Apparent steel consumption in Poland will probably drop by 2 million tonnes

Head Manager of Polska Unia Dystrybutorow Stali – about the structure of steel consumption and the factors which affect steel production and demand in Poland

In 2022, steel consumption in Poland significantly decreased. It was mainly caused by the energy crisis, high inflation and disruptions in the supply chain. At the same time, the steel output in the country slowed down as a result of capacity reductions that were witnessed across Europe last year.

Despite this, there is still a wide gap between domestic steel consumption and production. The disparity probably will remain in 2023, however, it is too early to make accurate predictions about its size. The output will be affected by the renovation of the furnace at the local steelwork. Instead, demand will mostly depend on the return of positive investment sentiment.

Polska Unia Dystrybutorow Stali (PUDS) is an organization in Poland, which associates with and supports distributors and processors of metallurgical products.

Piotr Sikorski, the Head Manager at PUDS, spoke with GMK Center about the structure of steel consumption and the factors which affect steel production and demand in Poland.

What was the steel consumption in Poland in 2022? What were the dynamics and volume in the second half of the year?

– It was a challenging year for the Polish steel industry. Even more difficult, as the year before we noted all-time records for the market, so every result looks pale in comparison. The war in Ukraine had a very brutal impact on the Polish economy and, of course, on the steel market as well. Steel consumption in October fell to a level not seen since the lockdowns in the first phase of the coronavirus pandemic. However, the real decrease in consumption was visible practically from the beginning of the year’s second half. The first two quarters compensated only to some extent the general result, and make it less disappointing. In total, we will probably end the year with apparent consumption 2 million tonnes lower than in 2021, i.e. 13.3 million tonnes.

Why did steel consumption decrease in Q3 and Q4 of 2022? 

– There is no single reason for this situation, in fact there is a whole chain of events leading up to the current crisis. No one will be surprised by the fact that inflation, the energy crisis and disruptions in the supply chain lie at its root. The economic recession that has hit Europe has a multifaceted background, which is why it will be even more difficult to reverse its effects. I am afraid that we are also dealing with the overlapping of the economic effects of the pandemic and the war in Ukraine, which means serious problems for many countries, including Poland. Since the beginning of the third quarter, we have been observing a decrease in demand for steel from the main customers, including the most important for the Polish steel market, i.e. construction. Currently, we are dealing with a collapse of mortgage loans, and as a result, many investments have been suspended or postponed. Infrastructural investments also have problems with financing, as Poland has still not received NGEU funds.

Which industries consume the largest volumes of steel products in Poland? Can you describe the structure of consumption by product type?

– Obviously, the biggest consumer of steel goods is the construction sector, which accounts for about 40% of steel products. At the same time, it is the sector that unfortunately suffered the most from high inflation and tightening of credit policy. This is followed by metal products, which account for about one-fifth of the market, and machinery and automotive industry, about 10 percent each. Among the smaller but very important steel users is the white goods industry, which consumes only 5 percent of steel but at the same time is extremely important for the Polish economy. Poland is one of the biggest producer of household appliances and generates demand for steel in cooperating sectors. Although two thirds of the production of the Polish steel industry are long products, nearly 60 percent of consumption are flat products.  Therefore, Poland mainly imports flat products to fully meet the demand.

What was the steel output in Poland in 2022? What production do you expect in 2023?

– In 2022, we witnessed capacity reductions across Europe. Unfortunately, this trend has not spared Poland. In the last quarter of the year, blast furnace no. 3 at the ArcelorMittal steelworks in Dąbrowa Górnicza was shut down. As a result, the production of crude steel in Poland dropped sharply by about 10% compared to the previous year, reaching only 7.5 million tones. In the last months of the year, the year-on-year decline was even as high as 30 percent. The first months of the new year will not bring a significant change, since with the restart of blast furnace No. 3, the renovation of furnace No. 2 will begin. This means that the largest steelwork in Poland will continue to operate at only half of its capacity. It will certainly affect production throughout 2023, which, unfortunately, may be very similar to last year’s.

What is the steel import in Poland? What is the geography of these supplies? 

– Poland heavily depends on steel import, and this hasn’t changed in 2022, even though our main eastern suppliers had to be replaced because of war. In mid-2022, deliveries from Russia and Belarus stopped completely, and from Ukraine halved over the entire year. However, since almost three-quarters of import comes from the European Union, this direction has largely replaced eastern suppliers. Interestingly, there was also an increase in steel imports from Vietnam, Japan and South Korea, and even increased supplies from China – which are not a natural trading partner for Poland, but they represent marginal amounts of steel. The main import directions remain Germany, Czechia and Slovakia, and among third countries – Ukraine.

What steel consumption do you forecast for Q1 and by the end of 2023? What will it depend on?

– Inventories remained low at the end of 2022, but high uncertainty refrained distributors from renewing it. More purchasing activity should be expected in the first quarter, since many distributors have no other choice. Currently, steelworks try to push prices, but the pressure is not supported by stronger demand from end users, therefore it is difficult to say how long it can last. As for the whole 2023, there are still too many question marks to say how the demand for steel will develop. The key condition is the return of positive investment sentiment, which will be difficult to achieve given the current level of inflation and economic situation.

How have the energy crisis and the strengthening of the credit policy affected the steel sector in Poland?

– The main problem is the lack of strong enough demand to overcome other negative anti-growth factors. Of course, the energy crisis has a significant impact on the costs of steel mills, the double or triple price increase had an impact on margins, which, according to analysts, in Polish BOF mills were to fall to EUR 50-190 per metric ton for HRC. It should also be noted that a mild winter, aid programs and a drop in gas prices had a positive impact on producers. However, the volatility of the market situation may still result in the return of these problems very soon. A more important challenge seems to be the return of steel users to higher business activity as soon as possible. As I have already mentioned, there is a complete stagnation on the credit market, and the lack of investment financing means stagnation for many months. Launching new, steel intensive investments is time-consuming and I am afraid that we may find ourselves in an investment hole for quite some time.

Does the Polish Government support the steel industry amidst high energy prices? 

– First of all, there is a compensation scheme for energy-intensive sectors that has been in force for some time and just now, the Council of Ministers adopted the program “Aid for energy-intensive sectors related to sudden increases in natural gas and electricity prices in 2022.” This is a much bigger program, for around 1000 companies to benefit, with a budget of PLN 5 billion. The amount of support will depend on the number of eligible costs incurred by the entrepreneur from February to December 2022. We are talking about the costs of purchasing gas and energy resulting from a price increase higher than 50% compared to the average price in 2021. The program is not perfect, but for a group of companies, especially those on the producing side, will serve as so much needed help.

What else should be done in this context? Does the Association conduct such a discussion with the Government bodies?

– PUDS is involved in many policy consultations and we act as a representative body for steel processing and distribution. As a part of the big industrial sector and only one side of the steel market, it is not always easy to reach with our suggestions but we make everything possible for our voice to be heard.  We must be aware that all businesses are affected by the current situation and seek some kind of relief.

How does the PUDS protect the steel industry’s interests? Can you name examples of such cases?

– We act in many fields to facilitate running the steel business. One of them is to protect our industry’s interests. For more than 20 years we have been involved in many important battles, the most important of which was probably the fight against VAT fraud in steel. But less spectacular cases in which PUDS acts as a support for the steel sector are also important. We also conduct other forms of support, such as research, and market analysis, provide information, conduct training and webinars, and introduce young managers to work in the steel industry, but we also do not forget about networking and integration. We want to be wherever our help may prove useful to entrepreneurs interested in the Polish steel market.

Yevheniia Hubina