German mills’ costs remain high until spring 2024
Production costs for German steelmakers reached a critical level in the fourth quarter, and will not drop for another couple of months, says Andreas Schneider of Stahlmarkt Consult.
According to his calculations, costs for oxygen-route mills rose by €80/tonne ($88) from July to October, and have remained unchanged since. He attributes this mainly to notably higher prices for coking coal, which rose from $237/t in early July to almost $317/t at the end of the year, according to the Kallanish coking coal fob Australia index. It is the highest price level for coking coal, as well as for German production costs, since March, Schneider notes.
“Given that spot market prices for steel have fallen over recent months, steelmakers will hardly break even,” he writes in his regular blog. Schneider notes that coil mills have kept making money on annual contracts, at prices way above spot prices. He questions, though, if the customary separation of contract versus spot prices can be maintained.
Recent contract negotiations took place in an environment of spot prices brought up by mills since November, at least nominally, while purchasing activity remained weak. Carmakers initially asked for a year-on-year reduction of at least €100/t, which in many cases would have undercut the spot price. Eventually, they confined themselves to a y-on-y reduction of around €50, “because they know they need to keep the mills alive if they want to have steel in the future”, as one observer put it.
The base costs for electric arc furnace mills have risen as well, but to a lesser extent. In winter, in particular, prices for scrap tend to be at their highest, while power prices have remained flat, Schneider notes. He assumes that costs for both routes will remain as is for the winter months, and very cautiously suggests that “come spring, they might come down somewhat”.
Christian Koehl Germany
Italian authorities consider different options for Acciaierie d’Italia
The Italian government is considering different options to guarantee the business continuity of Acciaierie d’Italia (ADI), formerly known as Ilva. Authorities are preparing for a meeting with the private partner, ArcelorMittal, on 8 January.
The outcome of this meeting however is not expected to resolve the current issue. A source close to the dossier says the government is considering the best way to “divorce” from the private partner. According to rumours unsubstantiated by the company, ArcelorMittal, the current majority shareholder, is willing to pay its share of the additional €320 million ($352m) capital increase to sort out the company’s immediate needs.
However, the government and the private partner are clashing on the significant funds – over €1 billion – needed to release the steelmaker’s assets. These were seized previously by the extraordinary administrator of the former Ilva plant due to legal conundrums.
The lease of Taranto’s equipment from the administrator is set to expire on 31 May, which is when the equipment should be purchased, the source explains. The original expiration date in May 2022 was already postponed to this year. Given all the legal issues and bureaucracy, ArcelorMittal is said not to be willing to pay to purchase the equipment.
“The government is realising ArcelorMittal will not invest and that a consensual divorce is the best way to separate. The €320 million is nothing compared to what the steelmaker needs. On 10 January, Taranto’s latest gas bill will be due but there are also many suppliers and shipping companies in need of payment, as well as vessels at the port that cannot unload material,” the source comments.
Acciaierie d’Italia may see its gas supply cut if the bill remains unpaid. For a future commercial procurement contract, gas operators are asking for a downpayment of about €100m because they know ADI may not be able to pay, but ADI needs financing for the downpayment.
At the coming meeting with ArcelorMittal, the government intends to request “precise guarantees on investments, production levels, worker safety, plant and environmental protection”, says a note from the presidency of the Council of Ministers. The unions will be called again after the meeting.
Last week, authorities met unions in Rome, in what was “yet another negative meeting at Palazzo Chigi”, Uilm secretary general Rocco Palombella says in a note obtained by Kallanish.
“The government remains the only believer in Italy in a future for the former Ilva linked to ArcelorMittal … The environmental plan has not yet been completed, there are safety problems due to the lack of maintenance … There is no condition to continue having the former Ilva managed by ArcelorMittal …Without a change in governance, there cannot be a future for the former Ilva, for environmental recovery, for employment protection and production continuity,” Palombella adds.
Invitalia is expected to become majority shareholder in 2024, while ArcelorMittal will retain a 40% shareholding. In 2021, ArcelorMittal deconsolidated the assets and liabilities, including the remaining lease and purchase liability, of Acciaierie d’Italia Holding, formerly AM InvestCo Italy. On the other hand, Invitalia and the Italian government have been slow in making decisions and in paying out funding. Meanwhile, production at Taranto continues to be slow (see Kallanish passim).
ArcelorMittal declined to comment.
Natalia Capra France
European HRC prices stable amid holiday break; production cuts may spur rises
The European HRC market has remained largely inactive following the Christmas and New Year break.
Market sources expected trading to resume in the second week of January, with cautiously optimistic moods prevailing among sellers.
With production outputs in the region having been cut in the second half of 2023, lead times were stretching and mills were able to target higher prices as a result.
On top of that, import prices have also been rising recently, and interest for overseas coil has been limited due to the smaller gap with European prices, safeguards-related risks and long lead times.
Besides, several market sources told Fastmarkets that one major European producer has reportedly booked sizeable volumes of HRC imports before the Christmas break to reduce overseas coil availability in Europe.
But some buyers remained concerned over the lack of end-user demand and some capacities coming back online in the first quarter of 2024.
“I think a rollover of [HRC] prices is the most likely scenario, given the slow consumption,” a distributor source in northern Europe said. “We’ll see next week, the market is still in a holiday mood.”
In northern Europe, offers from integrated mills for March delivery were reported at €720-750 per tonne ex-works before the holiday break, while tradable values were estimated by buyers at €680-710 per tonne ex-works on Tuesday.
Fastmarkets calculated its daily steel hot-rolled coil index domestic, exw Northern Europe at €695.00 ($767) per tonne on Tuesday, down marginally by €0.50 per tonne from €695.50 per tonne on December 29.
The index was also down by €0.50 per tonne week on week but up by €24.12 per tonne month on month.
No activity was heard in the Italian market, and Fastmarkets calculated its daily steel hot-rolled coil index domestic, exw Italy at €688.33 per tonne on Tuesday, unchanged since December 22.
Published by: Julia Bolotova
