Europe HRC spread narrows to a three-year low with margins in focus
The spread between European hot-rolled coil steel and raw material prices in September narrowed to the lowest in three years, as rebounding iron ore, coking coal and ferrous scrap costs hit a weak regional steel market and cut into operating margins.
HRC prices declined further in September, falling for a fifth consecutive month, according to an Oct. 2 analysis by S&P Global Commodity Insights.
The Northwest Europe HRC steel-to-raw material spot spread narrowed to average Eur305/mt ($326/mt) in September, from Eur350/mt in August, according to S&P Global estimates. A regional steel mill break-even level may be considered at spreads of around Eur250-Eur300/mt, depending on specific individual sites and cost structures.
In September, the euro weakened to average $1.07 from $1.09 in August, boosting costs for dollar-denominated raw material imports.
The Platts estimated Northwest Europe HRC spread averaged Eur345/mt in Q3, down from Eur470/mt in the second quarter and Eur421/mt in the first quarter.
Spreads have moved lower after a recovery in the first half due to weak steel demand and spot pricing.
Northwest Europe HRC spreads this year have been narrower than the Eur520/mt average in 2022 and Eur636/mt in 2021, during which several strong periods of steel pricing and demand coincided with tighter availability against orders and restocking.
The Northwest European HRC spread remained well below a peak of Eur858/mt seen in April 2022.
The EU steel industry’s pig iron production in August was 12.2% lower year on year, with output affected by stoppages at blast furnaces, according to analysis using World Steel Association data.
Austria, France, Poland, the Czech Republic and the Netherlands contributed to weaker year on year output in August, while Germany and Spain increased output.
S&P Global tracked inputs using major steel feedstock cost references, including a basket of iron ores with high-grade fines, lump and pellets typically consumed by regional blast furnaces in Germany, France and other regional EU markets.
HRC prices
Platts, part of S&P Global Commodity Insights, assessed HRC prices at an average of Eur638.33/mt ex-works Ruhr in September, down 0.75% from August, and at Eur625/mt ex-works Ruhr on Sept. 29.
Iron ore import prices in China — used in global contracts — in September strengthened on the month, averaging $120.79/dry mt CFR China for benchmark Platts IODEX 62% Fe fines.
Spreads between 62% Fe and 65% Fe fines narrowed over September to average $7.85/dmt, from $11.57/dmt in August.
Spot lump ore premiums in China rose in September to 17.81 cents/dmtu on average. The lump premium was equivalent to about $11.13/dmt for the 62.5% Fe grade, up 21% from August.
Platts assessed the Atlantic blast furnace contract pellet premium in September at $50/dmt, up $0.50/dmt from August, based on premiums applied to 62% Fe fines index terms. The assessed premium tracked further settlements for Q3 and pricing terms with spreads, according to S&P Global.
Coking coal prices on a delivered net forward basis into Rotterdam in September increased 19% to $319.24/mt CFR NW Europe, based on transactions at higher prices in Asia and tighter spot availability for October loading cargoes.
The majority of HRC produced in Europe is from integrated mills using iron ore and blast furnace production, rather than typically lower emissions-intensive electric arc furnaces. Italy’s Arvedi and ArcelorMittal’s Sestao plant in Spain produce flat steel via EAFs.
Regional northern European shredded scrap prices rebounded to Eur347.50/mt on a delivered basis in September.
S&P Global’s Europe HRC-to-raw-material price spreads are indicative operating margins that do not account for inland logistical costs, power, natural gas or other blast furnace and steelmaking inputs, such as ferroalloys, anodes and refractories. Costs to operate sintering and coke plants are not included.
Typical operating breakeven levels at regional blast furnace mills may see further pressure from higher energy, carbon permit and logistics costs.
Sweden’s H2 Green Steel, signs Eur150 million supply deal with Roba Metals
Sweden’s H2 Green Steel said Oct. 2 it has signed a Eur150 million ($157.5 million) steel sales agreement with steel and aluminum service center group Roba Metals in the Netherlands.
The deal covers seven years from the start of production and entails the delivery of “near zero emissions steel” from Boden, in northern Sweden.
H2 Green Steel plans to bring to market steel produced with ferrous scrap and hot-briquetted iron using renewable energy and green hydrogen, and it is working on an electric arc furnace and direct-reduced iron steel rolling complex.
Roba Metals is active in the metals value chain, in areas including steel, aluminum, stainless steel, cradle-to-cradle recycling and nonferrous metals, H2 Green Steel said.
“As part of this agreement, Roba Metals will work to develop the regional market for green steel whilst also processing and distributing the steel product from H2 Green Steel to customers via its service center in Genk in Belgium,” it said.
Roba plans to offer customers the option of near zero emissions steel from H2 Green Steel as part of its product range in the near future, Florin Negulescu, director at Roba Metals, said in a statement.
Roba’s activities include purchasing raw materials to smelting, and from sales to logistics with delivery services, it said.
EU confirms Ukrainian seamless pipe anti-dumping duty expiry
The European Commission has confirmed the expiry of anti-dumping measures on seamless steel pipe and tube from Ukraine, effective 3 October, according to a Commission notice seen by Kallanish.
“This was the last anti-dumping measure in the EU against Ukraine (although suspended and not collected since June 2022) and as of [3 October], EU trade with Ukraine will be free of country-specific trade defence measures,” writes Yuriy Rudyuk, partner at law firm Van Bael & Bellis.
The law firm has been supporting Interpipe, Ukrainian manufacturer of seamless pipes, “in numerous investigations and reviews of these measures”, it says.
In the second quarter, Interpipe’s sales to Europe, including Poland, Germany and Spain, increased by 44% on-quarter to around 46,000 tonnes. In the first half-year, Intepipe supplied around 78,000t to Europe, up by 11% compared to the same period a year ago.
The company recently increased supply of seamless pipe to Europe, the Middle East, and Ukraine to counterbalance the impact of decreasing demand and falling prices in the US, it said in Q2 results announcement.
The company supplies seamless pipe to the EU via land routes.
Elina Virchenko UAE
Voestalpine closes wire plant in Fürstenfeld
Voestalpine will shut down its production of special wire products in Fürstenberg, Austria, at the end of the year, Kallanish learns from a company statement sent upon request.
The site is part of voestalpine Wire Rod Austria GmbH, a subsidiary of the Metal Engineering Division of voestalpine AG with production plants in Donawitz, Bruck an der Mur and Fürstenfeld. Since 2012, the latter site has specialised in saw wire for the photovoltaics industry, besides other special wire products such as dry reed contacts.
The production of saw wire has been uneconomic for some years already, despite restructuring efforts and investment in research & development, the company says. As reasons it cites the migration of the European photovoltaics industry to China, and the massive increase of power prices since the Russian invasion of Ukraine.
The subsidiary will therefore relocate the production of dry reed contacts to the plant in Bruck an der Mur. For the 53 employees at Fürstenberg, it has offered alternative positions in Bruck, Leoben, Kindberg and Kapfenberg. According to press reports, Fürstenberg already laid off 30 employees back in 2018.
Christian Koehl Germany
German mechanical engineering activity sinks in second half
Due to a lack of new orders, production in the machinery and plant engineering sector will shrink in the second half of 2023, Kallanish hears from German engineering federation VDMA. It expects production to decline by 2% in real terms for the year as a whole.
To date, companies in the export-oriented mechanical engineering industry are still benefiting from order backlogs that enabled production to grow by 1.7% in real terms in the first seven months of 2023. “But this buffer is melting and the current year’s order intake including July is 14% below the previous year,” says VDMA chief economist Ralph Wiechers.
A look ahead does not promise any improvement in the short term, either, VDMA notes, although it does not exclude that a rebound could occur from a lower base in 2024. At the moment, though, the global economy is going through a phase of weakness, the duration and intensity of which cannot yet be assessed.
“A tenacious inflation resulting in tight monetary policy by the major central banks, and the Ukraine war with all its political and economic consequences are strong burdens,” Wiechers says. “So are the ongoing geopolitical tensions between the USA and China and, last but not least, the heated discussion about competitive conditions to ensure companies stay in Germany.”
Wiechers nevertheless points to the strengths of the industry. Capacity utilisation in July, for example, remained almost unchanged at a high 88.8%, well above the long-term average. Employment in the core workforce also rose again slightly in June by 1.5% to 1.02 million people. Exports grew by 3% in real terms year-on-year in the first half of 2023. “All this shows that the machinery and plant engineering sector is not in crisis mode, but is extremely robust,” he concludes.
Christian Koehl Germany
HRC buyers in Europe continue to postpone bookings
Slow end-user demand and a poor macro-economic outlook for the fourth quarter of 2023 were limiting buying interest for HRC across Europe, sources said.
“Massive restocking is very unlikely during October. Firstly, our level of inventories is enough, given that demand from end users is deteriorating and we see fewer orders,” a steel service center source in Northern Europe said.
Mills have short order books, with lead times still reported at around six weeks, or even quicker.
Nevertheless, mills were reluctant to cut HRC prices further due to increasing costs of production.
Therefore, market sources expected more European steelmakers to limit production during the fourth quarter of 2023 in attempt to balance the market and prevent a further downtrend.
“All the mills [in Europe] have low order books, but at the same time raw materials prices are moving higher. Electricity, labor costs are also trending up, so it is very likely that we see more furnaces get closed in the coming weeks,” a distributor in Northern Europe said.
Some European steelmakers have already announced maintenance-related blast-furnace stoppages for the fourth quarter.
Offers for November-delivery HRC from one integrated mill in Northern Europe were reported at €630 per tonne ex-works on Monday, stable from a week earlier.
Buyers’ estimations of tradeable values were head at around €600-630 per tonne ex-works, but trading remained very slow.
“Most buyers are still able to wait for a couple more weeks; there is a feeling that prices [for HRC] could decline more,” a steel-service center source in the Benelux area said.
On top of that, buyers were holding back from trading, awaiting more clarity on the import HRC volumes expected to be cleared by customs under safeguards quotas as of October 1.
The European Union’s customs statistics were not updated by the time of publication, but sources expected the quota under the “other countries” category to be filled in “less than a week.”
Vietnam, Japan, Taiwan and Egypt were the major HRC suppliers to the EU under the “other countries” category, with Asian suppliers offering the most competitive prices, according to EU market sources.
Fastmarkets calculated its daily steel hot-rolled coil index domestic, exw Northern Europe at €620.00 ($655.44) per tonne on October 2, down by €0.42 per tonne from €620.42 per tonne on September 29.
The index was down by €11.88 per tonne week on week and by €36.25 per tonne month on month.
Meanwhile, Fastmarkets’ calculated its daily steel hot-rolled coil index domestic, exw Italy at €605.63 per tonne on October 2, down by €3.12 per tonne from the previous calculation of €608.75 per tonne on September 29.
The Italian index was down by €16.04 per tonne week on week and by €31.87 per tonne month on month.
Italian steel market participants described trading in the local HRC market as “frozen” amid subdued end-user demand and downbeat expectations among buyers.
Tradeable values were reported at €630-640 per tonne delivered (€615-625 per tonne ex-works) by producer sources and at no higher than €600-610 per tonne ex-works by buyers.
At the same time, some buyer sources reported bids at €590 per tonne ex-works, and even below that level, for commodity-grade coils. But mills were reluctant to accept such prices yet due to costs.
Meanwhile, HRC import offers to Europe were quite limited and largely uncompetitive, given small gaps with European domestic prices and high safeguards-related risks.
A Japanese supplier was offering January-arrival coil to Italy at €610 per tonne CFR.
A Vietnamese mill was offering HRC with the same lead time below that level — at €590 per tonne CFR.
Turkey-origin HRC was offered to Italy at around €630 per tonne CFR, including the anti-dumping duty.
European buyers had a price idea for overseas coils of no more than €540-550 per tonne CFR.
Published by: Julia Bolotova
