Day: 5 January 2023

Growing uncertainty about end-user demand and input costs through 2022 has driven a change in consumer habits in Europe’s aluminium and steel markets, with traders foreseeing a continuation of hand-to-mouth buying going into 2023.

Changing consumer habits

The energy crisis in Europe – exacerbated by Russia’s invasion of Ukraine – as well as rising interest rates, material shortages and a negative economic outlook have combined to force production costs higher for all metals producers in the region. These same factors have also put a strain on the key metal consumer sectors – automotive and construction.

Initial overstocking after the war in Ukraine erupted in February, coupled with shrinking end-user demand, pushed prices down for steel and aluminium products in the ensuing months. European mills then had to significantly cut production to balance supply and demand.

The uncertainty over future consumption has made longer term forecasting difficult, traders have said, and this has led to limited, short-term buying.

“Everyone is [trading] on a weekly basis, mostly because things are very unsure,” a steel-beam producer source in Southern Europe told Fastmarkets.

Growth in the construction sector is predicted to drop to 0.2% in 2023 from 3% in 2022. It is expected to flatten later, to 0% in 2024, with no recovery anticipated until 2025, according to construction market forecasting network Euroconstruct.

Independent global economic forecaster Oxford Economics forecasts a 0.3% quarterly drop in eurozone construction output in the first quarter of next year.

And automotive output is expected to have dropped by 1.7% overall in 2022 due to the “severe repercussions of ongoing supply-chain disruptions and the war in Ukraine,” Eurofer said in its 2022-2023 fourth quarter economic report, in which it also said that these downside factors are expected to persist “at least until the second quarter of 2023.”

In the first nine months of 2022, car registrations in the European Union fell by 9.9% to 6.8 million units, according to the European Automobile Manufacturers’ Association (ACEA).

“The last [several] years have been marked by major events like Brexit, the coronavirus pandemic, semiconductor supply bottlenecks, and the war in Ukraine with its impact on prices and availability of energy,” ACEA president and CEO of BMW Oliver Zipse said in October.

“All of these things underline how quickly, how profoundly, and how unpredictably our world is changing,” Zipse said. “This applies not least in the geopolitical context – where there are direct consequences for our globally interconnected industry and its close-knit value chains.”

The hand-to-mouth purchasing trend will likely carry on into 2023, until rising costs are eased, and end-user demand and confidence are strengthened, trader sources told Fastmarkets.

Several distributors intend to keep their level of stock low in January-February 2023, they said, due to high levels of volatility in the market.

“We currently book only what’s strictly necessary,” a distributor source in Northern Europe said. “There is no clarity on whether the uptrend that has recently begun in the flat-steel markets will actually last in early 2023.”

Higher production costs and sluggish steel demand had also led to several European producers either stopping steelmaking capacities or trimming output to balance supply and demand, during the third and fourth quarter of 2022.

Loss of consumer confidence in construction sector

A gloomy outlook for the construction sector in 2023 has for several months put downward pressure on long-steel product markets including rebar, wire rod, beams and hollow sections.

“As long as the energy cost problem is not solved, I don’t think a lot of construction companies will make investments for the near future,” a sections trader source in Germany said.

In Italy, the price of electricity rose to above €420 per mwh in the week to December 14, more than four times the average one-month cost in November of €87.84 per mwh, according to Italy’s exchange for electricity and natural gas spot trading, Gestore Mercati Energetici.

In Germany, traders pegged energy costs at around €440 per mwh in the same week.

Long-steel prices have now flattened in major markets in the region, with traders expecting long-steel demand to pick up by early next year due to companies needing to restock.

Mills pushed for higher prices in December, but market participant’s opinions were mixed on whether those higher prices would be tradeable in 2023 given the anticipated weak construction consumption – even if the high price of energy and scrap raw material costs support upward price movements.

“At this moment there are so many concerns about uncertainty in the economy that demand is disappearing, and construction projects are being postponed because nobody knows what is going to happen,” a distributor source in Northern Europe said.

“If Europe finds a solution for the energy issue and energy prices drop to more normal, pre-war levels, then the situation is solved,” the distributor source added. “It can’t happen overnight, but it can happen in a quarter of a year.”

But while uncertainty looms over construction-sector prospects in early 2023, some aluminium market participants were optimistic about activity picking up in spring when the weather is milder and energy costs ease.

“I’m expecting the construction business to get stronger in spring,” an aluminium seller said.” It’s very seasonal work, and while the automotive sector looks fine, you can’t rely on that sector; they are pretty fast at cancelling orders.”

Other factors affecting construction-sector activity include rising construction material prices, a growing scarcity of materials, and a construction-worker shortage, according to the European Steel Association Eurofer.

Automotive industry

A move away from forward-looking trading has also been observed in flat-steel and aluminium products due to uncertainty about future end-user demand in the automotive sector.

Automotive industry buyers, meanwhile, have been reportedly seeking shorter-term contracts – preferring quarterly versus half-year contracts – due to the high degree of volatility in the market, several sources said.

Mill sources, on the other hand, expressed doubts about the effectiveness of such a move.

“It would be difficult to achieve from an administrative point of view: renegotiating prices every three months would be complicated and time-consuming,” one mill source said. “Using floating indices and making [contracts] more instrumental could be a solution.”

Automotive demand is expected to recover in 2023, market participants told Fastmarkets, although it is unlikely to rebound to pre-Covid levels, they said.

After an 18.7% slump in 2020 due to the Covid-19 pandemic, automotive output in 2021 rebounded, but only by 3.3%, Eurofer said in its most recent market outlook on October 26.

Output from the automotive industry was expected to show a 1.7% decline in 2022. This would mean that the automotive industry’s output would remain below pre-pandemic levels.

The association expects output by the automotive sector to rebound by only 1.1% in 2023 – but only if supply-chain issues and global uncertainty ease substantially.

“We should definitely see a better demand scenario for 2023,” one automotive consumer source said, adding that it would “likely not [be] until the end of [the first quarter] and leading into the second half of the year, but it should definitely be better, subject to no further let-downs on the semiconductor side.”

The automotive industry was significantly affected by supply-chain issues over the course of 2022, which caused postponements of material and a significant backlog in orders.

As such, purchasing managers have been more reluctant to conclude long-term deals for large tonnages given the uncertain demand outlook for 2023, market participants said.

“There’s been roughly a 10-11% demand drop from the impact of semiconductor shortages in 2022, but we should see a rebound into next year,” the consumer source said.

Demand in the “recession-proof” aluminium packaging and aerospace sectors has, however, stayed robust.

Impact on prices

Limited hand-to-mouth purchases as a consequence of low consumption could increase price volatility in Europe’s steel and aluminium markets in 2023, with low stocks leaving traders more vulnerable to price swings during periods of tight supply if supply chain logistics issues arise, Fastmarkets understands.

Aluminium premiums have seen extreme volatility over the past twelve months, with many consumers reportedly purchasing additional quantities earlier in the year when premiums were rising to record highs over fears of being able to secure enough supply.

This has since led to high inventories and limited spot demand as Europe continues to face an ongoing energy crisis.

“There’s been a particular interest in destocking and consumers running down expensive inventory rather than entering the spot market,” one European aluminium trader source said.

Fastmarkets assessed the aluminium P1020A premium, in-whs dp Rotterdam at $255-270 per tonne on Tuesday January 3, rising from $250-270 per tonne on December 30, but remaining 57% lower than the record high of $600-630 per tonne in May.

Participants in the aluminium billet industry also said that typical first quarter contract negotiations had been postponed, with some still waiting to conclude and consumers drawing on existing stocks.

Similarly, negotiation periods had been shortened, with consumers unwilling to lock in a fixed premium for extended periods due to ongoing volatility and recent swings in the premium.

Fastmarkets assessed the aluminium 6063 extrusion billet premium, ddp North Europe (Ruhr region) at $650-700 per tonne on December 30, lower than the $650-750 per tonne on December 16 and falling from record highs of $1,500-1,570 per tonne in February.

“[Consumers] are booking the bare minimum of their needs, perhaps just 20-25% of their needs, and then in case demand picks up, they will get back to us with spot tonne requests,” a second aluminium seller said. “Our production volumes for January are down 60%, as we still have quantities that were postponed.”

It was a similar story for steel market participants.

“European buyers learned their lesson – we all remember what happened in spring 2022 onwards, when everyone ended up having massive stocks of overpriced HRC,” a stockholder in Italy said.

The war in Ukraine flustered the European steel market, causing a wave of a panic buying in February and March, with prices for flat and long steel surging dramatically, breaking the records set in summer 2021.

For example, Fastmarkets’ calculation of its daily steel hot-rolled coil index, domestic, exw Northern Europe averaged at €1,278.50 per tonne in March 2022, up by €326.49 per tonne month on month from €952.01 per tonne in February and up by €489.60 per tonne year on year from €788.90 per tonne.

Market sentiment, however, has soured due to slowing automotive demand and competitive import offers.

Since April 2022, poor demand has led to an oversupply of material, especially in the flat-steel market, leading to older stock material undercutting freshly produced products and supporting lower prices, sources said.

European flat-steel prices have tumbled since April. Only in December did European steel producers start to attempt price increases. They did so gradually, in response to a slight improvement in trading, output cuts announced by several steelmakers, and anticipated end-user demand recovery.

And despite mills pushing for higher prices for coil with delivery in February 2023, traders said that anticipated contractions in Europe’s automotive and construction sectors will make achieving the higher prices difficult – even considering increased input costs and production cuts, sources told Fastmarkets.

“For now European mills are firmly offering a minimum €650 per tonne EXW for HRC,” a German trader source said. “We will see if they manage to fill their order books with these prices. When the market restarts after holidays in mid-January 2023, it will be clearer.”

Production cuts will, however, have a visible effect on the steel market in Europe early in 2023, mill sources said, and coil supply might fall short of demand.

“We do expect end-user demand to pick up. When everyone is back for material early next year, we might see a shortage of [HRC], given all the capacities that have been brought down in the fourth quarter 2022,” one mill source said.

Published by: Julia Bolotova, Carrie Bone, Imogen Dudman, Holly Chant

Italian flat steel production tumbled by 30.4% on-year to 731,000 tonnes in November, and by 13.5% on-year in January-November to 8.9 million tonnes, according to data issued by local steelmakers association Federacciai.

Longs output fell by 9.5% in November to 1.1mt, and by 11.3% in the 11 months to 11.3mt, Kallanish notes.

Italian crude steel output dropped 15.1% in November to 1.8mt, and by 11.2% over the 11 months to 20.3mt.

Crude steel output in 2021 rose by 19.8% on-year to 24.4mt.

Natalia Capra France

SSAB has updated its suppliers’ code of conduct (SCOC) to further clarify expectations towards suppliers, Kallanish hears from the steelmaker.

The new version of the SCOC includes topics such as human rights, modern slavery, biodiversity, recycling and fair competition and antitrust in alignment with international standards. “The updated SCOC allows us to better explain our expectations toward SSAB’s suppliers and the responsibility they have toward us,” says Christina Friborg, head of Sustainability at SSAB. “This is an important step in the sustainability journey that we want to take together with our suppliers.”

The company underlines that its approximately 20,000 suppliers are important in bringing SSAB closer to its own sustainability goals as well. The code is aligned with international conventions like the United Nations (UN) Global Compact, OECD Guidelines for Multinational Enterprises, International Bill of Human Rights and the UN Guiding Principles on Business and Human Rights.

“We continuously review our suppliers’ sustainability efforts as sustainability criteria are key when taking our purchasing decisions,” says Lisa Lidén, sustainability manager for procurement. SSAB’s suppliers will be able to download the new supplier code of conduct at www.ssab.com/suppliers.

Christian Koehl Germany

Norwegian start-up Blastr Green Steel (Blastr) plans to establish a “green” steel plant with integrated hydrogen production facility in Inkoo, Finland.

Blastr has entered into a Letter of Intent with Nordic energy company Fortum that provides exclusive rights to utilise an existing industrial site located in Inkoo. The investment is estimated to amount to €4 billion ($4.24 billion) and expected to create up to 1,200 direct jobs in the operations phase. Production is planned to start by end-2026, Kallanish learns from Blastr and Fortum announcements.

“Finland is an ideal location for our project. Inkoo was selected as our location due to its high-quality infrastructure and access to clean power. In addition, the ice-free deep-sea harbour enables efficient, low-carbon logistics all year round and close access to the European market,” says Blastr Green Steel chief executive Hans Fredrik Wittusen. He adds the venture will systematically address all parts of the value chain to reduce overall carbon footprint, reduce waste and develop circular solutions.

The green steel plant together with the integrated hydrogen facility will be among the largest industrial investments planned in Finland to date. It is projected to produce 2.5 million tonnes/year of high-quality hot and cold rolled coil.

Only two months ago, Blastr entered the public eye with a cooperation agreement with Cargill Metal for the sourcing of raw materials (see Kallanish 17 November). Blastr is backed by Vanir Green Industries, a Nordic investment company that invests in, develops and scales up green, robust and profitable businesses for the energy transition. It is the second such venture in Scandinavia to build a hydrogen-based steel mill after H2 Green Steel in Sweden. Hybrit will meanwhile produce hydrogen-based iron to feed steelmaking at SSAB.

Christian Koehl Germany

Some price increases and an improved level of orders were reported in December by the Italian distribution sector following a long period of destocking, uncertainty and low sales.

Sheet and tube prices are slowly ticking up. Re-rollers and service centres are implementing gradual price increases as, despite the better sales of the past two weeks, they see persisting uncertainty in the market. Sheet prices, which recently went below the level of €700/tonne ($743/t), will increase in January to €750/t ex-works for February delivery, in line with hiking coil prices. Clients are still trying to resist the increases, but some are beginning to accept.

Distributors tell Kallanish that demand for sheet is increasing and prices have reached rock bottom. They forecast some dynamism in the first weeks of January as the sector is coming out of a period of destocking. Despite there still being some caution, stocks have lowered, and the downstream industry will buy this month. However, some distributors will chase sales volumes which may result in aggressive prices and strong competition, sources believe.

In December, large distributors in Italy, France and Germany started to replenish their tube stocks. Welded tube prices have been under pressure for many months, as supply has exceeded demand. Discounts are now lowering from 37 and 38 points to 36.

The distribution sector also expects hikes for welded tube prices in January, pushed up by coil increases and improved European demand. Tube prices are forecast to reach 33 points of discounts when the sector resumes working this month, starting on 9 January.

Natalia Capra France

The UK government’s support is now “required” for the successful decarbonization of British Steel, according to a statement issued by the Chinese-owned UK integrated steelmaker Jan. 4.

“We’re continuing formal talks with the government about decarbonization, along with the global challenges we currently face,” British Steel said in the statement sent to S&P Global Commodity Insights. It did not provide a value for the amount to be spent on decarbonization of the steelmaker, which has a total steel products capacity of about 3 million mt/year, including rails and constructional steel.

Earlier in the day, The Financial Times reported that UK Chancellor Jeremy Hunt was “being urged by colleagues to find GBP300 million ($361.63 million) in subsidies to help China’s Jingye protect the blast furnaces at British Steel in Scunthorpe.”

China’s Jingye Steel Group has itself invested GBP330 million at British Steel since it acquired the business in March 2020, taking it out of liquidation. At that time the Chinese steelmaker pledged to invest around GBP1.2 billion to modernize and improve British Steel, including by construction of an electric arc furnace in Teesside, in the north of the UK.

The London-based newspaper held as “almost certain” that the government would “step in again” to provide some assistance.

In July 2020, Spanish-owned Celsa Steel UK, the largest UK manufacturer of reinforcing steel with an annual production capacity of 1.2 million mt of long products, was granted an emergency loan by the UK government to allow the company to continue trading amid difficult market conditions caused by the coronavirus pandemic.

Celsa UK produces steel in Cardiff, South Wales, using EAF technology which typically has a lower carbon footprint than the blast-furnace production route. The Celsa loan — estimated at GBP30 million by local media — was linked to a series of conditions, including job-protection, climate change and net-zero targets.

Jingye’s ‘long-term’ commitment

“Jingye are committed to our long-term future but we also require the UK government to provide the necessary support, policies and frameworks to back our drive to become a clean, green and sustainable company,” the British Steel statement said.

“To make sure we can deliver the steel Britain requires, we’re undergoing the biggest transformation in our 130-year history. To support the journey to net zero, our owners, Jingye, have invested GBP330 million in capital projects during their first three years of ownership and they continue to invest unprecedented sums of money in British Steel.”

Major ongoing projects at the steelmaker include installation of a new billet caster, and a mast service center, both of which are scheduled to come online this year.

Steelmaking is one of the UK’s biggest carbon emitters, and is responsible for around 9% of carbon emissions globally.

British Steel added that “the government understands the significant impact the economic slowdown, rising inflation and exceptionally high energy and carbon prices are having on businesses like ours, particularly during such a key period in our transformation.

“British Steel can play a significant role in the UK’s economic recovery and we look forward to working with the government and to making the home-made steel Britain needs for generations to come.”

The UK’s department of industrial strategy BEIS offered no immediate confirmation of ongoing talks between the government and British Steel. However, talks between the parties were already widely reported to have taken place during the COVID-19 markets crisis.

Tata talks

Talks are also reported to be underway between Indian-owned integrated steelmaker Tata Steel UK and the government, including on support for Tata Steel UK’s blast furnace operations.

Tata Steel UK, the country’s biggest steelmaker, has a crude steelmaking capacity of 5 million mt/year and is currently producing around 3.5 million mt/year.

It is understood that the UK government may be more inclined to lend support to the UK’s blast-furnace based steelmakers — namely Tata Steel UK and British Steel — following its approval in December 2022 of a controversial new metallurgical coal mine project in Cumbria in the country’s northwest, which is now facing a new round of opposition by environmental group Friends of the Earth.

West Cumbria Mining’s Whitehouse Colliery project at Whitehaven, with an expected 3.1 million mt capacity to produce coking coal for steelmaking, could potentially supply coal to both Tata Steel UK and British Steel.

Platts, part of S&P Global Commodity Insights, assessed hot-rolled steel coil in Northwest Europe up Eur15/mt ($15.91/mt) at Eur700/mt ($742.56/mt) ex-works Ruhr Jan. 4.

— Diana Kinch

Mill offers were heard as largely withdrawn Jan. 4 while steelmakers assessed new-year prices, with activity expected to resume in the hot-rolled coil market from next week.

What few offers were heard in the market were reported higher at Eur750-780/mt ex-works Ruhr — a distributor source reported small tonnage deals on the same range.

Generally, however, market participants considered tradable value at a Eur700/mt minimum, ex-works Ruhr and Northern Europe, above transactional levels seen in December

Indeed, sentiments in the market were overall bullish.

“It’s still very calm, but expectations are quite positive, especially from the mills,” a distributor said. “Those that agreed contracts in December are lucky as mills are asking for more now and are increasingly stiff and inflexible in negotiations.”

A mill source echoed the sentiment.

“Most are out the market this week, but we’re seeing inquiries backed with real demand,” the source said. “Production is down, and we’ve not heard much from import recently, so the majority expect European mills to have a lot more control over prices now and in the first quarter.”

However, some were less positive.

“There is bullish momentum, but a lot of restocking happened in December, so activity will struggle in January, especially with Chinese New Year approaching,” a trader source said. “We see this as a restocking rally following the brutal selloffs last year.”

Platts assessed hot-rolled coil in Northwest Europe up Eur15/mt Jan. 4, at Eur700/mt ex-works Ruhr.

Platts is part of S&P Global Commodity Insights.

— Benjamin Steven