Day: 17 March 2022

On the 15th of March 2022, the finance and economy ministers of the 27 EU Member States agreed on a general approach on the CBAM. The Council’s position on the EU CBAM remains very close to the Commission’s proposal while leaving some crucial questions open.

Regarding the scope, the same 5 sectors are covered: iron and steel, cement, fertilizers and electricity. In other words, the proposal shies away from taking up CBAM rapporteur MEP Mohamed Chahim’s (S&D) demand to expand the scope to also cover organic chemicals, hydrogen and certain plastics or indirect emissions in all sectors. While the text gives a bit more precision regarding the potential inclusion of indirect emissions in the coverage “at the end of the transitional phase”, it only mentions that indirect emissions “could be included”, not that they will.

The pace of the phase out of free allowances is crucial to determine CBAM’s WTO compatibility, CBAM’s international acceptability and CBAM’s level of environmental ambition. But it will be left to the ETS reform, and the Council has still to take a position on this divisive point. The only information provided by the Presidency is that “the CBAM should be progressively phased in while free allowances in sectors covered by the CBAM are phased out”, to ensure a gradual transition from the current system of free allowances to the CBAM.

We do not find new substantial elements regarding the EU’s support towards vulnerable countries, and especially LDCs. The compromise does not include an exemption for LDCs, which would have sent a strong political message and ease some of the tensions surrounding CBAM. The text mentions “technical assistance” as in the Commission’s proposal but falls short of proposing to help at least LDCs to decarbonize and face the consequences of climate change.

By contrast, the text emphasizes international cooperation and promotes a more open, dialogue-oriented approach than the Commission’s proposal. It seems open to a potential role of third countries on “the details of the design of CBAM”, particularly during the transitional period.

Regarding the governance of the EU CBAM, EJD recommended, as did MEP Mohammed Chahim, to establish only one centralized EU CBAM agency, which would facilitate the operationality of the mechanism. The Council, like the Commission, prefers to establish 27 national competent authorities in each Member State. However, the Council compromise adds more details regarding a central registry of authorized CBAM declarations run by the Commission. This goes in the direction of releasing part of the administrative burden from the Member States’ shoulders by centralizing the CBAM’s certificates data.

To conclude, the Council’s position still leaves some crucial questions open, which are decisive to make the CBAM more environmentally ambitious, fairer and more operational.

by Geneviève Pons, Isabelle Garzon and Léa Kauffmann

Germany’s Thyssenkrupp said March 16 it expects an impact on its business development as a result of direct and indirect effects of the war in Ukraine. Moreover, the war’s economic consequences on the group’s business development are also influencing the possible stand-alone solution for its steel business, it said in a statement.“Thyssenkrupp AG remains convinced that the independent positioning of the steel business offers very good prospects for the future,” the statement said. “Nevertheless, a statement on the feasibility is at present not possible due to the current economic conditions.”

Just five weeks ago, on Feb. 10, the group had reported a good first quarter, with its turnaround “in full swing” despite some continued weakness in the automotive segment.

Thyssenkrupp CEO Martina Merz noted March 16 that the group had made progress in its restructuring — which has involved several divestments — evidenced by “substantial improvements in the current fiscal year up to the outbreak of the war. However, the consequences of the war will affect us and especially the steel business. Implementing the stand-alone solution in this current unstable environment is not possible at the moment.”

Thyssenkrupp is Germany’s biggest steelmaker.

Four restructuring transactions

Thyssenkrupp in recent times carried out four restructuring transactions, narrowing its portfolio. In 2021, it sold its mining business, its Carbon Components and Infrastructure businesses, and closed its heavy steel plate mill in Duisburg. In late January, it concluded the sale of its stainless steel plant (AST) in Terni, Italy, including the associated distribution organization, to Italy’s Arvedi. The Elevator Technology business was divested in 2020.

The group has also suspended its forecast for the current fiscal year (2021-2022) with regard to free cash flow before M&A “due to present geopolitical and economic turmoil,” it said, pointing to “limited forecasting ability with regard to free cash flow before M&A” because of the volatile environment.

“Although the group’s sales from Russia and Ukraine are negligible at significantly less than 1 percent of total sales, the executive board estimates that the group’s business performance will be impacted by the far-reaching macroeconomic and geopolitical consequences of the war in Ukraine,” Thyssenkrupp said in the statement. “The executive board currently assumes that the global disruptions at various points in the supply chain will affect above all thyssenkrupp’s steel and automotive supply businesses.”

Materials trading benefits

Opposing developments in materials trading, which is benefiting from the current increase in raw material and material prices, and the countermeasures initiated will not be able to fully compensate for these impacts, the company continued.

“At the present time, the specific extent of the direct and indirect consequences of the war in Ukraine on the business development of thyssenkrupp is associated with high uncertainties,” it said.

Until the start of the war, business development of thyssenkrupp in the first quarter and in the current second quarter of the fiscal year was going according to plan, the group’s statement said.

However, “in March, initial negative effects occurred primarily in the steel and automotive supply businesses. At the present time, the executive board continues to assume that the adjusted EBIT for the second quarter will still be above the previous quarter. Free cash flow before M&A, on the other hand, will be more strongly impacted by negative price effects than previously expected.”

Thyssenkrupp added that it remains committed to its decarbonization plans.

“This crisis also shows that the green transformation remains very important. The aim is to greatly reduce Europe’s dependence on Russia and on fossil fuels overall, “ Merz said in the statement. “We now expect a clear signal and concrete funding commitments from government for our plans to decarbonize the steel industry.”

“The executive board of thyssenkrupp AG is appalled by the war in Ukraine,” the statement said.

— Diana Kinch

Turkey’s EU steel export quotas rose as the European Commission decided to allocate Russia’s quota to other countries following a ban on Russian steel, according to a statement from EC March 15, raising expectations of pricing support for Turkish mills.

The rise in Turkey’s steel quotas could support Turkish mills’ steel pricing in the coming quarters, which already rose notably in the last three weeks amid the Russia-Ukraine conflict, a service center manager told S&P Global Commodity Insights March 16.

Turkey was well placed to provide steel to the EU in the absence of mills in the Commonwealth of Independent States due to Russia’s invasion of Ukraine, Ugur Dalbeler, vice president of the Turkish Steel Exporters’ Association and CEO of major steelmaker Colakoglu told S&P Global on March 15.

“Imports from Belarus and Russia subject to the safeguard measure will no longer be able to enter the Union,” EC said in a statement March 15.

“Thus, the Commission has decided to adjust the functioning of the safeguard measure to ensure that these import bans do not create a shortage of supply in the Union market in the categories affected, and that Union steel users can continue sourcing those volumes from other sources,” according to the statement.

As a result of EC decision, Turkey’s hot-rolled sheets and strips quota rose to 430,246 mt for the second quarter of 2022 from 323,200 mt in the first quarter.

Merchant bars and light sections quota increased to 97,010 mt for Q2 from 64,156 in Q1.

Turkey’s rebar quota rose to 86,412 mt for Q2 from 60,591 mt in Q1, while wire rod quota increased to 107,758 mt for Q2 from 78,653 mt in Q1.

Hollow sections quota of Turkey also rose substantially to 90,057 mt for Q2 from 68,575 mt in Q1.

Turkey’s large welded tubes quota rose to 13,668 mt for Q2 from 9,628 mt in Q1, while Turkey’s other welded pipes quota remained relatively stable, according to the EC statement.

— Cenk Can

Hot-dip galvanized and cold-rolled steel prices rose sharply March 16 as supply chain issues and higher market capacities drove up prices.The weekly Platts HDG North Europe price from S&P Global Commodity Insights was assessed at Eur1,495/mt ex-works Ruhr, up Eur295, while the weekly HDG South Europe price was assessed at Eur1,470/mt EXW Italy, up Eur285.

Cold-rolled coil in southern Europe was assessed at Eur1,450/mt EXW Italy, up Eur300.

Market participants consistently linked HDG and CRC levels but stressed a reduction in end-user demand for CRC.

Due to demand pressures for hot-rolled coil, with which cold-rolled material shares production lines, CRC was reported by one distributor source more as upstream supply for long-route HDG production than its own finished product. “CRC is a lot rarer on the market for the moment in comparison to [galvanized] due to a focus on long-route production,” the distributor said. “Companies like Arcelor put HDG on a higher premium than CRC, but there’s really a limited difference in [the] base price.”

A trader source confirmed that CRC also showed reduced demand on the import market, with the usual Eur100 premium to HRC reduced to as little as Eur50 in some cases.

ArcelorMittal returned to the market March 16 with new price levels for coil products: Eur1,400/mt for hot-rolled material, Eur1,500/mt and Eur1,550/mt for CRC and HDG, respectively.

Deals in southern Europe were heard at Eur1,470/mt EXW Italy.

In the northern market, few transactions were reported, although tradable value submissions from sources were relatively homogenous, around Eur1,500/mt ex-works.

Offer levels in northern Europe were heard as low as Eur1,450 in the week that started March 14 – although with new prices from ArcelorMittal. It is yet to be seen whether these levels will remain on the market.

— Benjamin Steven

Brazil steelmakers are moving to recover lost margins after a rapid rise in the price of raw materials and semi-finished steel seen since Russia’s invasion of Ukraine.

According to several sources, mills are pushing a price increase of up to 20% on domestic orders for April, in both flats and long products.

The increases are set to be divided into two parts, expected to be applied at the start of April and in the middle of the month.

Companhia Siderúrgica Nacional, in an interview with local media, disclosed plans to raise prices 12.5% April 1 and 7.5% April 15. The increases would affect both the company’s flats and long steel portfolio.

Gerdau proposed a 10% increase for early April on flats products, according to multiple sources. Despite the lower percentage, the company was one of the few that enforced a 7% hike on March orders.

Usiminas is expected to increase flats prices by a total of 20%, divided into two parts starting with 10%-12% at the start of April, according to sources.

“A second wave of increase should come in mid-April, with all mills converging to the 20% price increase,” a market participant said.

Mills proposed a 5%-8% price increase by late February, but sluggish demand within the sector forced most domestic mills to step back and resume negotiations on old listings.

On the longs side, both Gerdau and ArcelorMittal are pushing a 10%-12% price increase, while ArcelorMittal limited orders, probably waiting to see how the hike would be absorbed in the market.

Gerdau has announced a second 15% increase on its long steel products, according to notices consumers received.

“We will certainly receive the new pricing list until the end of this month, with higher prices effect,” said a construction company source.

Gerdau, Usiminas, and ArcelorMittal declined to comment on their price policies.

The increasing costs of imported metallurgical coal and global semi-finished products have dented companies’ margins.

S&P Global Commodity Insights assessed the weekly Platts Brazilian steel slab price at $1,100/mt FOB Brazilian ports March 11, up $250 from the previous week, based on a $1,000-$1,200/mt FOB range. In comparison, the Platts Brazilian domestic HRC price was Real 6,100/mt ($1.194/mt) ex-works March 11, showing a very compressed spread between the semi and the finished product.

The same occurred on Brazilian domestic 10mm rebar, assessed at Real 4,205/mt March 11, or $832.11/mt, while the Platts Turkish price for the export-oriented billet was $890/mt FOB March 1, based on a range of $880-$900/mt FOB range.

Among raw materials, S&P Global assessed the Australian premium low volume hard coking coal at $670/mt March 14, a 52% jump since Feb.14, while the Brazil export-oriented pig iron was assessed at $800/mt FOB southeastern port March 11, a 47.7% surge from Feb. 14.

— Jose Guerra

The London Metal Exchange (LME) suspended nickel trading on LMEselect on Wednesday morning shortly after it had restarted due to an IT system error. Trading then resumed again at 14:00 GMT.

In the morning, upon reopening, the uncrossing algorithm discovered an opening price of $45,590/tonne – the lower daily limit – but then LMEselect allowed a small number of trades to be executed below this lower daily price limit.

All nickel trades executed on LMEselect at the lower daily price limit remained valid. The small number of nickel trades executed on LMEselect below the lower daily price limit were cancelled.

The inter-office market and the Ring continued to operate as normal for nickel trading, with the daily price limits still in operation. LMEselect remains open for trading of all other contracts.

The LME resumed nickel trading at 08:00 GMT on Wednesday and applied upper and lower price limits to all outright contracts in all base metals on all execution venues. Nickel trading was initially suspended on Tuesday last week after nickel prices reached an unprecedented $101,365/t (see Kallanish passim).

The exchange said it is carrying out a review of trading activity and nickel market conditions leading up to the suspension. If the review indicates abusive activity by one or more participants, LME could commence a formal investigation.

Adam Smith Germany

The European Commission has confirmed the imposition of countervailing duties on stainless cold rolled coil imported from India and Indonesia.

The anti-subsidy duties have been set at 7.5% for India and 21% for Indonesia. They will be added to the anti-dumping duties of 10.2-35.3% imposed on the same products from India and Indonesia in November 2021, Kallanish notes.

“Combined, these duties bring the level of protection for the EU steel industry to above 40%, thereby countering the unfair advantage that these trade distortive practices give to the imported steel products from Indonesia and India,” the Commission says.

The anti-subsidy probe into imports from Indian and Indonesia was opened last year. The Commission said it was looking at “countering the highly trade-distorting export restrictions on key raw materials – linked also to Chinese financing”.

Emanuele Norsa Italy

Italian steel trade association Assofermet has asked local steelmaker Acciaierie d’Italia to immediately withdraw its request for a retroactive energy surcharge for contracts signed before 10 March.

In a letter sent to Kallanish, the association says that such a withdrawal would help the resumption of dialogue with its members and steelmaker customers, with the objective to ease future negotiations for new contracts.

Association members consider the retroactive increase unfair and an attempt at “unilateral renegotiation of contracts already stipulated, confirmed and ‘closed’ in every respect,” Assofermet’s letter states. “This initiative, which is not reflected in the General Conditions of Sale applicable in the contractual phase, has generated a situation of strong unease among the companies concerned, who risk finding themselves in very serious difficulty in coping with sales orders already acquired,” it continues.

Kallanish hears from service centres that some have decided not to pay and intend to involve lawyers.

Acciaierie d’Italia is implementing an energy surcharge on all contracts agreed before 10 March. The surcharge will be calculated based on the average between the gas price at the time of the order and the gas price at the time of production and shipping (see Kallanish 16 March).

Meanwhile, due to rising energy costs, other producers are mulling similar surcharges on future contracts.

Natalia Capra France

The European Commission published on Wednesday the new distribution of safeguard quotas effective from April, following its decision to ban imports into the EU of steel from Russia and Belarus. Turkey and India are the main beneficiaries.

Quotas have been redistributed proportionally to other exporting countries based on the most recent available data of imports into Europe in 2021. “This approach ensures a fair treatment of the different origins, allowing that EU steel users make effective use of the volumes that originally were subject to the quotas attributed to Belarus and Russia, thereby avoiding any risk of potential shortage of supply in the Union market resulting from the import bans on these two countries,” the Commission says in a note seen by Kallanish.

Turkey and India have seen their quarterly hot rolled coil quotas, for example, jump by some 100,000 tonnes each.

Ukraine’s quotas have also increased as part of the redistribution. However, market sources are concerned that production and shipment issues at Ukrainian mills will affect supply from the country for a long time. Last year, Ukraine supplied into Europe some 2.5 million tonnes of finished steel products, according to Eurofer data.

The review of EU safeguard measures initiated in December 2021 is still ongoing. Further changes to the system could well be implemented in due course.

Emanuele Norsa Italy