Day: 22 September 2022

The European Commission is finally considering a direct ban on imports of semi-finished steel products from Russia, in response to its unprovoked invasion of Ukraine, several sources told Fastmarkets this week.
The move would follow on from the ban on finished steel imports from Russia adopted by the European authorities in March this year.

“There is discussion about the new package of sanctions. It’s highly possible that the way for Russian semi-finished products to Europe will be closed,” Yuriy Ryzhenkov, the chief executive officer of Ukraine’s Metinvest, told local media organizations this week.

“We had expected semi-finished steel imports to be banned in one of the first packages of sanctions [to be applied against Russia], because this counts as direct financing of the aggressor’s economy and secondly as anti-competitive actions against those who cannot buy Russian raw materials,” he said.

The move would have a significant impact on the slab market because Russia is of the main suppliers to Europe.

Russia’s Novolipetsk Iron & Steel Works (NLMK) sidestepped existing sanctions by exporting slab to its own subsidiaries in Europe and beyond.

In 2021, Russia supplied 3.8 million tonnes of slab to Europe, according to International Steel Statistical Bureau, while steel billet shipments to the region totaled 515,969 tonnes.

And NLMK remains one of the main suppliers of slab to Europe because the company is still not subject to any personal sanctions against any of its directors.

In 2021 alone, NLMK supplied 1.17 million tonnes of slab to NLMK Belgium Holdings (NBH), which includes steel plate producers NLMK Clabecq (Belguim),NLMK Verona (Italy) and flat steel producers NLMK La Louviere (Belgium) and NLMK Strasbourg (France), according to the latest company report.

NLMK also shipped a combined total of 1.96 million tonnes of slab to NLMK Dansteel (Denmark) and the company’s US assets in 2021, with no clear breakdown of the total given.

In the first half of 2022 the company supplied 1.89 million tonnes of slab to its group companies outside Russia.

“There is too much Russian slab arriving to Europe for NLMK assets,” a competitor re-roller said, adding that the import ban was possible.

A source previously told Fastmarkets that while NLMK was mainly supplying slab to its own assets in Europe, it was also making deliveries to some Italian steel plate producers at competitive prices.

The source said NLMK had been preparing for a potential import ban on semi-finished steel since the spring and that his company was looking for alternative suppliers along with other European re-rollers.

A European distributor told Fastmarkets he believed the ban on semi-finished steel imports from Russia will eventually be implemented and this will push up prices for steel plate in Europe, or at the very least keep them stable.

The situation in the slab market is crucial for European platemakers, especially in the South of Europe as they are main importers of the Russian product.

Published by: Vlada Novokreshchenova

UK Steel, the trade association for the nation’s steel industry, welcomed the UK government’s Sept. 21 announcement of a six-month electricity price cap for industry as an aid to the sector’s international competitiveness, but warned policymakers need to remain “agile” to preserve the benefits in what is currently a softening market.

“UK Steel expects this will put UK steelmakers on par with steelmakers in France and Germany for the time being,” Frank Aaskov, the association’s energy policy manager, said in an interview with S&P Global Commodity Insights.

“The government must remain agile, so we don’t get left behind,” Aaskov said, noting that the German government recently slashed renewables tariffs for all users and introduced support programs for energy-intensive industries.

A longer-term energy market reform is still necessary to prevent a recurrence of the recent energy price-squeeze in this electricity-intensive sector, UK Steel said in a statement.

The government of new UK Prime Minister Liz Truss has announced it is capping industrial electricity prices at GBP211/MWh ($239.3/MWh) and gas prices at GBP75/MWh for six months.

The discounts will be applied to energy usage in Great Britain, initially between Oct. 1, 2022 and March 31, 2023, the Department for Business, Energy & Industrial Strategy said in a statement. A similar scheme will be established in Northern Ireland, providing a comparable level of support, it said. The scheme is not designed for those favored to profit from it, the BEIS statement said.

According to UK Steel, the price cap stands at four to five times the level of the historical average, but notes that the critical issue for the steel industry is competitive electricity and gas prices, in line with European and global competitors.

Cheaper energy prices also aid the sector’s decarbonization drive, it said.

The government will compensate suppliers for the reduction in wholesale gas and electricity unit prices that they are passing onto non-domestic customers. Wholesale costs in England, Scotland and Wales for this winter are currently expected to be around GBP600/MWh for electricity and GBP180/MWh for gas, it said.

The UK’s crude steelmakers are Tata Steel UK (a subsidiary of India’s Tata group); British Steel (acquired by China’s Jingye Group in 2020); Liberty Steel, owned by Sanjeev Gupta’s GFG Alliance; Spanish Celsa Steel, Finnish Outokumpu; and UK Ministry of Defence-owned Sheffield Forgemasters. Numerous rolling and distribution facilities will also qualify for the cheaper energy prices. The sector produces 7.2 million mt/year crude steel; equivalent to around 70% of the UK’s annual steel products requirement of some 10.5 million mt.

Key steelworks are located in areas of the UK included in the government’s “levelling up program,” aimed to improve employment and living standards outside the more prosperous south-east. The government has in recent times noted it considers the UK steel industry “strategic” and has introduced its own trade protection and import safeguard measures since the UK left the European Union.

While the main steelmakers are owned by international groups which also have assets in Europe, it is vital the UK steel sector competes with its European counterparts, UK Steel notes.

“Prior to today’s intervention, UK Steel analysis showed that UK steel producers faced significantly higher electricity prices than their European competitors, with the price disparity skyrocketing since energy prices increased,” the association stated.

The price cap announcement “today demonstrates that this new Government understands the sheer scale of the issue and the need to deliver a significant solution swiftly,” stated UK Steel’s director general Gareth Stace. “Setting a price cap for electricity at GBP211/MWh for six months gives foundation sectors, such as steel, the chance to get through the winter by giving us a competitive business landscape.”

However, “It is essential that Government is now ‘fleet of foot’ if the situation develops further to ensure that British business is competitive within Europe and across the World,” Stace added. “The Government must now move to rapidly reform the energy market to ensure longer-term competitive price beyond the current price cap.”

The UK steel industry’s electricity use is equivalent to 800,000 homes, and gas use is comparable to 400,000 homes, the association said.

Financing challenges remain

Douglas Grant, CEO at UK-based Manx Financial Group, described the government’s emergency intervention on energy costs as good news for UK business, showing it is taking seriously warnings from a variety of organizations. “We do however believe that more needs to be done,“ Grant said in a note. “Our research recently revealed that 22% of UK SMEs that needed external finance and/or capital over the last couple of years were unable to access it. More than a quarter have had to stop or pause an area of their business because of a lack of finance.”

“SMEs continue to struggle with accessing finance and that worryingly, this lack of availability is costing them and the UK economy in terms of growth at a time when it is needed the most,” the financial services group CEO said.

Platts assessed hot rolled steel coil ex-works Ruhr at Eur740/mt ($739.7/mt) ex-works Ruhr Sept. 20 amid minimal trading activity, virtually half of its March 18 peak price of Eur1,460/mt following Russia’s Feb. 24 invasion of Ukraine, according to S&P Global data.

— Diana Kinch

French-headquartered seamless tube steelmaker Vallourec has signed a 10-year agreement with Saudi Aramco for the supply of premium oil country tubular good, or OCTG, solutions for its drilling operations, the company said late Sept. 20.

The agreement also includes the supply of premium casing and inventory management services, with the steelmaker manufacturing and delivering the order from its plant in Saudi Arabia, it said.

The agreement is on a call-off basis contract, placed every quarter with the first two on-call orders already received and delivery scheduled for early 2023, Vallourec said.

The agreement strengthens the existing relationship between the Valloreuc Group and Saudi Aramco and “paves the way for extended collaboration with clear opportunities to introduce our wide range of innovative solutions while enhancing our footprint in the Kingdom,” Vallourec Chairman and CEO Philippe Guillemot said.

Seamless tubes are produced mainly via blast furnace using iron ore as a key raw material.

Seaborne iron ore prices fell Sept. 20 as market participants adopted a wait-and-watch stance amid expectations that the US Federal Reserve will raise interest rates. The 62% Fe Iron Ore Index was at $96.65/dry mt CFR North China Sept. 20, down $1.05/dmt from Sept. 19, according to the Platts assessment from S&P Global Commodity Insights.

— Annalisa Villa

Consumers are likely to become more reluctant to make significant investment decisions as a short-term consequence of a partial mobilization announced in Russia Sept. 21 leading to reduced demand for metals, Marcel Genet, managing director of Paris-based consultancy Laplace Conseil, told S&P Global Commodity Insights.

“It is very early to know, the announcement only came out today, but as one of the consequences, uncertainty will grow, which is usually bad for the economy in general and for the steel industry in particular,” said Genet.

“People are digesting information, and steel end-users may decide to wait for better times before proceeding with any big investments and projects, which will translate to reduced demand and production,” he said.

Russian industry analysts believe the mobilization, if it remains partial and to the outlined criteria, should have a minimal effect on the country’s mining and metals industry.

“Mobilization concerns people with special military training. I don’t think that men with appropriate qualifications are concentrated in mining and metallurgical enterprises,” said an industry analyst, who wished to be unnamed.

“It is very unlikely that the partial mobilization will create a labor shortage, and I do not think it poses any risk for the work of metallurgical enterprises, and their production programs,” he said.

The share of working personnel, which directly assist production operations, is relatively small, said another expert. In his opinion, there are much more of those involved in all sorts of divisions that are non-critical for production — marketing, procurements and sales, tax and law specialists, etc — and it is unlikely that production will decrease due to a lack of workers.

So far, the mobilization will affect about 250,000-300,000 Russians, or 1% of the country’s total mobilization base, which is estimated at 25 million-27 million, said the surveyed analysts.

The number of people employed in the Russian mining and mineral development sector in 2020 was 1.6 million, according to Russian federal statistics service Rosstat.

“Let’s assume the percentage of those eligible for mobilization within the mining and mineral resource development industry is twice as high or 32,000 people (equivalent of 2% of the 1.6 million workforce),” said the third metals industry analyst.

If women comprise 30%, this leaves us with just over 22,000 men who can theoretically be recruited, and this is for the entire mineral resource sector, including not only metals, but also oil and gas, etc., according to the analyst’s assumptions.

The partial mobilization should not affect senior managers’ mobility in travelling abroad on business, and a potential loss in IT-competent labor will also be negligible, if any, the analysts reckon, saying that little will change in addition to the adjustments/cutbacks in travel routines and spending that have already been in place since the end of February.

The surveyed analysts expect Russian steel production to decline by a maximum of 10%-15%, and potentially even less, compared with the more negative forecast communicated in the spring. Russian steel is traded at discounts to world prices and is attractive to certain buyers, some said.

“In the past, the Russian steel industry has rarely operated at below 89% capacity. This year, the capacity utilization will certainly decline and I see it at 75%-77%, which is still relatively good by many countries’ standards,” said one of the analysts. He also said that this year will see Russian steel companies transition from being highly profitable to moderately profitable businesses preoccupied with dispatching and freighting optimizations and cost-cutting in their upstream operations, as most such homework in steel casting and rolling has been already completed.

Major steel and mining companies approached by S&P Global declined to comment on possible impacts on them and the industry from the Sept. 21 mobilization announcement.

— Ekaterina Bouckley

Russian flat steel exporters were looking for orders for their slab and hot-rolled coils, with Turkey the target market, sources said.

The lowest HRC offers from a large Russian supplier, sanctioned in the EU market, were heard at $610-$620/mt CFR Turkey, a mill source reported. He added that Asian offers were between $640-$660/mt CFR Turkey.

A Turkish importer reported another Russian mill to be asking $630/mt CFR for its HRC. This was quite an attractive price compared with the domestic HRC prices ranging $660-$690/mt ex-works. Despite the seemingly attractive price level for Russian HRC, “the risk is increasing for Russian material, so I don’t know if anyone is interested. The demand is still so slow,” the importer added.

Russian slab prices were also much lower than the competition. A slab sale, for November shipment, was reported at $510/mt CFR Izmir, for a large cargo, possibly 30,000 mt, a trader said. An offer from a different supplier was also heard at $500/mt CIF Aliaga, for December shipment.

According to a European buyer, the $500-$510/mt CFR Turkey range for Russian slab was reasonable for the Turkish market. He also cited slab prices from India at $600/mt CIF Europe and from Brazil at $620/mt CIF Europe.

A market observer said that offers from Brazil and India were between $580-$600/mt CFR Turkey. A Turkish buyer said that Brazilian offers should be higher than $600/mt CFR Turkey.

Some Russian exports were also seen in Asia, with a few lots sold in the spot market at $600-$610/mt CFR Thailand, the market observer said. Saudi and Iranian slab prices were at $540-$550/mt CFR Mediterranean, he added.

An African slab importer said that buying from Russia became complicated because of financing issues. He put recent Russian slab price indications at $430-$440/mt FOB Black Sea. “Based on HRC prices today, slab should be $420/mt FOB Black Sea,” the importer said.

— Wojtek Laskowski

At this week’s meeting of the OECD Steel Committee, participants expressed concerns about the sharp downturn in world steel markets, Kallanish reports.

According to data presented by the OECD, overcapacity this year could surpass 560 million tonnes, up from the 520mt registered in 2021. The increasing trend of overcapacity is expected to continue. The OECD noted, for example, that Chinese overcapacity decreased during the 2016-2019 period only to start increasing again from 2020. Now Chinese capacity has reached 1.15 billion tonnes.

“Much of the world’s capacity growth in recent years has been concentrated in the Middle East, South Asia, and Southeast Asia. Many of the new installations in Asia have been focused on the coal-intensive steel production process,” the OECD said. “World steelmaking capacity is expected to increase in 2022 for the fourth year in a row, rising by almost 30mt to a level of 2.4 billion tonnes. Of further concern are up to 144mt of additional capacity that may come on stream during the 2023-25 period, representing a further 5.9% increase over the 2022 global capacity level.”

The increase in overcapacity is fuelled also by the expectation of a downturn for steel consumption.

“The global steel market recovery from the Covid-19 downturn was unfortunately short-lived. While market conditions improved in 2021, a significant turn for the worse has occurred during the course of 2022, particularly as a consequence of the ongoing war in Ukraine,” OECD said. “Global steel consumption has contracted significantly in the first half of this year due to the rapidly deteriorating economic environment.”

Going forward, participants at the meeting agreed that it is vital to continue addressing structural problems in the industry, particularly related to subsidisation.

“With excess capacity expected to increase in the coming years, delegates discussed the need to refrain from measures that would exacerbate over-supply pressures in markets, including subsidies and other support measures that stimulate steel production, production, and capacity targets that will likely overshoot demand prospects, and restrictive trade policies on raw materials that artificially lower the costs of steel production,” the OECD explained in a note.

Emanuele Norsa Italy

Swedish-based group SSAB has partnered with US vehicle manufacturers McNeilus and Oshkosh to develop the first commercial vehicle made with fossil-free steel available in the domestic market, Kallanish reports.

According to the company’s announcement, SSAB will supply sustainably produced fossil-free steel to McNeilus and Oshkosh to allow these companies to develop a sustainable commercial vehicle product lineup.

“We are very happy to welcome Oshkosh Corporation and McNeilus into our partner group to be the first in the United States to prototype fossil-free steel in commercial and industrial vehicles,” comments SSAB ceo Martin Lindqvist.

Earlier last year, SSAB delivered the first steel products to be made of hydrogen-reduced iron. The company plans to develop its fossil-free operations to a commercial scale by 2026.

“Creating a more sustainable future is central to our strategic vision. As a leader and innovator in the industries we serve, Oshkosh Corporation and McNeilus are proud to partner with SSAB on this global initiative as a next step in delivering high-performance, more sustainable products to our customers,” adds Brad Nelson, McNeilus’ president and senior vice president of Oshkosh.

SSAB has recently endorsed decarbonisation strategies released pushed by the Mission Possible Partnership (MPP), which includes major steel industry leaders, during the organisation’s New York climate week meeting. The company joins alongside over 60 companies, including several major international steel producers including ArcelorMittal, Liberty Steel, Tata Steel, Thyssenkrupp, and Vale in support of these decarbonisation plans.

Zach Johnson USA