Eurofer once again downgrades steel consumption outlook in Europe for 2023
If this forecast proves to be correct, it will be the fourth annual contraction in the steel market in the past five years, but a stronger recovery is expected in 2024, the association said.
Eurofer expected apparent steel consumption in the EU to drop by about 5.2% year on year in 2023, to 132 million tonnes, it said in its fourth-quarter 2023 outlook report. This is be down from the previous outlook’s expected 3% year-on-year consumption drop to 158 million tonnes, published in July this year.
In 2024, apparent steel demand in the bloc is expected to recover by 7.6%, rising to 142 million tonnes. This is a revision from Eurofer’s previous forecast for a 6.9% recovery in 2024.
“The perspectives for the European steel sector get gloomier every quarter, amidst disruptive wars, global tensions, an unresolved energy crisis, high inflation, tightening economic conditions and historically high import shares that are strangling manufacturing. This situation negatively impacts steel demand. It is essential that EU policymakers steer a course which maintains a sustainable industry in Europe and responds to the call of the clean tech value chain — of which steel is a fundamental part — for an EU Clean Industrial Deal and urgent actions to keep Europe in the world’s clean technology race,” Axel Eggert, director general of Eurofer, said.
Steel-using sector outlooks
Automotive
The automotive sector’s output in the EU recovered by 3.5% in 2022, but this was mostly a rebound from the low comparison base of 2021, due to a components shortage that year.
The sector is expected to record further growth in 2023, by 7%. This was revised from a previous recovery rate of 6.4%, according to the association.
But output levels will still remain far below the pre-crisis levels seen in 2018-2019, and the sector is expected to shrink by 4.6% in 2024.
The automotive industry in Europe was one of the few relatively well-performing steel-consuming sectors in 2023, with data from the European Automotive Manufacturers Association showing that new car registrations in the EU continued to grow strongly in September 2023.
Notably, the EU car market grew by 9.2% to 861,062 registered units in September, marking the 14th consecutive month of growth. But this growth can be attributed to the region’s rebound from a low comparison base last year, primarily driven by vehicle component shortages.
Market sources noted that demand for steel coil from the automotive industry has been broadly stable at low levels during the course of 2023.
“Long-term contracts [for flat steel] for the second half of 2023 with automotive industry, were done at same levels as for the first six months. In general, automotive demand is not booming, but it is not terrible,” a trading source in Germany said.
Fastmarkets’ daily steel hot-rolled coil index domestic, exw Northern Europe averaged at €639.06 ($674.07) per tonne in September 2023, down by €126.14 per tonne from the monthly average of €765.20 per tonne in September 2022.
Construction
Meanwhile, Eurofer expects the construction industry to decline moderately, by 1.7% in 2023 (revised down from a 0.5% drop forecasted in July), after recording a 4.8% growth in 2022. The sector is expected to recover modestly, by 0.2% in 2024 (previously expected at +0.7%).
This sluggish trend in construction industry performance is expected to worsen in the next three quarters due to the effects of rising prices for construction materials, a shortage of construction workers and, in particular, the consequences of continued monetary policy tightening on housing demand, the association said.
“Looking at construction sub-sectors, rise in interest rates — as a consequence of policy rate hikes by the ECB [European Central Bank] and other central banks — has already impacted residential construction demand. Civil engineering is expected to continue providing the strongest contribution to the construction sector’s performance, but to a lower extent,” Eurofer said. “This segment will continue to be supported by EU-wide public policies (NextGenerationEU, etc.), but their effects have become increasingly uncertain and difficult to quantify due to the recent deterioration of the economic outlook.”
Weak construction demand has weighed heavily on the European long steel market in recent months, with producers’ recent bullish attempts falling through due to lack of demand, market participants told Fastmarkets.
The price for steel reinforcing bar (rebar), domestic, delivered Northern Europe fell to a low midpoint average of €589.38 per tonne ex-works in September 2023, from highs around €1,014.38 per tonne ex-works in September 2022.
Published by: Julia Bolotova
Thyssenkrupp starts reversing mill for automotive grade steels
On 26 September, thyssenkrupp Steel produced the first coil on the new 2-stand reversing cold mill at its plant in Bochum, Germany, supplied by Primetals Technologies.
The mill was inaugurated on October 30 during a festive event and is considered a centre piece in the steelmaker’s future plans, Kallanish understands.
The double reversing stand can be used to produce higher-performance steels for electric mobility, as well as other high-strength grades. The location in Bochum will be expanded into a centre of excellence for electric mobility by 2025. In addition to the now completed unit, an annealing and isolating line and an electrical steel inspection line are being built there. The total investment at the site amounts to about €300 million ($319m).
The mill will help to “satisfy the ever-increasing and demanding requirements for premium electrical steel,” says Heike Denecke-Arnold, chief operations officer of tk Steel. “With even thinner highly silicised sheets, for example, we can help to further increase the energy efficiency and thus the performance of electric motors.”
Electrical steel strips with a thickness of less than 0.35 millimetres can only be rolled efficiently and in high quality on reversing stands such as the newly installed stand, due to high material requirements. The technology used ensures a stable rolling operation with very thin and hard strips, tk Steel says.
Christian Koehl Germany
Turkey initiates dumping investigation on hot-roll imports
Turkey is opening a dumping investigation on hot-rolled flat steel originating from China, India, Japan and Russia, according to Turkey’s Official Gazette announcement on Tuesday.
A dumping investigation concerns imported hot roll falling under numerous items containing customs codes 7208, 7211, 7212 and 7225, Kallanish notes.
The imports from China, India, Japan and Russia, allegedly unfairly sold at low prices, have inflicted significant harm or posed a threat of significant harm to the economic performance of the domestic production sector, according to Turkey’s Ministry of Commerce notice. The domestic complainants are represented by Çolakoğlu Metalurji Ereğli Demir ve Çelik Fabrikaları (Erdemir), İskenderun Demir ve Çelik (Isdemir), Habaş Industrial and Medical Gazlar İstihsal Endüstrisi, and Tosçelik Profil ve Sac Endüstrisi.
The imports from the four nations experienced substantial growth both in terms of quantity and market share from 1 January, 2020, to 30 June, 2023. This surge in imports had a disruptive and depressing effect on the sales prices of Turkish domestic products, the notice alleges.
Furthermore, the Turkish domestic market witnessed a decrease in sales from 1 July, 2022, to 30 June, 2023. This, in turn, had adverse consequences on Turkish domestic production, sales figures, stock levels, stock value, product cash flow and capacity utilisation rate. It resulted in a negative impact on critical economic indicators and unit profitability.
“It may be decided to apply temporary measures during the investigation, and definitive measures may be applied retroactively,” the statement says.
Elina Virchenko UAE
Klöckner adjusts guidance, plans job cuts
Hence, due to the ongoing macroeconomic weakness, especially in Europe, the German-based steel distribution group is adjusting its previous earnings forecast of €220-280m to €170-200m, Kallanish hears.
In the first nine months of the year, the company’s revenue amounted to €6.0 billion, compared with €7.4 billion in the corresponding 2022 period. Ebitda adjusted for material special impacts was €172m, versus €439m in the first nine months of 2022. Net income was a negative €8 million in the first nine months of 2023, down from a profit of €301m a year earlier.
Shipments in the third quarter came to 1.191m tonnes, up 4% y-o-y, due to acquired business in the USA. The company highlights a continued positive development of its business in North America and Switzerland. In North America, it expects improved demand in most customer sectors going forward. In Europe, it anticipates a flat development, with continued weakness in construction.
In response to the challenging macroeconomic environment in Europe, Klöckner will cut back organisations in the Kloeckner Metals EU and Kloeckner Metals Non-EU segments. Implemented step by step from the fourth quarter of 2023, it anticipates a 10% workforce reduction in the European distribution business.
At a conference call for the publication of quarterly figures, ceo Guido Kerkhoff detailed that some 300 employees will be laid off, 80 of which are in Germany. The cutbacks will be spread over the entire organisation, and no closure of individual sites is planned, Kallanish heard from Kerkhoff on the call.
Christian Koehl Germany
UK trade body urges government to link its ETS with EU as carbon prices slump
The slump in UK carbon prices has already cost the government billions of pounds in potential revenues, trade body Energy UK said Oct. 30, urging Whitehall to link its Emissions Trading Scheme with the EU’s cap and trade carbon pricing system.
The trade association also reiterated that “weak and volatile” carbon prices under the UK ETS were undermining investment in clean energy, and with the introduction of the EU’s Carbon Border Adjustment Mechanism, UK companies could incur “hefty costs” for simply trading with its largest export market.
UK carbon prices slumped to record lows in recent months as Prime Minister Rishi Sunak rowed back on some key climate commitments. Reduced gas-for-power burn, a higher share of renewables in the energy mix and shaky manufacturing data also dragged prices down.
“If low carbon prices persist, the Treasury could lose out on GBP3 billion in revenue per year and from 2026, UK companies exporting to the continent could end up paying half a billion pounds a year in carbon taxes to the EU as a result of the bloc’s Carbon Border Adjustment Mechanism,” Energy UK said in a statement.
Lost revenues
UK Allowances, or UKAs, plunged to an all-time low of GBP33.50/mtCO2e ($40.65/mtCO2e) in intraday trading Sept. 21, Intercontinental Exchange data showed. Prices have recovered slightly since then, but they remain at a discount of almost $40/mt to EU Allowances, or EUAs.
Platts, part of S&P Global Commodity Insights, assessed UKAs at GBP37.55/mtCO2e ($45.53/mtCO2e) on Oct. 30, and EUAs at Eur78.72/mtCO2e ($83.53/mtCO2e) on the same day.
Energy UK said that over the past six months carbon prices from the UK’s ETS have raised over GBP1 billion less than if prices had remained at last year’s levels.
“Linking our carbon pricing regime with the EU’s would exempt UK companies from these costs and remove the problems caused by the disparity between the two schemes,” said Energy UK’s Deputy Director Adam Berman. “It would also stabilize and strengthen our carbon price, sending a powerful signal to bring forward investments in homegrown clean energy that can cut bills, reduce emissions, and bolster our energy security.”
UKAs have averaged GBP58.56/mtCO2e ($71.05/mtCO2e) so far in 2023 as of Oct. 27, compared with an EUA average price of Eur87.49/mtCO2e ($92.75/mtCO2e) over the same period, data from Platts showed. Meanwhile, UKAs averaged GBP79.08/mtCO2e ($95.95/mtCO2e) in 2022, compared with Eur81.17/mtCO2e ($86.05/mtCO2e) for EUAs.
Piers Forster, interim chair of the UK’s influential Climate Change Committee, told S&P Global in a recent interview that carbon price worries were “really hampering good green investment. It is making the whole thing slow down, which is not good.”
Some UK-based renewable energy companies have also recently written to the government in recent months about concerns over the price direction of the country’s compliance carbon market.
ETS linkage
Energy UK urged the government to take steps to link the UK ETS with EU ETS, especially with CBAM phasing in from 2026 to 2034.
“Such a move would exempt UK companies exporting to Europe from the CBAM, saving them billions in potential tax payments, provide higher revenues for the Treasury, and cut red tape through the removal of complex reporting requirements for companies,” it said.
The EU’s new carbon border tax, whose transitional phase started Oct. 1, will officially be phased in from 2026 to 2034, in step with the phasing out of free allowances in the EU ETS. Initially, importers will be required to buy certificates for 2.5% of their emissions in 2026, rising to 100% by 2034.
CBAM essentially levies a tax on imports of selected carbon intensive materials and products (including aluminum, cement, electricity, fertilizers, hydrogen, iron and steel) into the EU, removing the gap between the EU Emissions Trading System carbon price and export country of origin carbon price.
If UK carbon prices remain at a sharp discount EUAs, UK companies will have to pay a hefty cost on the price disconnect if they still want to keep exporting these goods to the EU.
“We strongly believe that both sides would benefit from linkage, so we urge the government and the EU to get round the table before UK companies start paying the price,” said Berman.
The main purpose of the tax is to reduce the risk of carbon leakage — EU industries relocating abroad — and encourage importer nations to introduce their own carbon markets and, so, limit CBAM impacts on their traded goods.
UK reforms
In early October, the UK ETS Authority also said it was exploring measures of a supply adjustment mechanism, which could help link closer to the EU ETS.
The EU ETS has the Market Stability Reserve, which helps provide stability by matching the delivery of allowances with changes in demand. The MSR, in place since January 2019, addresses the current surplus of allowances and also improves the system’s resilience to major shocks by adjusting the supply of allowances to be auctioned.
“This provides an openness to regulating the market in a way to ensure more scarcity and support prices with better alignment with EU ETS,” said Roman Kramarchuk, head of future energy analytics at S&P Global.
The UK ETS Authority decided to limit the number of carbon allowances for companies to buy in 2024 to 69 million mt, the lowest since the ETS came into force in 2021 and a fall of 12.4% from this year.
This announcement helped UKAs rebound to over GBP50/mtCO2e, but prices have again slumped on weak demand from the power and industrial sectors.
The UK ETS has been operational only since January 2021. Like the EU ETS, it regulates CO2 emissions from power generation, emissions-intensive heavy industries and aviation.
Author: Eklavya Gupte
