Category: Latest Updates

The French construction sector’s performance saw significant improvement again month-on-month in October, according to a l’Institut National de la Statistique et des Études Économiques (Insee) report monitored by Kallanish. This followed previous improvement in September.

Last month almost as many companies than in the previous month indicated an increase in activity over the last three months. Business managers are also more optimistic about the prospects for future activity, the report suggests.

Employment also improved in October. More respondents than in September reported an increase in their staff size over the last three months. The balance of opinion on anticipated recruitment, already above its long-term average, has edged up, the report reveals.

Slightly less business managers than in the previous month considered their order-books to be well-filled. Companies assess their order-books as providing eight months of work, higher than the long-term average of 5.7 months.

The production capacity utilisation rate was stable last month after an increase in the two previous months. At the same time, 27% of companies reported production bottlenecks due to workforce shortages, a sharp increase compared to September.

In October, slightly more construction companies than in September announced that they will increase their prices over the next three months.

Konsorcjum Stali (KS) has decided to expand its 2019-2021 investment plan to include the development of its branches in Czestochowa and Radom. The Polish distributor says this will, in the longer-term, improve its trading and processing potential.

The move will see the firm purchase land on which a production hall and storage warehouse are already built, as well as land on which it will construct a new warehouse and sales office.

The entire investment plan will therefore cost PLN 68 million ($17.8m) compared to the original estimate of PLN 39m, while completion of work has been pushed back to end-2023 from end-2021.

The firm initially announced the plan in May, saying it wants to increase processing and distribution capacity, thereby strengthening its market position thanks to increased quality and cost optimisation (see Kallanish passim).

In the first half of 2019 KS’s steel product sales declined -5% on-year to 219,900 tonnes, while KS-produced or processed product sales fell dropped -4% to 111,500t. Revenue was down -7% to PLN 851m and net profit plunged -79% to PLN 3.6m.

Although Luxembourg-based steelmaker ArcelorMittal leaving the Italian market seems more likely now than before, many see today’s announcement as a final attempt to negotiate with the Italian government.

The company notified the government of its withdrawal from the lease agreement for the Ilva assets, citing law changes that make its operations unviable. The assets, which include Europe’s largest blast furnace, located in Taranto, are loss-making and ArcelorMittal has faced various obstacles to the execution of its commitments since it took over in October 2018.

ArcelorMittal’s announcement today, which some deemed a shock tactic, is expected to bring the government back to the negotiation table with a more lenient approach and draw up a more suitable agreement enabling operations to continue.

The scenario of ArcelorMittal exiting the Ilva investment would be a lose-lose situation for both the Italian government and the company, some market participants said. The assets being handed back to the extraordinary administration in 30 days would require a large cash injection to keep them running and a rapid structural re-organisation, which the Italian government may not be willing, or able, to provide.

And many expect that a withdrawal of the world’s largest steelmaker would see Italy struggle to find interested investors for Ilva further down the line.

Market participants anticipate a swift response from the trade unions, likely in the form of strikes, as they side with ArcelorMittal and pressure the government to give legal protection to the company. “At this point, we ask the government to intervene and the company to withdraw from this decision,” secretary general for CISL Annamaria Furlan said in a statement today. “No company is able to produce in a difficult environment, in a heavy climate, having everyone against it, from the government to the region to the municipality of Taranto,” general secretary of Uilm Rocco Palombella said.

But it is not in the company’s favour to leave Ilva either, as its assets, although producing significantly below capacity, include Europe’s largest blast furnace, which in the hands of a competitor, could pose a significant threat to the company’s European market share. But some expect the only scenario in which ArcelorMittal will continue with its Ilva venture is via a change to the law restoring its penal shield.

Others believe ArcelorMittal is not looking to negotiate further with the government and will follow through with its threat to exit the plant. The company is employing upwards of 9,000 people at Ilva, and making about 4mn t/yr, a similar amount to other installations with significantly less staff.

As of 16:37 GMT, ArcelorMittal’s share price was up by more than 3.9pc on Euronext, at €14.58.

Market participants agree that uncertainty in the global steel markets, and especially in Europe, have been a factor in driving prices down in the past months. But uncertainty about ArcelorMittal’s future in Taranto now could give much-needed support to Italian pricing, which could eventually spill over to the rest of the EU. In a brief note today, investment bank Jefferies said “uncertainty” around Ilva’s continued operations could support regional prices.

Argus‘ daily Italian index was €385/t ex-works today, while the northwest Europe index was static at €414.25/t ex-works.

ArcelorMittal has told the Italian authorities that it will terminate the lease and the subsequent purchase of the Italian integrated steelmaker formerly known as Ilva, Kallanish learns from the company.

As per the agreement signed at the end of October 2018, the company has the right to withdraw from the contract. This will effectively return the company into the hands of the administrators in 30 days.

“The agreement stipulates that, in the event that a new law affects the environmental plan for the Taranto plant so as to materially impair the ability to operate it or to implement its industrial plan, the company has a contractual right to withdraw from the agreement. Effective on 3 November 2019, the Italian Parliament has removed the legal protection necessary for the Company to implement its environmental plan without the risk of criminal liability, thus justifying the withdrawal notice,” ArcelorMittal explains in the note.

In addition to the above, the company believes ongoing legal issues may possibly force the Taranto site to close blast furnace number 2. This would make it impossible for the company to implement its industrial plan, it says.

A senior market observer comments that the announcement was not unexpected. “We were starting to expect this turn of events since before the summer,” he comments. “I think ArcelorMittal tried hard, but the situation is very complicated. I am not sure how the Italian authorities will manage the issue, but at the moment it is difficult to see other operators interested in taking control of the company amidst such uncertainty.”

Luxembourg-based ArcelorMittal has today notified the Italian government of its intention to withdraw from the lease agreement for steelmaker Ilva, giving the extraordinary commissioners 30 days to take responsibility for the assets.

The company began operating Ilva under a lease agreement that started on 31 October 2018 and is scheduled to finish in August 2023. Under the terms, Arcelor has a right to withdraw in the event that a new law affecting the company’s ability to execute its environmental or industrial plan is implemented, it said.

The Italian parliament yesterday removed ArcelorMittal’s legal protection following an amendment at the end of last month of the “Salva Imprese” decree.

The second issue that Arcelor has faced is the fate of its blast furnace two at Taranto, which local authorities have pushed hard to shut down. In September, the company was granted a 90-day extension to the ordered shutdown by the local court so that it could fulfil certain prescriptions, which have been deemed impossible to meet. “The shutdown would make it impossible for the company to implement its industrial plan, operate the Taranto plant and, generally, perform the agreement,” the company said today.

Ilva has been operating under nameplate capacity for a number of years, but among Arcelor’s targets for the asset was to ramp up its output in 2019 and going forward. But amid unfavourable market conditions, the company decided to slow down the ramp-up this year, and the Taranto plant is now operating at under 4.5mn t/yr.

Ilva is still under technical force majeure following a fatal crane accident in July. Market participants are still reporting continuous order delays and a general uncertainty about the future of the plant has pushed some buyers to procure from other sources.

“Other serious occurrences, independent of the company’s will, have also led to a situation of legal and operational uncertainty that has further significantly impaired the ability to carry out the necessary operations at Ilva and operate the Taranto plant,” Arcelor said today.

The slowdown in EU construction activity will become more pronounced during 2020, but the construction industry will continue to outperform other steel-using sectors, according to European steelmakers association Eurofer. EU construction output is forecast to rise 3.5% in 2019 and 1.2% in 2020.

The residential construction market is expected to remain relatively buoyant as in several countries demand continues to outweigh supply. In Spain, for example, housing still has room for growth, having not yet recovered from losses during the housing market collapse of 2009. Improving EU real wages and the low cost of mortgage financing will continue to stimulate housing demand. In much of Western Europe, however, the residential construction cycle has already peaked.

The private non-residential construction sector has been growing but slower than residential and civil engineering, hampered by subdued business confidence and corporate investment. “The downturn in the manufacturing industry in Europe will most likely contribute to delay investment decisions, as well as the pronounced slowdown in EU exports which will impact export-related business investment,” Eurofer says in a report seen by Kallanish.

“In contrast, the role of civil engineering as a growth engine for the construction sector is expected to strengthen over the forecast period,” thanks to improving infrastructure investment, Eurofer observes.

EU construction activity rose 4.3% on-year in the second quarter versus “…spectacular” growth of 5.9% in Q1, Eurofer says. This was the tenth quarter in succession of robust expansion and meant construction remained the best performing key steel using sector.

Construction activity in Q2 grew in all reporting countries except Slovakia, where it fell for a consecutive quarter. Output growth was particularly pronounced in Austria, Croatia, Hungary, the Netherlands, Poland and Spain.

In line with actual construction production volumes, gross fixed investment in construction in Q2 grew in real terms by 3.1% on-year, compared with 4.8% in Q1. This was a -0.2% drop on-quarter, “…most probably a first sign of the cooling-off of the sector further to the rather strong cycle of the previous quarters,” Eurofer observes.

As there was an overall 25.8% slump in Turkish steel consumption in the first three quarters of the year, Turkish mills have focused more on export markets. However, as export demand also has begun to slow down, the pressure on Turkish mills’ quotations has risen.

According to the latest Turkish Steel Producers Association (TCUD) data published Friday, Turkey’s flats consumption declined by 12% on year in January-September to 11.1 million mt, while longs consumption slumped by 39.4% to 7.8 million mt, amid an ongoing construction sector crisis.

Turkey’s overall finished steel output was also down in this sentiment by 16.2% year on year to 25 million mt in the nine-month period. Turkey’s longs production declined by 22.5% to 14.9 million mt, while mills’ flats output fell by 4.7% to 10.1 million mt in the same comparison.

Although Turkish mills focused more on exports and managed to increase their overall steel export volumes by 9.4% year on year to 16.5 million mt in January-September, export volumes began to slow down in September due to lower demand from some of Turkey’s main export markets, particularly the EU, which raised the pressure on mill quotations.

Turkish mills’ steel exports fell by 8.1% on year to 1.9 million mt in September, while the revenue generated from these exports fell by 16% to $1.3 billion, the latest data showed.  

Although Turkish mills’ longs exports remained relatively strong at 961,000 mt in that month, flat steel exports fell by 21.4% to 403,000 mt. Turkish mills’ semi-finished product exports fell more sharply in September by 59.2% to 73,000 mt, the latest TCUD data showed.

— Cenk Can

The European Commission was set to clear the acquisition of Italy-based plate rolling mill Palini e Bertoli by Marcegaglia — Europe’s largest reroller — by the end of November, sources close to the matter said Thursday.

Marcegaglia has been in advanced talks for several weeks to buy Palini e Bertoli from Russia’s Evraz. If the deal goes ahead, Marcegaglia will expand its 400,000 mt/year plate-making capacity to around 850,000 mt/year.

Marcegaglia’s range of steel heavy plates is manufactured in San Giorgio di Nogaro, Northeast Italy. The plant processes metal heavy plates up to 200 mm thick and with a maximum rolling width of 2700 mm.

The fabrication of quarto plates also includes heat treatment to obtain an extremely wide range of metal grades and manufacturing standards.

Evraz has been attempting to divest Palini e Bertoli for some time as plate is no longer part of its core business. Evraz stopped being an important player in the steel plate market after selling its Czech heavy plate mill, Vitkovice Steel, in early 2014.

After the 2018 sale of Petrovsky Dnepropetrovsk Iron & Steel Works in Ukraine, also equipped with plate capacity, Palini e Bertoli remained Evraz’s only plate facility, but the company’s product range narrowed significantly.

Evraz no longer ships slabs from its Russian steelworks to its Italian reroller. The steelmaker supplies its Italian operations with slabs purchased from Ukrainian group Metinvest, which also owns a plate mill, Trametal, located in the same Italian municipality as Palini & Bertoli. It is cheaper to ship slab to Italy from Ukraine than from the Urals, let alone Siberia, where Evraz makes the semi-finished product.

Evraz Palini e Bertoli produces the following range of hot-rolled quarto plate: thicknesses of 10-250 mm and widths of 1,500-3,000 mm, according to its website.

Evraz and Marcegaglia both declined to comment.

— Annalisa Villa and Katya Bouckley

European steelmakers association Eurofer has revised down its outlook for EU automotive production, saying it will contract -3.8% on-year in 2019 compared to the -1.4% forecasted in August. It is also seen rising only 0.9% in 2020 versus the previous projection of 2.2% growth.

EU automotive production fell -7.2% on-year in the second quarter. Falling demand for new passenger cars in Europe and in key export markets combined with the final reverberations of WLTP and model changes had a sharply negative impact on production activity.

In 2020 EU passenger car sales could register a modest increase as demand continues to recover from its recent lows, says Eurofer. The launch of new models – many of them electric vehicles – could be a driving force.

“However, subdued car demand from major markets such as the US, China and Turkey does not bode well for EU car exports,” the association says in a report seen by Kallanish.

“With many advanced economies being close to saturation in terms of vehicle density, the ageing population implies lower demand,” it continues. “Global demand is therefore increasingly driven by the emerging markets, but rising domestic production in these regions implies that they increasingly will be able to satisfy their domestic demand and will rely less and less on imports of cars produced elsewhere.”

It remains to be seen whether the 2.3% on-year rise in EU new passenger car sales in Q3 will hold for the remainder of the year. The fact that sales were extremely weak in Q4 2018 should provide for a mildly positive base effect.

“On balance, the outlook for the EU automotive sector remains weak. Automotive OEMs in the EU will not only have to face challenges related to the demand-side of the market, but also have to deal with approaching emissions regulation changes in both the car and commercial vehicle segments with even the threat of fines for non‐compliance,” Eurofer concludes.

As a result of low steel prices and weak demand, distribution group Klöckner & Co recorded a significant year-on-year decrease in operating income in the third quarter.

The Ebitda before material special effects came to €26 million ($29m), compared with €59m in the third quarter of 2018. The firm suffered a net loss of €23m, compared with a net income of €22m in the prior-year period. Revenue dropped by -11% to €1.565 billion on shipments that fell -7% to 1.42 million tonnes.

Ceo Gisbert Rühl anticipates that prices and quantities will decrease in the fourth quarter, both in Europe and in the USA. During a conference call, he conceded that the company had cashed in on windfall profits last year, but by the same degree has suffered from windfall losses this year. 

In Europe, construction remains the only flourishing sector, whereas mechanical engineering and especially automotive are ailing, Kallanish heard from Rühl. In the USA, construction has passed its peak, and mechanical engineering is doing ok, but energy and automotive are declining, he added.