Day: 8 November 2024

European long steel producers are under severe financial pressure that could compel them to potentially close or divest certain facilities if the ongoing market downturn and lack of state support continues, several regional mill sources tell Kallanish. Tight margins and high costs continue to blight business in both southern and northern Europe.

“We are implementing a 25% reduction in production across Europe, focusing on western, eastern, and southern regions where feasible,” a prominent European steelmaker source notes. “We often operate during nighttime hours when energy costs are lower; however, our total production expenses remain elevated relative to the present market prices for longs in Europe.”

Energy costs remain high, alongside persistently elevated scrap prices. “The current selling prices are unsustainable but difficult to increase,” the source continues. “Sales of wire rod and rebar are experiencing a downturn across Europe, with both products currently ranking as the poorest performers. In Germany, which was once a driving force in the European economy, sales are continuing to decline. In terms of prices and sales volumes, it is now among the worst-performing nations.”

The source observes that the European distribution sector is also under significant pressure and forecasts that certain companies may be forced to close next year.

A southern European mill source acknowledges current pricing levels are unsustainable, with producers implementing measures such as temporary layoffs, night shifts to reduce energy expenses, and production stoppages.

Halting production is regarded as a strategy to reduce expenses and minimise scrap purchases. One flats mill in Italy is suspending production this week, while another longs manufacturer is temporarily closing one of its facilities for the entire month of November.

“The entirety of Europe is confronting this crisis; no nation is immune from the decline in consumption,” the southern European mill source notes. Costs have increased to the point where the value chain’s exceptional 2022 earnings are now being used to offset the dire financial circumstances of 2023 and 2024.

The current indicators do not suggest a recovery, and multiple sources anticipate that 2025 will mirror this year, albeit with some adjustments. However, demand may rebound in the latter half of next year.

Another prominent longs producer with facilities in several Europe countries has expressed significant concerns regarding this crisis. The market may contract structurally in the long term.

Italian longs distributors and service centres are seen facing closure. Sources indicate that ArcelorMittal’s distribution branch in Bologna, Italy, is set to permanently close on 31 December. Customers have been notified of the decision and reassured about the status of pending deliveries. ArcelorMittal declined to comment (see Kallanish 7 November).

A large number of steel service centres across Europe are facing financial difficulties and could potentially cease operations for good, according to sources.

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ArcelorMittal is calling for stronger trade measures to address increased imports into Europe, where steel prices remain below marginal cost. This comes as the group reported lower on-year consolidated shipments and earnings in the third quarter.

Q3 consolidated steel shipments fell 2% on-year to 13.4 million tonnes, while crude steel production was down 3% to 14.8mt. Sales dropped 9% to $15.2 billion. Net income attributable to equity holders of the parent fell 69% to $287 million, while, adjusted to exclude impairments and exceptional items, income fell 47% to $488m. Ebitda dropped 26% to $1.58 billion.

ArcelorMittal’s provided comparison to the previous quarter indicates Q3 operating profit was impacted by impairments of $36m related to the closure of the coke oven battery in Krakow. Moreover, it incurred exceptional items of $74m due to restructuring costs at the same site. Ebitda was hampered by weaker results in North America and Europe, partly offset by higher volumes and lower costs in the Brazil segment.

The firm reiterates that China’s excess production relative to demand is resulting in very low domestic steel spreads – with the majority of producers loss making – and aggressive exports. Global demand remains subdued, with no signs of restocking activity as customers maintain a wait and see approach, it adds.

“Economic sentiment remains subdued, but we have delivered a resilient financial performance, reinforcing the structural strength of the Group,” ArcelorMittal chief executive Aditya Mittal says in a report seen by Kallanish. “Apparent demand is expected to be stronger in the second half of this year compared with 2023, and inventory levels are low, indicating that re-stocking will occur when real demand recovers.”

“The increased level of imports into Europe is a concern and stronger trade measures are urgently required to address this. Similarly, the CBAM needs further strengthening to ensure it fulfills its aim of ensuring European steelmakers can remain competitive versus higher-emissions imports,” he concludes.

In the nine months through September, steel shipments fell 4% on-year to 40.7mt, while crude steel production fell 1% to 43.9mt. Sales dropped 11% to $47.7 billion. Net income fell 55% to $1.7 billion or 51% on an adjusted basis to $1.9 billion.

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Italian rebar producers are implementing a €20/tonne ($21.5) hike. Demand however continues to be subdued, with trading characterised primarily by back-to-back purchases, Kallanish notes.

The previous attempt to lift quotes by €20, in October, failed to lift transaction prices.

Current asking prices have reached €300/t base ex-works; however, one mill is reportedly still providing quotes in the range of €270-280/t. Market participants indicate the €300/t threshold has not yet been reached this week. One buyer, however, who is unwilling to purchase at this level, suggests that producers are adamant about securing the price increase and are not open to lower bids.

Should steelmakers maintain this discipline, a €10/t rise in transaction prices is likely to occur. An important distributor says he will not purchase volumes at elevated prices in the current market and is considering sourcing imports from North Africa instead.

This week’s contract values remain relatively stable, ranging from €280-290/t base ex-works. With size extras priced at an average of €260/t, effective prices are currently positioned in the range of €530-550/t ex-works. Domestic mesh is valued at €380-390/t, not accounting for transport expenses, with an additional €300/t for size extras, according to sources.

Multiple sources indicate that Egyptian rebar vessels were available in Sicily, with product priced at €530/t ex-vessel for orders up to 1,000 tonnes. However, a trader says these offers have been rescinded as the material does not have the necessary authorisations to be sold in Europe.

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Demand for French long products remains weak and is projected to stay low in the upcoming months, with the outlook for a consumption recovery remaining bleak, amid slow orders and back-to-back purchasing by customers, Kallanish hears.

“September showed poor performance, while in October we experienced acceptable sales; however, the market has shown a notable decline in activity over the past two weeks,” states a local buyer.

The turnover for construction companies and distributors this year is projected to be considerably lower than that of 2023. Buyers are indicating a decrease in sales volumes, but their primary concern lies in the low profitability, diminishing turnover, and sluggish market conditions.

Rebar prices appear stable when compared to the end of October, following a moderate decline observed last month. Market participants are primarily focused on the lack of visibility and the prevailing uncertainty rather than price levels. Domestic rebar is pegged at €590-610/tonne ($634.5-656.1/t) delivered, based on volume and customer specifications.

A European mill indicates a troubling and persistent sluggish market characterised by low profitability. Customer financial difficulties are beginning to arise as the market is showing “a structural reduction in activity within Europe”, the source explains.

Spanish-origin rebar prices in France are not impacting domestic sales. By contrast, Italian steelmakers are active in southern France, offering prices that are lower than those in the domestic market.

“There are currently no indicators suggesting a recovery. It appears that we may have undervalued the magnitude of this crisis. In 2025, we can expect that the more resilient companies will endure, while we may witness an increase in bankruptcies,” a large buyer says.

He also notes the distribution sector in France is disproportionately large in relation to current consumption levels. “The French longs market is now stagnant, with prices remaining unchanged. Production halts this Christmas are likely to extend significantly,” he adds.

He expects that across all long products, the French market is to experience some resurgence in demand as buyers prepare to restock before year-end.

At present, domestic merchant bar prices slightly decreased on-month, hovering at €240-250/t delivered. Including €420/t size extras, effective delivered levels are now at €660-670/t. The first category of sections is around €760-770/t delivered or slightly more for larger orders, including extras, sources suggest.

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