Category: Latest Updates

In an environment of Covid-19-induced commercial extremes, the fall in UK construction activity in April 2020 will take some beating. In the latest survey by IHS Market/CIPS monitored by Kallanish, around 86% of the survey panel reported a fall in activity since March. There were rapid falls in all main areas of construction activity and new orders slumped as clients froze spending plans.

The headline seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index fell from 39.3 in March to 8.2 in April, to signal a rapid downturn in overall construction output. Moreover, the latest reading was the lowest since data were first collected in April 1997. The previous record low was 27.8 in February 2009. It must be remembered that any figure below 50 signals a negative trend.

The total activity index was not the only record low caused by the coronavirus pandemic. All three main categories of construction work experienced a survey-record fall during April, with the steel-intensive commercial sector registering an activity index of just 7.7. The latest lengthening of average lead times for the delivery of construction products and materials was by far the steepest since the survey began in April 1997.

New business volumes fell at a rapid pace in April, with the downturn by far the steepest recorded in more than two decades of data collection, Markit/CIPS says.

Business expectations for the year ahead dropped slightly since March and equalled the survey-record low seen in October 2008. Construction firms widely noted concerns beyond simply reopening sites, including cash flow difficulties across the supply chain, rising costs and severely reduced productivity.

There could be more steel output cuts in May as lockdowns will probably continue until June, says the International Rebar Exporters and Producers Association (Irepas). Industrial activity will be low and demand for steel limited, although Europe and the US could reopen gradually this month.

Steel production will, however, probably recover quicker than demand, which may put pressure on pricing in the market in the second quarter. “There is oversupply of almost everything, except those items that suddenly end up being in short supply due to impacts on the supply chain,” Irepas says in a note sent to Kallanish.

Scrap-based steel industries seem to have fared better during the crisis, with long steel production continuing. Scrap availability has been heavily reduced during the lockdown period.

China opening up and economic stimulus activities throughout the world will buoy markets for some time when reopening takes place, Irepas says. “China is recovering rapidly, mainly in the construction sector, which is boosting the demand for rebar and billet,” the association observes. “Chinese steel exports are still under control. In fact, Chinese companies are active in the market importing billets.”

The EU economy is likely to experience a depression after the lockdown, with numerous insolvencies taking place as banks and credit insurance companies are not able or willing to lend cheap money and maintain coverage limits. Unemployment in the bloc could return to 2008-2009 levels. However, the region’s construction industry is still doing fine.

In the US, suppliers are willing to sell even at cost level in order to continue operating. Domestic prices are similar to prices of imports from Mexico or Canada, and cheaper than those from countries subject to Section 232 duties. Construction in the US was slow in April and it looks like May will see only a minor improvement.

“Oil prices have sunk to historic lows, creating a serious negative outlook for the whole steel pipe and oil tool manufacturing industry,” Irepas comments. “Many companies are expected to downsize or to become insolvent in the US oil-producing states, particularly in Texas. This will negatively affect commercial building, housing construction and even auto manufacturing in the US.”

ArcelorMittal Italia is restarting some cold rolling mills in Taranto as 630 workers that had been temporarily laid off are resuming normal working hours starting on 11 May, Kallanish learns from union sources.

The company is boosting production to complete orders received before the lockdown. The plate mill will be restarted for one month approximately together with the pickling facilities on 11 May and two galvanizing lines that will be operational starting on 14 and 18 May. The strip mills will be idled for 2 weeks for maintenance works. Depending on new orders all equipment will be gradually restarted, a union source says.

In a release sent to Kallanish, the Italian unions express concern however regarding the closure of ArcelorMittal’s southern French plant in Fos-sur-Mer. The site is idling its second blast furnace due to a collapse in orders (see Kallanish passim). The 2,500 workers at Fos-sur-Mer fear that the temporary idling of the mill will become permanent as happened in the past for the other French site in Florange, the Italian trade unions suggest. Two third of the production from Fos-sur-Mer goes into the Italian and Spanish markets. Fos supplies ArcelorMittal’s rolling mills in Aviles in Spain and in Genova, Conegliano and Novi Ligure in Italy, the release says.

Considering the Covid-19 emergency and the deteriorated global steel market, the unions are asking for a meeting with the Italian authorities regarding the future investments and the industrial plan to relaunch Taranto. The unions fear that the current negotiations between the Italian government and ArcelorMittal may reach a breaking point. Questions to ArcelorMittal in Italy from Kallanish on the matter remained unanswered by publication deadline.

European hot-dip galvanized coils dropped Wednesday with demand from automotive sector slow to return, sources told S&P Global Platts.

A Nordic-based buyer said if the automotive industry continues to restart gradually, prices would fall.

“If the automotive industry continues at this low pace, prices will drop further – production is not at the same momentum as it will be before coronavirus,” he said. “Who’s going to want to own a car at this point? But they [car manufacturers] need to keep on producing – it’s expensive – I think that we are talking about a number of millions losing every single month that they are not producing. People are already holding their orders back and not going through with the ones that they have,” he added.

A German distribution source said the automotive was enduring some structural problems.

“West European mills are looking to jump back into a normal market – but consumption is down,” he said. “Every end user is afraid of their salaries being cut, no one wants to buy a car right now. The automotive needs government help, between €3000-€4000 per ton. The export automotive market will also suffer because coronavirus is everywhere.”

A car-buying incentive scheme would be required to stimulate sales in the coming months, a second German steel distributor said.

“The automotive companies are back but at only one out of three shifts and the general public will need cash incentive to consider buying a car now,” he said.

Environmental groups would likely push that any government funded incentives would favor electric/hybrid vehicles in order to accelerate the transition away from gasoline or diesel vehicles, the source said.

One Italian mill source said there was “more pressure” on hot-dipped galvanized steel given restarts from the automotive industry have been slow to pick up, and mills eager to get rid of rising stocks.

“Mills are really trying to sell this product, the forecast is that in the second half of 2020 things will be more difficult and prices will drop further,” he said.

An Italy-based service center manager said that demand in HDG would increase after the lockdown in April saw demand plunge, but longer longer term the sector would struggle.

“Coming from a level of zero in April, automotive demand will increase,” he said.

Demand for HDG from the construction sector would increase going forward as governments increase infrastructure spending to create jobs in Europe, the source said, adding that he was looking for HDG to drop under Eur500/mt basis EXW Southern Europe in the short term.

The Platts TSI HDG index was assessed at Eur545/mt ex-works Ruhr Wednesday, a decline of Eur15 week on week.

In Southern Europe, HDG was assessed at Eur505/mt ex-works S. Europe, slipping Eur5 week on week.

— Len Griffin, Amanda Flint

Swiss long steel producer Schmolz + Bickenbach (S+B) is exploring more government aid to combat a slump in orders caused by coronavirus and will drive restructuring further by closing Ascometal’s Dunkirk rolling mill, CEO Clemens Iller said Wednesday.

On a Q1 results call, Iller said the company had seen a recovery in orders this year but that this was halted from the second half of March, with no pick-up expected in the first half of this year.

“COVID-19 came at the wrong moment for us,” he said.

Before the pandemic hit, S+B’s order book was improving but it started to see customers increasingly reschedule orders from late March, which will have even more of an effect on its Q2 results.

The company introduced short-time working measures across the production network, which entails reduced working hours and government support for workers’ wages.

However, it will need more financial support on short-term liquidity protection measures and is now looking into public loans and other government support.

The already in place restructuring plan will continue with the closure of Ascometal’s Dunkirk rolling mill in France by mid-March. The closure will save S+B Eur8 million per year, according to Iller.

Germany-based Deutsche Edlestahlwerke will also see reductions in functions, while US-based Finkl Steel — heavily affected by the oil price slump — will see restructuring of its sales organization.

“From our current perspective, we do not expect a gradual normalization of demand to set in until the end of the first half of 2020 at the earliest, with a possible continued recovery expected in the second half of the year,” the company said.

Sales volumes dropped 17.1% year-on-year to 457,000 mt in Q1. The fall is primarily attributable to decreasing sales volumes for quality and engineering steel, which were down 21.0 % on the back of the sharp drop in demand from the automotive industry. Sales volumes also decreased in stainless steel and tool steel, but with less sharp declines of 3.2 % and 10.8% respectively.

Crude steel production was down 11.3% year on year to 525,000 mt in Q1 and the order backlog droppped 24.5% to 431,000 mt.

Base prices are under pressure said S+B with soft demand and increasing competition in the quality and engineering steel segment particularly, while lower alloy surcharges also contributed to weakening prices.

Average sales prices of quality and engineering steel dropped 13.5% year on year in Q1 to Eur915/mt, while tool steel saw a 7.1% decrease to Eur2,867/mt. Stainless steel sales prices dropped slightly, by 0.3% to Eur3,101/mt.

— Laura Varriale

Drawing attention to the 50% rise seen in Turkey’s steel imports in the first quarter – while Turkish mills’ steel exports to the EU region slumped 47% on year – the Turkish Steel Producers Association (TCUD) called upon the Turkish government to impose similar retaliatory duties against EU steel based on the reciprocity principle, saying Eurofer’s recent demand to reduce the EU quotas by 75% due to COVID-19 outbreak has raised the concerns further among Turkish producers.

“We are hoping that the EU’s negative attitudes will not be left unanswered this time,” the TCUD said at a statement sent to S&P Global Platts Wednesday.

Turkey has increased import duties on some finished and semi-finished steel products for a three-month period to protect production and employment in the domestic steel industry during the COVID-19 pandemic, as Platts has reported.

“For the success of these regulations, hopes rise that imports made with zero custom duty within the scope of free trade agreements and inward processing regime will be also brought under control with new measures,” the TCUD said.

According to the latest TCUD data, Turkish mills’ March crude steel output was up by 4.1% year on year to 3.1 million mt. Turkish crude steel output, thus totaled 9 million mt in the first quarter, up 9.6% on year as domestic steel consumption rose 42.3% on year in Q1 to 7.7 million mt.

The significant rise in Q1 steel consumption was mostly satisfied by imports, as Turkey’s overall steel imports rose 33.3% on year to 3.6 million mt.

Turkish mills’ overall steel exports, however, fell 11.6% to 5.1 million ton in that period, while the revenue generated from these exports also declined by 14.4% to $3.6 billion, according to the TCUD.

As the coronavirus outbreak significantly pulled down demand in Turkey as of mid-March and steelmakers and especially longs producers have reduced and even temporarily paused their output one after another in April, a significant decline in Turkish steel output is expected to be seen in fresh data.

According to Ugur Dalbeler, CEO of major Turkish steel producer Colakoglu, Turkish mills’ steel exports shrunk by 25% in April, while mills’ capacity usages fell as low as 45% in a sluggish market. In a television interview, Dalbeler also said due to the shrinkage in domestic and export demand and import pressure, the second quarter could be also difficult for Turkish producers.

— Cenk Can

Polish steel billet, bar and rebar producer Cognor said Tuesday that it may have to adjust production and reduce billet sales this year if coronavirus-induced difficulties and electric arc furnace (EAF) mill cost inflation continue, although it added that it operated at full capacity in the first quarter.

Cognor expects difficulties caused by the coronavirus to continue into the next quarters and potentially necessitate adjustment to the company’s production to match the quantity of profitable sales.

The steelmaker said it faced a series of challenges in Q1, including the task of diverting its activity from the automotive business — severely hit by social contact restriction measures — toward less profitable sales areas. It also implemented organizational changes to protect employees from the infection, while making sure its facilities run without disruptions amid increased staff absence.

However, the company said it maintained full production capacity utilization in the first quarter and achieved a net profit of Zloty 2.8 million.

Cognor said its Q1 result came against the backdrop of 10% and 19% year-on-year falls in the EU and Poland’s respective steel outputs.

In January-March, the steelmaker reduced its production by 2.3% year on year to a little over 180,000 mt, while its 211,137 mt combined shipments of scrap, billets and rolls were up by 4.8%.

The prices for scrap, billets and most of its finished products decreased and conditioned an 11.5% year on year drop in the company’s Zloty 460 million revenue. Q1 EBITDA, however, improved by 14% to Zloty 30.5 million and EBITDA margin rose to 6.6%, up from 5.2% in Q1 2019, thanks to high rolled steel shipments. These grew 11% quarter on quarter and 11.5% year on year to 137,010 mt or 65% of the total.

EAF steel advantage faltering

The feedstock cost position of EAF producers compared with blast oxygen furnace (BOF) mills remained positive in Q1, but there are indications of gradual deterioration in that regard, the company said.

The current trend manifests itself in a faster scrap price increase as compared to the increase in the cost of BOF input materials and, if this continues, EAF-based manufactures may lose their competitive advantage and sell at least less unprocessed steel (e.g. billet) as a result.

Next year, Cognor said it expects that under an act by the Polish parliament providing for financial aid to large carbon dioxide emitting companies, meant to partially compensate them for the increase in CO2 emission allowance prices, it will be eligible for a total of Zloty 10 million in compensation for its CO2 rights expenses over 2020.

— Ekaterina Bouckley

The four leading European associations representing the full automotive supply chain, from equipment and tire suppliers to vehicle manufacturers, dealers and workshops, is proposing a 25-point plan to ensure the automotive sector and the economy at large restart in a robust manner.

In the document seen by S&P Global Platts, the associations underlined the importance of a coordinated relaunch of industrial activity (in line with public health guidelines) in order to maintain the necessary liquidity for businesses and to lay the foundations for economic recovery, primarily by triggering vehicle demand and investment in the latest technology and innovation.

As part of the 25-point action plan, the sector is calling for coordinated renewal schemes for all vehicle types and categories across the EU, as this will help to boost private and business demand, support economic recovery across the board as well as accelerate the rejuvenation of the vehicle fleet on Europe’s roads.

“Purchase and investment incentives should be based on similar criteria across Europe, drawing on both national and EU funding,” the associations said. “Such schemes should be enhanced by scrapping premiums, and should take into account society’s climate ambitions and resource-efficiency objectives in concert with the economic impact.”

The European automotive sector has been hit particularly hard by the coronavirus pandemic, with most activities in the sector suspended for several weeks. Many in the sector are under significant economic stress and in need of government support.

Eric-Mark Huitema, director-general of ACEA, the automobile manufacturers’ association, stressed the need for a “coordinated relaunch of industrial and retail activity, with maintained liquidity for businesses.”

“Targeted measures will need to be taken to trigger demand and investment,” he said. “Demand stimulus will boost the utilization of our manufacturing capacity, safeguarding jobs and investments.”

The document was signed by ACEA, as well as CECRA, the European federation that represent the interests of the motor trade and repair businesses; CLEPA, the European Association of Automotive Suppliers; and ETRMA, the European Tyre & Rubber Manufacturers Association.

Automotive is a key industry for steel and aluminium producers, with a turnover that represents over 7% of EU GDP and that generates a trade surplus of €84.4 billion for the EU.

— Annalisa Villa

The southern European import market for HRC has steadied in terms of prices this week, Kallanish learns from sources. Nevertheless, uncertainties linked with the ongoing review of safeguard measures are creating problems.

Since mid-last week, new import offers from both India and Turkey have stabilised at some €390-400/tonne ($423-434/t) cfr South Europe for HRC. “Buyers have ordered quite well from import sources during recent weeks, now the market has calmed down again,” a trader notes. Lower prices were heard in mid-April, but these were only available to large purchasers such as tubemakers.

It is understood that buyers are now wary of taking risks as the ongoing review related to safeguard measures could well impact new tariff-free quotas available from beginning of July. “We have sold some quantities of material already available at the docks, new orders could be a little risky until more clarity is given on the safeguard quotas,” a source says.

During the last month Eurofer has lobbied the European Commission to lower tariff-free quotas by as much as -75% for the coming quarters. It has also requested that quotas be calculated quarterly for all products and that the 30% cap applied earlier to large importers of specific products be further reduced.

“I know Eurofer has to support European steelmakers, but I don’t understand why such restrictive measures should be considered now, when the entire supply chain is suffering. In a normal business environment, I can understand that steelmakers try to protect their business, but now a change in the safeguard would harm many other businesses, including importers already expecting material to arrive in Europe,” the trader adds.

As the coronavirus outbreak required implementation of quarantine measures In Germany, distribution group Klöckner & Co has been able to transfer its office jobs to remote working.

The “… immediate switch to home office and the ability to collaborate digitally,” is a result of the company’s efforts to step up digitalisation in recent years. It could keep almost all sites in Europe active. Ceo Gisbert Rühl believes therefore that the particular crisis situation “… has created a leading edge [… for the company] over competition.”

Klöckner has been affected by the shutdown, and saw sales drop by some -30% in April, Rühl said during a conference call attended by Kallanish. In the first quarter of the year, business had not yet been affected by Covid-19, but was nevertheless suffering from the overall economic slowdown.

Revenues in Q1 decreased by -15% to €1.4 billion ($1.5 billion) due to lower volumes and prices, on shipments that fell -9% to 1.365 million tonnes. Operating income (Ebitda), at €21 million, was within the guidance range of €20-30m but significantly below the prior-year figure of €34m. Net income was likewise lower, with a loss of €21m compared to a loss of €10m in the prior-year period.

For the second quarter Klöckner expects a further considerable decline in shipments and sales with the coronavirus epidemic dominating the picture. The company believes however that it is well positioned to face the pandemic and that the measures taken will enable it to emerge stronger from the crisis.