The world’s largest steelmaker’s raw materials purchasing arm, ArcelorMittal Sourcing, issued a force majeure declaration Thursday amid operational disruptions at ArcelorMittal sites in Europe as a result of the coronavirus outbreak, according to a notice sent to company coal suppliers and seen by S&P Global Platts.
It was unclear if the force majeure was declared on a particular product or a number of products that ArcelorMittal Sourcing buys. However, at least two sell-side sources for Australian metallurgical coal said they had received the notice Thursday. Sources said the measure was also understood to have been extended to iron ore supplies.
In the notice sent to the sellers and seen by Platts, ArcelorMittal Sourcing said that “unavoidable” lockdown measures taken by governments and administrations in Europe, together with measures taken by the company to protect employees had triggered “severe disruptions of operations at ArcelorMittal sites” and that it was “unable to provide an estimate of when it will be able to overcome the effects of the Force Majeure Events.”
This was preventing, affecting or delaying the steelmaker from performing its obligations under certain contracts, according to the terms of the letter.
ArcelorMittal declined to comment Thursday.
However, the company announced separately early Thursday it intends to cut its European steel production over and above 2019 reductions due to an excess of supply. It said it was “taking steps to reduce production from its European operations to ensure the wellbeing of our employees is maintained and that production is aligned with demand,” without giving further information on where or how much production would be cut.
Other European steelmakers including Salzgitter, Thyssenkrupp, Tubos Reunidos and various Italian mills are also cutting their production levels to be more in line with lower market demand and to prevent excessive steel inventory building up.
Automotive manufacturing “plants are reducing production and there are companies in lockdown, so we don’t need so much raw material,” one steelmaker source said. “We will see FM being used more.”
A sell-side source for Australian metallurgical coal said: “I guess there are more [such cases] to come when countries in the European Union are all” dealing with the pandemic.
One observer said the impact on the steel raw materials market was still unclear.
According to the observer, in 2019, ArcelorMittal Sourcing wrote to several suppliers asking for price cuts and renegotiations, citing the weak steel market, requests that were ultimately rejected in many cases.
In 2019, iron ore prices hit a five-year high following production curbs resulting from miner Vale’s fatal tailings dam accident in Brazil, and weather-related supply restrictions have kept iron ore and metallurgical coal prices – both key steelmaking raw materials – relatively firm during the coronavirus outbreak so far in 2020.
ArcelorMittal has steel plants in 18 different countries that produced 89.8 million mt of crude steel in 2019.
— Yi-Le Weng, Diana Kinch, Hector Forster and Samuel Chin