the States. Nobody considers this part of the demand.”

Worries about import duties, quota restrictions and anti-dumping investigations still make imports a risky option for buyers.

Market chatter about an anti-dumping investigation into HDG imports from Turkey and Russia had participants anticipating possible provisional measures coming into effect end-January 2022.

— Amanda Flint, Laura Varriale

Turkey decreased its duty on imports of cold-rolled stainless sheets to 8% from 12% effective Jan. 1 2022, according to a decree published in the country’s Official Gazette.

The tariff does not apply to countries, such as those of the EU, with which Turkey has a free trade agreement.

These products are classified under HS codes: 721931000000, 721932100000, 721932900000, 721933100000, 721933900000, 721934100000, 721934900000, 721935100000, 721935900000, 722020210011, 722020290011, 722020410011, 722020490011, 722020810011, and 722020890011.

Turkish mills’ overall stainless steel imports in widths above 600 mm totaled 531,000 mt in the first ten months of the year, 100,000 mt higher on the year, according to the latest Turkish Statistical Institute data observed by S&P Global Platts.

The cost of these imports rose to $1.14 billion in that period, 44.5% higher on the year due to globally higher pricing.

China was Turkey’s top stainless steel supplier at 207,800 mt, 86% higher on the year, while South Korea, became Turkey’s second largest stainless steel supplier in the 10-month period of 2021 at 111,800 – 20,000 mt lower on year.

Around 25% of these imports were stainless hot band, most of which is used as feedstock by Turkey’s sole stainless cold rolling mill, Posco Assan.

Posco Assan TST, based in Izmit, Kocaeli, near Istanbul, has production capacity of 300,000 mt/year of 0.3-3.0 mm thick stainless cold-rolled coil up to 1,600 mm wide.

— Cenk Can

The German steel market expected domestic prices and mill production to be mostly stable for January, with inventories likely to dip, amid talks about a resurgence in automotive demand and volume uptake in the first quarter, showed data from the S&P Global Platts monthly steel sentiment survey.

Expectations of a strong return in demand were rife, following murmurs of an easing in the semiconductor shortage and an increase in night shifts at original equipment manufacturers that had previously halted production. This sparked some bullishness among market participants, particularly mills, who believe currently high inventories could rapidly deplete as soon as automotive manufacturers take up more volumes in January-March.

The survey, which is used to compile an index demonstrating the pricing sentiment, was conducted at the end of December and showed the overall expectation for steel prices at 52 – an index of 50 denotes stability – suggesting prices would increase marginally as participants await the outcome of the automotive situation.

“Stock are too high, so spot business will be poor in the next weeks,” a European service center said, with an expectation of stable prices in January. “The problem for subcontractors to automotive is they don’t know what they’ll have to pay for their material as long as contracts haven’t been fixed.”

Half-yearly and quarterly HRC contracts from Northwestern mills were said to be “floating” within Eur950-1,000/mt delivered Europe, a Benelux service center said.

“As long as automotive haven’t fixed their contract the market will remain unclear,” the source said.

A European mill source, however, was confident domestic prices would increase due to skyrocketing energy costs, with some producers said to be minimizing production amid the slow period.

“We believe the energy factor will now be the main driver of the price as all over Europe, everyone will be faced with seven-fold increases on gas and electricity,” he said.

The threat of cheaper Indian and South Korean-origin steel imports could put a damper on prices, with the second-quarter Other Countries quota expected to become more “relevant” for Q2 pricing, a European service center said earlier in December.

Import prices ranged within Eur750-760/mt CIF Italy ports ex-India, and Eur830/mt CIF Italy Ports ex-Korea, a European trader said.

A second European mill source said any concerns about the exhaustion of the import quota in April would be quelled by the Section 232 tariff decision.

“Mills have the door open to the US, where prices are far higher, so this will offset lower import prices,” the source said. “If you look at Q2, European availability still has good tonnages that could be delivered to the States.”

Inventories down, production stable

Despite the current hopes for Q1 automotive demand, inventories were still exceptionally high at most stockholders due to hefty automotive volume hand-backs that occurred earlier in fourth-quarter 2021.

Buyers were still in no hurry to purchase as they look to exhaust the stocks built up due to the shortage from several months ago, with the potential for lower prices in Q1 still a fear among some cautious procurers. For the most part, however, market sources did expect prices to remain stable or to increase, and for inventories to fall, the survey showed.

The index for inventory sentiment stood at 44, suggesting a decrease in stored steel volumes for January, with the index falling 7 points from December’s tally of 51. Steel producers were the most bearish on inventory decreases for January with an index of 38, unchanged from December, while traders stood at 44, down nearly 21 points since the previous month.

The production outlook for January was bullish with the overall index stable at 50, down approximately 9 points from December, suggesting mills were in no hurry to produce with the European supply chain still inundated with material and some producers needing time to restart previously paused galvanizing lines. The concern of rising energy prices was also adding to the cautious sentiment, with some producers pausing production during the slow period to mitigate the increase in energy costs.

Another factor impacting the production process was the upcoming review of the safeguards in January, with market participants keeping a watchful eye on what could transpire with prices and output.

The European Commission’s periodic review into its steel import safeguard measures, which will also assess changes in the US Section 232 tariffs Jan. 1 and its effect on steel trade flows, has been brought forward to January.

Market participants will have until Jan. 10 to submit opinions on the current safeguard measures and the Section 232 changes. The commission will also assess whether a 3% annual increase in liberalization under the current safeguards is warranted.

“Difficult to say [production], but I think mills will look at the EC’s decision and hope they’ll react to the cheap imports from India, Russia in combination with doubling energy costs,” the same European service center said.

— Amanda Flint

Many nations are declaring their desire for energy transition, but low-cost fossil fuels still dominate globally. However, electricity, even that produced from renewables, could become the cheapest energy by 2050, shows a new study by the Potsdam Institute for Climate Impact Research. Steel is a good example of how electricity can reduce carbon emissions.

“80% of all energy demands for industry, mobility or heating buildings is met by burning – mostly fossil – fuels directly, and only 20% by electricity. Our research finds that relation can be pretty much reversed by 2050,” says Gunnar Luderer, main author of the new study, which was published recently in Nature magazine.

Renewable electricity generation – especially from solar photovoltaics – has become cheaper at a pace that most computer simulations have so far underestimated, Kallanish reads in a summary published by the institute. “Over the last decade alone, prices for solar electricity fell by 80%, and further cost reductions are expected in the future. Our computer simulations show that together with global carbon pricing, green electricity can become the cheapest form of energy by 2050, and supply up to three quarters of all demand,” Luderer claims.

“You can electrify more end-uses than imagined, and for those cases actually reduce the energy consumption compared to current levels,” adds co-author Silvia Madeddu. “Take steel production: Electrifying the melting of recycled steel, the so-called secondary steel, reduces the total process energy required and lowers the carbon intensity per tonne of steel produced,” she says.

Hydrogen will be a crucial chain link, as it can flexibly convert renewable electricity into green fuels for sectors that cannot be electrified directly, the study notes. “If these elements come together, the prospects of a renewables-based green energy future look truly electrifying,” Luderer concludes.

Christian Koehl Germany

US President Joe Biden has formally adjusted the nation’s tariff-rate quota agreement for steel imports from the European Union.

In a document published by the Executive Office and obtained by Kallanish, President Biden has finalised his proclamation declaring a tariff-rate volume quota allowing for 3.3 million tonnes of steel products from the EU to be imported into the US duty-free. Meanwhile, any additional steel shipments above this volume will be subject to a 25% duty.

According to the president, these adjustments were made to strengthen the relationship between the US and EU, while also helping limit transshipment and reduce excess steel production.

“In light of my determination to adjust the tariff [sic] applied to eligible steel articles imported from the EU, I have considered whether it is necessary and appropriate in light of our national security interests to make any corresponding adjustments to such tariff as it applies to other countries. I have determined that it is necessary and appropriate, at this time, to maintain the current tariff level as it applies to other countries,” President Biden adds in his proclamation.

The tariff-rate quota agreed upon with the EU will be subject to all exclusions granted by the US Department of Commerce during fiscal year 2021, and will be renewed for the next two years. By October 2023, President Biden hopes the US and EU will work to negotiate new global steel arrangements in order to help restore market-oriented conditions.

Zach Johnson USA

Scrap prices have decreased in the Benelux amid a stronger euro against the dollar and price pressure in export destinations.

Turkey’s scrap demand remained in a lull in the last week of 2021. Turkish mills, which have been forced to increase rebar quotes amid higher scrap offer prices, halted scrap purchases last week. Before accepting higher prices for scrap, they initially want to gauge rebar buyers’ reaction to higher prices. Rebar export sales, however, remained very limited amid the holidays and higher prices.

Some exporters are seen to have decreased their dock prices for HMS 1&2 80:20 to €335-340/tonne ($380-386) delivered from €350-355/t last week amid the stronger euro and export pressure. However, some exporters have not yet revised their dock prices due to continuing holidays.

European mills, on the other hand, are waiting to see what price levels Turkish buyers settle at before initiating their January purchases, Kallanish notes.

Although European sellers are targeting to sell HMS 1&2 80:20 at above $460/t cfr Turkey, Turkish mills find these levels high given their high production costs. They are seen aiming to buy European scrap at below $450-453/t cfr. Their need for February-shipment scrap purchases is seen curbing expectations of a larger price decrease.

Turkish mills’ production costs have increased even further in the new year due to the 52-130% rises seen in power prices and 25% increase in natural gas prices in Turkey. This will most probably cause mills to exert stronger pressure on scrap prices as they have already been struggling to compete in the global arena for a while.

Although no booking was heard in India last week, Indian buyers are seen to have decreased their price targets for containerised shredded from $515/t cfr to $505-510/t cfr India. This is amid decreasing steel prices and bearish sentiment. Scrap suppliers, however, are seen offering at above $520/t cfr.

Burcak Alpman Turkey

Southeast Europe (SEE) crude steel production increased year-on-year as well as on-month in November, according to the latest worldsteel data monitored by Kallanish. Regional output amounted to 439,472 tonnes, up by 42.5% year-on-year.

Output was 14.5% higher on October, when SEE production was 417,100t (see Kallanish passim).

January-November regional production increased by 61.7% on-year to 4.52 million tonnes.

Serbia was again the largest steel producer among the seven SEE countries, which also include Bulgaria, Croatia, Slovenia, Bosnia, North Macedonia and Moldova.

Serbia’s production of crude steel totalled 1.53mt in January-November, up by 19.8%.

Second-largest producer in the region Bosnia and Herzegovina saw crude steel output rise 25.6% to 833,624t.

Third-largest steel producer Slovenia saw production in the first 11 months of the year of 627,652t, up by 21.7%.

Fourth-largest Moldova produced 563,337t, up by 34.3%.

Bulgaria saw crude steel output in January-November at 548,900t, up by 22.4%.

North Macedonia produced 254,997t, more by 63.5% on-year.

Croatia’s 11-month output was 161,193t, compared with only 31,980t in the same period last year.

Svetoslav Abrossimov Bulgaria

Final investment decisions to the tune of $12 billion have been made to approve the Scarborough and Pluto Train 2 developments in Australia, Kallanish learns from Australian company Woodside.

The Scarborough gas resource is located in the offshore Canarvon Basin, approximately 375km west-north-west of the Burrup Peninsula in Western Australia. A 430km-long steel pipeline will be built to a proposed second liquefied natural gas (LNG) train (Pluto Train 2) at the existing Pluto LNG onshore facility located on the Burrup Peninsula.

Pipe for the project will be produced by Germany’s Europipe beginning in 2022. The pre-material for the large-diameter pipe mill will be supplied by its shareholders, Dillinger and Salzgitter.

Plate from Dillinger was also used to build the Boston Flood Barrier protection system recently commissioned in Boston, UK. The barrier will significantly reduce flood risk for the more than 14,000 homes and 800 businesses in the town of Boston, Dillinger says. The hydraulically operated segmented gate is 29 meters wide, 11 meters high and weighs around 370 tonnes. According to Dillinger, its steel was chosen for the project because of the special dimensions required and the high demands placed on the lock.

Buyers of plate have told Kallanish that especially mills involved in such new energy projects are very well-utilised, which leads to considerable differences in availability and prices between plate mills.

Christian Koehl Germany

Switzerland and its steelmakers have nothing to gain from the end of the USA-EU steel dispute and an abolishment of Section 232 duties.

The 25% tariff introduced by the Trump administration in 2018 still applies to Swiss products, making them correspondingly more expensive than EU products, Swiss public broadcaster SRF points out.

“Steel and aluminium imports from Switzerland are still subject to the tariffs,” SRF quotes the Swiss State Secretariat for Economic Affairs (Seco) as saying.

For this reason, Switzerland is sticking to its complaint against the US, which it filed at the WTO in 2018 together with other countries such as Norway, China, Turkey and India, Kallanish notes. It will either be made at WTO level, or Switzerland will succeed in forging an agreement with the USA as a supplement to that with the EU.

Of the two steelmaking companies in Switzerland, Stahl Gerlafingen makes plain long products not meant for overseas shipments. Against that, the special bar qualities made by Swiss Steel Group are sold overseas. “Many of these products are specialties that are not manufactured in the USA; [therefore,] only part of the exports are affected,” Swiss Steel says in a statement. “For the other part, we can pass on the additional costs incurred as a result of the tariffs to customers.”

Most mills that today belong to the Swiss Steel Group are actually based in EU countries, like Germany’s Deutsche Edelstahlwerke or France’s Ugine. The group will therefore be able to circumvent many restrictions through its subsidiaries.

Christian Koehl Germany