Category: Latest Updates

The announcement by Tata Steel Europe (TSE) last week on planned job cuts in its European operations was not unexpected although the reaction by trade unions has been. The move has been condemned by unions in both the UK and the Netherlands as the steelmaker was criticised for not yet having supplied more details about exactly where the cuts will be made.

The Unite trade union in the UK tells Kallanish that TSE needs to reconsider its strategy for performance improvement. A unite official says “… we don’t believe that job cuts are the answer – what top executives need to examine is reversing years of underinvestment. Unite is supporting the European Works Council (EWC) in demanding that the company reconsider its plans and come back with a robust and comprehensive set of proposals that can be discussed in a constructive manner.”

The UK’s GMB trade union has been more forthright and its language more volatile. Its national officer Ross Murdoch says in a statement sent to Kallanish, “We demanded no compulsory redundancies up to 2021 and TATA confirmed they will adhere to this. We made it clear when the proposed venture with ThyssenKrupp ended, that any revised strategy for the business needed to be underpinned with long-term investment, not a short-term slash and burn. This plan falls into that latter category.”

TSE employs 8,500 people in the UK and 11,000 in the Netherlands. The total European workforce numbered 21,000 in 2018. The company’s latest move is expected to lead to an estimated reduction in employee numbers of up to 3,000, about two-thirds of which would be management and office-based roles. Up to 1,600 job losses are expected in the Netherlands, 1,000 in the UK and 350 elsewhere in the world.

Steel consumption in the Middle East and North Africa, excluding Iran, should rebound 2% on-year in 2020 to 41 million tonnes after dropping -7% in 2019 to 40mt, the Arab Iron & Steel Union (AISU) says in a newly-released report.

MENA economic growth has slowed in 2019 due to lower oil prices, continued military operations in Syria and Yemen, and the delay of reconstruction projects in Iraq and Syria, AISU said. This is despite economic reforms being carried out, which include reduction of government energy subsidies, application of VAT, and diversifying away from oil dependence.

Gulf Cooperation Council steel consumption is expected to decline -8% on-year in 2019 to 16.4mt before rebounding 1% next year to 16.5mt. An increase in imports into the region led to the initiation by the GCC of a wide-ranging steel safeguard investigation in October (see Kallanish passim).

The GCC’s largest steel consumer, Saudi Arabia, is expected to see economic growth of only 0.5% in 2019 due to lower oil prices, reduced government spending, and construction sector slowdown. Steel consumption will fall -7% this year to 7.3mt before rising 2% in 2020 to 7.5mt.

United Arab Emirates economic growth is seen at 2.2% in 2019, affected by lower oil prices and weak construction activity following the completion of Expo 2020 projects. Growth should improve next year with increased government spending. Consumption has slumped -12% in 2019 to 5.3mt and is seen falling a further -7% next year to 4.9mt.

North African economic growth is seen slowing to 3.6% in 2019 from 4.2% last year due to instability in Libya and lower agricultural production in Morocco. Consumption will fall -7% in 2019 to 18.5mt before rising 5% next year to 19.4mt.

In Egypt economic growth will accelerate in 2020 to 5.6% from 5.3% this year. Steel was hampered by low liquidity and slow large project implementation in the first half of 2019 but the second half should improve with faster projects’ implementation. Consumption will fall -6% in 2019 to 9.5mt but rise 4% next year to 9.9mt.

Algerian consumption is seen falling -9% in 2019 to 4.8mt before rising 4% next year to 5mt.

The Milan tribunal’s ruling on ArcelorMittal’s right to withdraw from the acquisition of former Italian steelmaker Ilva has been postponed from 27 November to 20 December, Kallanish learns from sources close to the matter.  

This move aims to give the government and ArcelorMittal Italia more time to carry on negotiations and reach a deal on the future of former Ilva’s plants.

ArcelorMittal Italia and the government have reopened negotiations to create a new industrial plan for Ilva (see Kallanish 25 November). In the meantime, Prime Minister Giuseppe Conte announced that the company will maintain normal operations at the plants and continuity of production until 20 December.

Minister of Economic Development Stefano Patuanelli told local press the government is discussing an intervention to guarantee the future of Ilva through state-funded subsidiary Invitalia.

The recent grant of approval from the Indian Supreme Court for ArcelorMittal’s acquisition of Essar Steel brings an end to years of legal wrangles, giving the global steelmaker access to a much sought-after market, and allowing the Indian steel sector to take a further step toward health.

ArcelorMittal has been keen for some time to break into the domestic Indian steel market because it is one of the few parts of the world where it does not have steel production assets. It has previously described the acquisition as presenting a unique opportunity “to establish a significant footprint, with substantial expansion potential, in the high-growth Indian steel market.”

The company had earlier announced plans to build an integrated steel plant in the Indian state of Odisha with capacity for 12 million tonnes per year, but these were scrapped in 2013 because it was unable to obtain land and secure iron ore supplies.

Along with the Essar takeover, ArcelorMittal is working on a joint venture to produce steel for the automotive sector with state-run Steel Authority of India (Sail).

Essar Steel is an integrated steel mill with capacity at its steel works in Hazira, Gujarat, to produce 10 million tpy of hot-rolled, cold-rolled and galvanized flat steel products, steel plates and steel pipes, which are sold mainly through domestic sales channels. It also owns an iron ore mine in east India.

But a bottleneck in the company’s steelmaking and casting systems means that its maximum achievable crude steel production is currently 6.10 million tpy, according to ArcelorMittal.

This latest purchase of a bankrupt steel mill continues to improve the health of the Indian market, which has faced several insolvencies of steelmaking assets.

The resolution plan for Essar Steel India Ltd (ESIL) by ArcelorMittal subsidiary ArcelorMittal India Private Ltd (AMIPL) was unconditionally approved by the Indian Supreme Court on November 18 this year. It was the final procedural step in ESIL’s corporate insolvency process. Completion of the transaction is now expected before the end of the year.

ArcelorMittal announced its takeover bid on February 12, 2018, and won the bid on October 26 in the same year.

After completion, ArcelorMittal will own and operate Essar in a joint venture with Nippon Steel & Sumitomo Metal Corp (NSSMC).

“India is one of the most promising markets in the world, with significant growth potential in the medium and long terms, and where domestically produced steel products have a superior position,” NSSMC said.

But the takeover process has taken several years. It began in August 2017 when India’s National Company Law Tribunal (NCLT) approved the commencement of insolvency proceedings against Essar Steel , after the steelmaker said that it was unlikely to be able to pay off debts totaling 450 billion rupees ($6.3 billion) within the following 25 years.

ArcelorMittal had submitted a detailed plan during its bid to address operational issues in Essar Steel’s existing asset base, which include its output limitations.

Part of ArcelorMittal’s plan is to increase ESIL’s finished steel shipments to 8.5 million tonnes over the medium-term, with a long-term aspiration for shipments of 12-15 million tonnes through the addition of new iron and steelmaking assets, although no timeframes were given for this work.

It includes an upfront payment of 420 billion rupees toward ESIL’s debt, with a further 75 billion rupees to support operational improvement, increase production levels and deliver enhanced levels of profitability.

The continuing consolidation of the Indian steel industry is a “right step” in restoring growth and credibility to the domestic markets, Nathani Group’s Zain Nathani, and vice-president of Bureau of International Recycling ferrous division,  said at the BIR World Recycling Convention & Exhibition in May this year in Singapore.

He added that bankrupt mills such as Bhushan Steel, Monnet Ispat & Energy, Essar Steel and Usha Martin have all found new owners, which is a positive development for the Indian steel industry. Tata has acquired Bhushan Steel and Usha Martin, while Monnet Ispat & Energy is owned by a JSW Steel-led consortium.

“While finished steel and ferrous scrap prices [in India] are still volatile, the consolidation of the industry will start prices moving in a more positive direction and continue so for the rest of the year,” he said in May.

The price of steel scrap shredded, index, import, cfr Nhava Sheva fell continuously from July 12 at $319.09 per tonne to $251.81 per tonne on September 27, before staging a recovery in October in November, averaging $283 per tonne during November.

Other companies which expressed interest in Essar included Tata Steel, which is hoping to move toward its goal of doubling its steelmaking capacity in India. It purchased Bhushan Steel in 2018 , boosting its production capacity by 5.6 million tpy.

The restarting of idled steel capacities in the country as a result of the new ownerships will help the Indian government’s plans to curb scrap imports and boost reliance on domestic supplies .

The country has ambitions to achieve steel output of 300 million tpy by 2030-31, compared with output of 106.5 million tonnes of steel in 2018, a figure which was itself up by 4.9% year on year.

India’s Ministry of Steel is seeking to establish a network of recycling centers to collect and process ferrous scrap. This comes as Tata Steel expands its domestic recycling policy by creating the first steel recycling plant in the country.

Timeline of events
February 12, 2018
ArcelorMittal subsidiary AMIPL submits first bid and resolution plan for Essar Steel India Ltd (ESIL), in line with the corporate insolvency resolution process for Essar.

March 2, 2018
ArcelorMittal announces a joint-venture agreement with NSSMC to acquire ESIL.

March 23, 2018
Bids for Essar by new company Numetal, a consortium with Russia’s VTB Bank and a member of the Ruia family, who founded the Essar Group, and Arcelormittal are both rejected for violations of the Insolvency and Bankruptcy Code (IBC), intended to prevent those with links to a defaulting party from bidding to reacquire the same assets in the insolvency process.

ArcelorMittal challenges this at NCLT.

April 2, 2018
ArcelorMittal submits offer in re-bidding process for ESIL, with joint-venture partner NSSMC.

September 8, 2018
The National Company Law Appellate Tribunal (NCLAT) rules that both Numetal and ArcelorMittal are eligible to bid after they challenge each other’s eligibility.

Numetal is required to cut ties with Rewant Ruia, a person with family links to the founders of the Essar Group, as part of the consortium with Russia’s VTB Bank, while ArcelorMittal must clear unpaid debts related to Uttam Galva and KSS Petron.

September 10, 2018
ArcelorMittal submits revised proposal for acquisition of ESIL.

September 18, 2018
ArcelorMittal and Numetal take to their bidder eligibility challenges against each other to the Indian Supreme Court.

October 4, 2018
The Indian Supreme Court rules that ArcelorMittal and Numetal can both bid for Essar if they pay the outstanding debts connected to them within two weeks.

October 17, 2018
ArcelorMittal approves a payment of 75 billion rupees to clear overdue debts so that the offer submitted for ESIL on April 2, 2018, is eligible and can be considered by ESIL’s Committee of Creditors (CoC).

October 19, 2018
ArcelorMittal is selected as preferred bidder for ESIL by the CoC.

October 26, 2018
Essar Steel’s CoC votes to approve ArcelorMittal’s acquisition of Essar Steel. The company is issued with a Letter of Intent stating that it has been identified as the successful applicant. ESIL’s CoC has now approved ArcelorMittal’s resolution plan for ESIL.

March 8, 2019
ArcelorMittal’s resolution plan for Essar Steel approved by NCLT.

May 8, 2019
Appeal launched by an Essar Steel shareholder, Prashant Ruia, against ArcelorMittal’s bid on the grounds that the company is not eligible due to unpaid loans of a business linked to a family member.

July 4, 2019
NCLAT rejects the appeal against Essar Steel’s sale to ArcelorMittal.

November 18, 2019
Indian Supreme Court approves ArcelorMittal’s acquisition of Essar Steel.

En el siguiente enlace pueden acceder a la edición de Noviembre de nuestra revista: Infoacero noviembre 2019

A continuación destacamos algunos de sus contenidos:

1. Opinión – D. Sergio Cobos de Castro – Presidente Zona VII -Miembro Junta Directiva de  la UAHE. 
2. Evolución del Índice de Precios de Productos Siderúrgicos – UAHE.
3. Siderurgia: Previsión Evolución del Mercado Siderúrgico Europeo 2019-2020. Consumo Real y Aparente – Eurofer
4. Información Asociativa:  Reunión en Zaragoza de la Unión de Almacenistas de Hierros de Aragón y Soria- 14 de Noviembre
5. Formación UAHE:  Seminario sobre Gestión de Riesgos Comerciales- celebrado en Madrid, 14 de Noviembre
6. Próximos Eventos: “Advanced Factories” 3-5 Marzo 2020 en Barcelona

European independent wire rod processors’ association Eunirpa has issued a release this week to warn that the import of processed wire rod products is increasing as a result of the stringent safeguard measures. The association notes that protectionist measures on downstream products could be the sole solution going forward.

“Eunirpa has repeatedly expressed concerns to decision makers, that the safeguard measures, which were supposed to regulate normal trade flows in the steel industry in general, are in fact causing severe disruption to the downstream steel processors and in particular to the independent steel wire rod processors,” the association says. “Now with the revised safeguard duties in place since the beginning of October 2019, Eunirpa is increasingly facing competition on downstream products from third countries.”

According to the association, non-EU producers of wire rod are reacting to the limitations of the quotas by integrating their production downwards. They are selling more galvanized wire, fencing products, spring wire and black annealed wire to Europe, for example. These are also being sold at very low prices, Eunirpa president Kris Van Ginderdeuren says.

“Eunirpa members are seriously considering to resort to anti-dumping and other trade protection instruments in order to protect their presence in the EU. A task force has been created to monitor imports and evaluate market developments in this respect,” the association says.

Kallanish notes that in addition to creating distortions to the downstream supply, the safeguard measures on wire rod have exacerbated volatility in the flow of import volumes. This has the effect of concentrating orders when new quotas become available, then halting imports for a full year as soon as the quotas are exhausted.

Steel consumption in Southeast Asia could take as long as 20 years to catch up with projected capacity hikes in the region, the South East Asia Iron & Steel Institute, or SEAISI, said during its 2019 ASEAN Iron and Steel Sustainability Forum held in Jakarta early this week, despite a growing construction sector.

Yeoh Wee Jin, SEAISI’s secretary general was concerned over the continuously rising capacity addition in ASEAN without a commensurate uptick in demand.

Apparent steel consumption rose 5.9% year on year during January-June 2019 “touching 39 million mt,” Yeoh said as consumption in flat steel increased 8.7%, while long steel consumption lagged behind with a 3% growth. However, for the year as a whole, consumption is expected to grow at 4% in 2019 to about 80 million mt against 5% growth in 2018.

SEAISI forecasts that ASEAN’s current steel production capacity of 83.7 million mt/year will increase to 144.2 million mt/year by 2026, assuming “all integrated mill capacities come on stream.”

Assuming a 4 million mt annual increase in steel consumption, it would take about 18.6-20.1 years to absorb the overcapacity, SEAISI said.

CHINESE STEELMAKERS TO LEAD EXPANSIONS

“Many huge integrated mills are starting up in Malaysia, Indonesia, Philippines and Vietnam, with most of the investors being Chinese steel mills,” SEAISI said, noting Chinese steel investments in ASEAN started from 2017 onwards.

Chinese steelmakers have sped up their plans for overseas capacity expansion since 2017 in tandem with largely improved steel profit margins as a result of overcapacity elimination in China, S&P Global Platts analysis had showed.

Also, Platts estimates show that about 42.7 million mt/year of new overseas crude steel capacity, involving nine projects that are fully or partly-owned by Chinese companies, are in the pipeline. Five of the nine projects, comprising about 35.5 million mt/year of capacity, will be built in Southeast Asia.

Among the anticipated new projects are mega-mills with production capacities of up to 10 million mt/year.

In the Philippines, China’s HBIS Group plans to build a $4.4 billion integrated steel plant at Misamis Oriental in northern Mindanao with a total production capacity of 8 million mt/year. Philippine steelmaker SteelAsia will partner HBIS for the project. SEAISI data showed the joint-venture plant could see 4.5 million mt/year of capacity coming online as early as 2023.

Another Chinese steelmaker, the Panhua Group, plans to set up a 10 million mt/year integrated steel manufacturing plant in the Phividec Industrial Estate of the Misamis Oriental-Special Economic Zone. The Panhua mill could be operational in 2022.

Elsewhere, in Malaysia, Hebei-based Wen’an Iron & Steel has plans for a 10 million mt/year integrated steel mill in Sarawak, which could be ready over 2021-22.

BOOMING ASEAN CONSTRUCTION SECTOR

SEAISI said the production capacity for long steel products in ASEAN is “way above consumption” while “the flat products market is mostly served by imports, hence there appears to be room for new capacities.”

The construction sectors in Indonesia, Philippines, Thailand and Vietnam are expected to support most of the demand for both flat and long steel products in 2019 and beyond.

SEAISI expects Vietnam’s construction sector to grow by 8%-9% annually over 2019 to 2023 while it foresees Thailand expanding over 3.5%-5% in 2019 to about 5.7% in 2020.

Although Indonesia’s construction sector is expected to slow to 5.72% in 2020 from an anticipated 6.82% in 2019, SEAISI said, “2020 is continuation of infrastructure development that has been carried out to support economic expansion and inclusive growth in Indonesia.”

The Philippines’ construction sector is expected to grow 10.9% in 2019 and the Philippine Iron and Steel Institute reiterated its forecast for steel demand in 2019 and 2020 to grow at 6% for each of those years, SEAISI said.

Apart from supporting ASEAN’s demand for steel, the new Chinese mills will increase demand for raw materials as the mills will be blast/basic oxygen furnaces. Also, the fresh production capacities could create potential for steel exports.

Both order intake and sales at thyssenkrupp’s Materials Services division were clearly negative in a difficult market environment with a noticeable decline in volumes, thyssenkrupp says in its annual report.  Looking ahead, the division expects that its performance will remain largely stable.

Operating indicators lowered in almost all areas of the thyssenkrupp operating segment, but particularly in the service centre business in Europe and the global direct-to-customer business, Kallanish learns from the group. The direct-to-customer business recorded the sharpest decline at -24%, whilst the warehousing and service business lost -2.7%.

In total, the division generated sales of 9.8 million tonnes of materials, versus 11.1mt in the prior year, with average prices also lower. The exception was the company’s business in North America, which performed positively in comparison with the prior year. Order intake and revenue for the division, both fell by -6%, to the same value of €13.9 billion ($15.3 billion). Ebit fell very sharply by -76% to €66 million.

The division still includes a contribution from stainless mill Acciai Speciali Terni (AST), which was also significantly worse than a year earlier, mainly due to continued strong competition from Asian imports.

On the positive side, the company launched thyssenkrupp Materials IoT GmbH in June 2019. It now markets to external customers an Industrial Internet of Things (IIoT) software programme originally developed for Materials Services. The spin-off is an example of how Materials Services is driving the systematic expansion of its service portfolio, the division says.

Tata Steel Europe has moved forward in its plan to shape its European business, announcing Wednesday that it would cut 1,600 jobs in the Netherlands, 1,000 jobs in the UK and 350 elsewhere in the world.

In a statement, the company did not yet specify which of its facilities will be hit by the cuts.

Tata Steel’s Europe CEO Henrik Adam said the company “cannot afford to stand still” as “the world around us is changing fast and we have to adapt”.

When the announcement was done two weeks ago, Tata Steel said that the transformation” program would have involved 3,000 job losses out of a total of about 21,000 employees in the region. The company has major steelmaking sites in the UK and the Netherlands.

In a bid to improve financial performance, Tata also expects to increase its sales of higher-value steels, optimize production processes and reduce its procurement costs.

Through its proposed transformation program, Tata Steel is initially targeting a positive cash flow by the end of its financial year ending March 2021. It is also aiming for an EBITDA margin of around 10% throughout the market cycle. Based on full-year 2019 revenue figures, this would equate to £750 million in EBITDA. With improved earnings and cash flows, Tata Steel Europe will be a financially self-sustaining business.

In the first six months of its current financial year (starting April 2019), Tata Steel Europe reported a drop of 90% in EBITDA to £31 million. Revenue was £3.25 billion.

Tata Steel plans to meet with the European Works Council in the coming weeks to discuss further details. The next meeting is scheduled in two weeks from Wednesday, a Tata spokesman told S&P Global Platts.

The European Union has this week initiated an official investigation into the possible circumvention of anti-dumping measures imposed on HDG from China, Kallanish learns from a note published in the Official Gazette.

As a result of the commencement of the investigation, the EU has also opened a system for the registration of such imports.

“The Commission has at its disposal sufficient evidence that the existing anti-dumping measures on imports of the product concerned originating in the People’s Republic of China are being circumvented by slight modifications of the product concerned,” the note says.

It adds that the evidence also shows that products to be imported in Europe from China have been slightly modified for the sole purpose of circumventing duties. This has been done for example “… by applying a thin oil-coating, by slightly increasing the content of carbon, aluminium, niobium, titanium, or vanadium, or by changing the coating from simple zinc or aluminium coatings to zinc-magnesium-aluminium coating,” the note continues.

AD duties of 17.2-27.8% on Chinese HDG were imposed in 2018. At the time, and following a request from carmakers, the measures were only imposed on HDG not specifically used in the automotive industry.

The current investigation will be run over a period of nine months, but meanwhile imports of HDG from China will be registered. It is interesting to notice that the current investigation comes just a few weeks after changes in the safeguard system opened new opportunities for importers of Chinese HDG. This was done by giving importers an opportunity to use quotas under the 4a group for material previously falling under the 4b group quotas.