Category: Latest Updates

China’s automotive sector continued to recover in May, starting to make up for some of the losses earlier in the year. Implied steel demand has also increased, driven partly by an increase in commercial vehicle sales, Kallanish notes.
China produced 2.187 million vehicles in May, up 18.2% year-on-year, according to the China Association of Automotive Manufacturers (CAAM). That was still some way off the peaks of over 3m units/month in the industry’s heyday in 2017, but was a rapid improvement from just 285,000 units in February during the lockdown. Over the year to date, automotive output is now 7.787m units, down 24.15 y-o-y. 
Implied finished steel demand was up 21.26% at 3.83m tonnes in May, Kallanish calculates. Over the year, demand is now down just 18.61% y-o-y at 13.777mt. This is because of a resurgence in truck sales. Commercial vehicle sales were up 48% in May to 520,000 units, driven by trucks for infrastructure projects.

Italian car output tumbled again year-on-year in April after falling in Q1, says local carmakers’ association Associazione Nazionale Filiera Industria Automobilistica (Anfia) in a report monitored by Kallanish.

According to Anfia data, total automotive production in Italy fell in April by as much as -85% after another heavy fall of -64% on-year in March. Passenger car output in April “was almost zero”, Anfia says. “In April less then 400 cars were produced in Italy”, it adds. In April 2019 Italian carmakers produced 49,000 cars.

While industrial production in Italy declined by over -42% in April and by -18.7% on-year in the first 4 months of the year, total automotive output in the country fell by almost -45% on-year in January-April, Anfia comments.

Latin America crude steel production in April plunged 34% on year to 3.55 million mt, induced by the coronavirus pandemic, regional steel organization Alacero said June 12.

From January to April, production decreased 14% compared to a year ago reaching 18.3 million mt, Alacero said in a statement.

According to Alacero, the decrease reflected the generalized low demand and interruption of operations in response to the effects of the slowdown.

In April, crude steel production via the BOF route decreased 22% compared with March at 3.56 million mt, an amount had not been seen since 2009.

April rolled steel production in Latin America dropped 32% on year to 2.9 million mt .

“In April, the effects of the pandemic began to spread; however, the impact has been felt mostly in Argentina and Brazil, with a decrease of 73% and 37% in rolled steel output, respectively, compared to April 2019,” Alacero said.

In a strategy to balance supply and demand, some plants across the region have shut their blast furnaces. In April and May, seven blast furnaces were closed due the pandemic representing a combined capacity of almost 7 million mt, according to Alacero.

The group said capacity utilization as of April within Latin America was at 42%, with Brazil at 43%, Mexico at 60% and Argentina at 18%.

“Latin America’s comeback will occur differently among its countries, and the region will probably be one of the last to normalize its economic activity,” said Francisco Leal, Alacero’s general manager.

Leal added the industry is a capital intensive and high fixed-cost business “that needs to work at 80% of its capacity to ensure a modern and efficient production plant, as well as retention of its human resources.”

The organization estimates that this situation will persevere until the third quarter and will be the norm for the industry in the short term.

— Priscilla Antunes

Most EU member states support the steel safeguards review draft implementing act presented by the European Commission. There are 20 member states in favor, representing 92% of the EU population, an EC source told S&P Global Platts on June 12.

“The commission will consequently proceed to the formal adoption of the implementing act with a view to having it in force by July 1 at the latest. The act modifies the current safeguard measures in a number of areas concerning the management of the tariff quotas,” the source said. The safeguard committee met June 12.

“We expect the final decision to be published in the Official Journal of the EU during the week starting June 22,” said another source close to Brussels.

According to the first source, the EC draft implementing act has the same terms as the one the EC sent to the WTO on May 29.

As already reported by Platts, the EC proposal singled out hot-rolled coil and sheet, proposing a return of the country-specific quotas after a period of having a global quota in place. Those countries are Russia, Turkey, India, South Korea and Serbia. A cap of 30% share will nevertheless continue applying to the use of the residual quota in the fourth quarter to prevent crowding-out effects.

Other proposals move all country-specific quotas from annual to quarterly in order to ensure “a more stable flow of imports and minimize the risk of undue import surge during the remaining duration of the measures,” as stated in the notification document.

The EC also recommended some solutions to ensure that the smaller exporting countries, which use the global quotas, are not crowded out by those exporters enjoying country-specific quotas. In addition to keeping the unlimited access to the residual quotas in some product categories the EC proposes new restrictive regimes for certain products.

Assofermet, the Italian service center association representing one of the main European steel importing groups, said they are against the EC proposal because country-specific tariff-rate quotas (TRQ) do not reflect the actual level of imports and the residual TRQs are likely to remain largely unused.

Eurofer, the European steelmakers’ association, stated after the WTO notification was published that the EC proposal was insufficient and “unhelpful” in tackling the sharp decline in steel demand. Eurofer demanded a significant reduction in the size of the tariff-free import quota.

— Annalisa Villa, Wojtek Laskowski

As expected, things are getting more difficult for exporters in the global steel market. The EU opened fire with an antidumping investigation on HRC imports from Turkey, with Turkey firing back with duties on steel products from the EU. Canada started a similar investigation against imports of heavy plates from several countries, while Egypt has been working on a 10 percent duty. Accordingly, the world market is shrinking further and Russian mills are taking the lead and dominating the market. It will be a real game of survival for a while and the cost of production is the key.

Global longs consumption still very uncertain, prices move up especially in Asia

While prices are heading up (particularly in Asia), consumption in the global long steel products market seems very uncertain. Demand for physical steel is held up by the optimism in the futures market. This is somewhat worrying for the supply and demand situation in the market if the support from the futures market were to weaken. On the bright side, despite the impact of the Covid-19 pandemic the World Steel Association (worldsteel) in its recent report still foresees an increase in steel demand in China in the current year, predicting a rise of one percent from 2019 to 916.5 million mt. This helps restrict the fall in global steel demand in 2020 to an anticipated drop of 6.4 percent, whereas demand in the rest of the world excluding China is foreseen to contract by 14.2 percent compared to 2019. Meanwhile, market players are hoping that June and July will be months of stabilization before a recovery later in the year.

Brazilian steel industry faces serious demand crisis

Brazilian crude steel production continued to fall in April amid the ongoing Covid-19 pandemic. Its crude and rolled steel outputs in the given month fell by 39 percent and 36 percent, respectively, while its semis output declined by 24 percent, all year on year, according to the Brazilian Institute of Steel (IABr). Domestic steel sales in April decreased by 36 percent year on year, in line with apparent consumption of steel products which collapsed by 35 percent. Due to the adverse conditions in the international market, Brazilian steel exports fell by 17 percent year on year. These data demonstrate the seriousness of the demand crisis that the Brazilian steel industry is facing, which led it to operate with only 42.2 percent of its installed capacity in April. As a result, in the first four months of the year Brazil’s crude steel production fell by 14 percent year on year to 10 million mt. The output of finished steel products contracted by nine percent  year on year to 7.1 million mt due to the decrease in apparent consumption in the period under review (down nine percent to 6.2 million mt). In the January-April period, Brazil’s steel imports contracted by 18 percent to 705,000 mt, while its steel exports fell by five percent year on year to 4.1 million mt.

Mills in EU struggle, buyers only order what they need and wait for lower prices

The construction business in the EU has been hit harder than expected by the Covid-19 crisis. New building permits in May were substantially lower than in March and April and many projects have either been put on hold or stopped. The public sector still has big infrastructure projects in the pipeline. However, since the Covid-19 crisis has kept everybody at home for almost three months, these projects have been delayed significantly. Cut-and-benders are trying to grab any order available as they start to believe the next one will be at a lower price anyhow. EU-based mills are selling hand to mouth as buyers will only order what they need and wait for prices to fall further. Italian mills are selling at almost any price to collect cash, and this has pulled the market downwards. The same goes in Poland where mills are pushing clients into placing orders by lowering their prices almost daily. At the same time, scrap prices have increased, which is a toxic combination for cut-and-benders and the mills. The biggest threat for importers is the ongoing discussions in Brussels on the reevaluation of safeguard measures. The EU is once again changing  the rules in the middle of the game under pressure from EUROFER.

Demand recovers in ferrous scrap market

On the other hand, demand in the ferrous scrap market has recovered and the raw material inventories that were depleted have had to be rebuilt as the markets have been opening up after the lockdowns. Activity has been general and has taken the markets by surprise.

Stimulus packages and normalization procedures provide a boost

Stimulus packages around the world are acting as fuel. There are concerted efforts to avoid a U- or L-shaped economic rebound, with a V-shaped rebound being what the financial markets are seeking. Finally, normalization procedures have been initiated in many countries. The automotive sector is back in business in various countries, e.g., in the US, EU and Turkey.

China’s recovery a very important factor

China has acted as a powerhouse in the past month for commodities. Industrial activity in the country returned to normal in May. The quick return of Chinese companies to the market and China becoming an importer have been very positive factors.

Japanese production cut is good news for other exporting countries

Japanese mills have announced a production cut of approximately 20 million mt, which of course is not a positive development for them but does represent good news for other exporters in the global market.

Difficult to talk about the existence of a global market nowadays

We cannot really talk about the existence of a global market nowadays. There will be 100 percent self-sufficiency in Asia in the medium term and then exporters will be wandering in search of the next market. Every producer outside of China is struggling with insufficient volumes and, under such circumstances, competition can come from anywhere at any time. The mills in many countries have to follow what the Russian mills are offering in the market and then to decide whether they can compete.

Future remains very much uncertain but some signs of optimism seen

The current status of the market is clearly unstable. The markets are still assessing the damages from the Covid-19 pandemic and the future remains very much uncertain. But at least investors and industries are showing optimism.

Source: Irepas

“Green” steelmaking was a key theme of this week’s Bureau of International Recycling (BIR) ferrous webinar.

Renate Featherstone, Principal Analyst – Multi-Commodity Research at Wood Mackenzie, explained that steelmaking accounts for as much as 10% of global carbon emissions. Producers are therefore under mounting pressure to adopt an environmentally cleaner approach.

“The first logical step to reducing emissions when demand is growing is to recycle and reuse all available scrap,” she stated in the webinar monitored by Kallanish. “Only when we maximise scrap use do we significantly reduce overall virgin iron production and get emissions closer to government targets. This is why scrap is so important.”

Although integrated steelmaking “…will remain the main source of steel in China over the next two decades,” Featherstone predicted, electric furnaces’ share in global steelmaking could rise to 30% by 2026. This could then grow to 34-35% by 2040, potentially heading as high as 52% outside of China and India in two decades from now.

Featherstone said global crude steel production was likely to take “…at least five years” to recover to 2019 levels. Demand in China is forecast to fall only -1% in 2020, “…much better than people thought at the beginning of the year.” A slump of -16% is anticipated for the rest of the world.

George Adams of US-based scrap merchant SA Recycling contended that the scrap use hike projected by Featherstone would apply significant downward pressure on iron ore prices. This could encourage iron ore’s use in steelmaking.

Zain Nathani of the Nathani Group, meanwhile, acknowledged that some of India’s leading steelmakers had been exporting substantial tonnages of semis to China during the lockdown. However, he believed this was unlikely to develop into a long-term trend.

The huge environmental contribution of the ferrous scrap recycling industry was further stressed by BIR divisional Statistics Advisor Rolf Willeke. An estimated 630 million tonnes of steel scrap are recycled every year, preventing nearly 950mt of annual CO2 emissions that would have come from the production of virgin steel. This also saves energy and conserves natural resources, he pointed out.

Although Turkey remained the world’s leading steel scrap importer in 2019, its overseas purchases fell -8.7% on-year to 18.86mt, Willeke observed. India took second place with a 11.4% rise to 7.05mt. Also last year, the EU-28 remained the world’s leading steel scrap exporter, growing its outbound shipments by 0.6% to 21.79mt, whereas global external steel scrap trade – including internal EU-28 trade – dropped -5.8% to 100.4mt.

The debate continues over the European Commission’s proposed review of safeguard measures, Kallanish notes. In an open letter, Eunipra, the association for European non-integrated wire processors, strongly attacked the latest request by Eurofer to slash imports into the continent.

“As the representative of this user industry, Eunipra fundamentally opposes the extravagantly protectionist measures advocated by Eurofer in response to the Covid-19 pandemic which have no other purpose than bluntly seeking to shield the European market from all imports of steel products by adjusting the safeguard quotas in ways that are incompatible with basic EU and WTO principles,” the letter says.

Eunipra stresses that the EU steel sector is supported by steel users and processors that need a diversified flow of material. The association also points to the need to secure the viability of non-integrated processors in a market in which large steelmakers are consolidating further downstream to compete directly with processors.

The association also argues that Eurofer is using the threat imports pose to investment into less-CO2-intensive steelmaking as leverage in its push for lower quotas.

“The current safeguard measures in place serve a very specific goal: to protect the European market from increasing imports and trade distortions stemming from Section 232 of US tariffs on steel and aluminium,” Eunipra reminds. “There is clear consensus that the EU has a vital role to play in setting sustainable targets. However, safeguard measures are not the appropriate tool. The EU should use a comprehensive set of carefully balanced rules that will lead to a successful transition to carbon neutrality that is fair, sustainable and allows all the industrial operators in the steel industry to remain globally competitive.”

While non-integrated wire processors voiced their opposition to the latest requests by Eurofer, the Italian member of the European Parliament, Massimiliano Salini, issued a statement supporting steelmakers. He says he hopes the European Commission will review again its latest proposal. Salini was earlier this year the first signatory of a letter to Ursula von der Leyen to urge the Commission to cut steel imports in the continent.

Weglokoks has come to an agreement with PKO BP bank that will pave the way for the coal exporter to acquire the production assets of its stockist and fabricator subsidiary Huta Pokoj. The bank is one of Pokoj’s main creditors.

“This means the path has been opened to restructuring the unit, and also to saving jobs at the plant,” Weglokoks is quoted as saying by Polish media. Once the agreement is finalised, a part of Pokoj’s production assets’ debt will be paid and the way will be paved for future investments in the firm. Current production will not be affected, the coal exporter added.

Weglokoks’ spokesman did not respond before deadline to requests for confirmation.

Last week Pokoj’s unions carried out protests against the management’s handling of the firm. They wrote a letter to Polish Prime Minister Mateusz Morawiecki requesting him to partake in discussions with union representatives. They had previously called for his intervention last August (see Kallanish passim). Last week they again blamed government inaction for allowing imports of coal from Russia and steel from the East to damage domestic industry.

Last December unions secured an agreement with Weglokoks to maintain production and procure feedstock. Weglokoks was then supposed to buy out the remaining shareholders in the firm by end-February 2020; however, this did not happen. Huta Pokoj owes Weglokoks almost PLN 180 million ($42m) and a further PLN 52m to PKO BP. Pokoj and its workers previously reached an agreement with Weglokoks last September for internal restructuring and debt relief.

The meeting between Italian government and ArcelorMittal Italia union representatives over the steelmaker’s future was considered “…inconclusive and a let-down,” union sources tell Kallanish. A new meeting has been scheduled for next week.

The latest industrial plan submitted by ArcelorMittal has been judged unacceptable by economic development minister Stefano Patuanelli. In a note seen by Kallanish, union representative Rocco Palombella says ArcelorMittal submitted “…a liquidation plan, not [a plan for] the relaunch of the plants, which implies an environmental and employment disaster… It is a plan to earn some time to get to the end of the year when, by paying only €500 million, they [ArcelorMittal] will be able to leave.”

At present, 8,200 workers in Taranto are on temporary layoffs, Palombella continues. Taranto employs over 10,000 workers.

Meanwhile, Federacciai president Alessandro Banzato has expressed his full support for the government. In an interview with local paper La Stampa, Banzato welcomed the possibility of government participation in the matter but only with defined timing and with the view to return Ilva to a private entrepreneur.

“Until Taranto belonged to a private entity, the Riva family, it had a positive cash flow,” he said. “Therefore, I insist: a public intervention is welcome at this stage – better if in a partnership with players from the steel sector – but with a defined time schedule and with the guarantee that the company will go back to a private entity.”

The Fiom Fim and Uilm unions have been on a 24-hour strike starting on 9 June in all facilities of ArcelorMittal Italia. The strike was a protest against the company’s new industrial plan that involves massive job cuts and delayed investments (see Kallanish passim).

Drawing attention to the increase seen in protectionist moves by governments globally, International Rebar Producers & Exporters Association (Irepas) said in its latest short-range outlook that these moves accelerated the shrinkage in the global longs export markets, but some optimism has begun to be seen in recent weeks amid normalization efforts globally.

“The EU opened fire with an antidumping investigation on HRC imports from Turkey, with Turkey firing back with duties on steel products from the EU. Canada started a similar investigation against imports of heavy plates from several countries, while Egypt has been working on a 10 percent duty,” Irepas said, adding that accordingly, the world market is shrinking further and Russian mills are taking the lead and dominating the market. “It will be a real game of survival for a while and the cost of production is the key.”

While prices are heading up, particularly in Asia, consumption in the global long steel products market seems very uncertain, but on the bright side, despite the impact of the Covid-19 pandemic, the World Steel Association (worldsteel) in its recent report still foresees an increase in steel demand in China in the current year, predicting a rise of 1% from 2019 to 916.5 million mt, Irepas noted.

“This helps restrict the fall in global steel demand in 2020 to an anticipated drop of 6.4%, whereas demand in the rest of the world excluding China is foreseen to contract by 14.2% compared to 2019. Meanwhile, market players are hoping that June and July will be months of stabilization before a recovery later in the year,” the association said.

Drawing attention to the low demand conditions and bearish pricing sentiment in the EU region, Irepas said: “The biggest threat for importers is the ongoing discussions in Brussels on the reevaluation of safeguard measures. The EU is once again changing the rules in the middle of the game under pressure from Eurofer.”

Meanwhile, demand in the ferrous scrap market has recovered and raw material inventories that were depleted have had to be rebuilt as the markets have been opening up after the lockdowns, Irepas said.

Turkish imported scrap prices hit a two-month high at $258.25/mt CFR on June 4 with fresh US and EU cargoes. Prices have remained strong since then. S&P Global Platts assessed Turkish imports of premium heavy melting scrap 1/2 (80:20) at $260.50/mt CFR on June 8, up a further $0.50/mt on day.

Stimulus packages around the world are acting as fuel; there are concerted efforts to avoid a U- or L-shaped economic rebound, with a V-shaped rebound being what the financial markets are seeking, and finally, normalization procedures have been initiated in many countries, as the automotive sector is back in business in various countries, for example in the US, EU and Turkey, Irepas noted.

“The current status of the market is clearly unstable. The markets are still assessing the damages from the COVID-19 pandemic and the future remains very much uncertain. But at least investors and industries are showing optimism,” the association concluded.

— Cenk Can