Category: Latest Updates

The northwest European hot-rolled coil (HRC) market came under more pressure today, despite ArcelorMittal’s announced price increase, as a German seller offered at aggressive levels to move tonnes ahead of the end of its financial year.

Prices in Germany were heard at €460/t ex-works and below from one supplier, while an Italian seller recently achieved €450/t ex-works.

Argus‘ daily northwest Europe HRC index slipped by €1/t to €467/t ex-works, the lowest since its launch in November 2018. This left the monthly average at €468/t. The holiday period continued to subdue activity in the south, but the Italian index edged up by €1/t to €443/t ex-works.

The macroeconomic backdrop remains unencouraging, with Germany possibly on the verge of technical recession and Brexit-related uncertainty hitting investment appetite across the continent. There are faint signs of automotive demand beginning to recover, though sub-suppliers maintain their order-books are still down by as much as 30pc.

Even the potential no-deal Brexit scenario has not sparked restocking in the UK steel supply chain, as it did earlier this year. UK decoilers have been able to secure rollovers for October deliveries, and are pushing for lower levels from some mills.

In Italy, although most of the market is still closed, participants expect post-holiday purchases could see a slight uptick in prices, especially if other sellers try to benefit from ArcelorMittal’s €30/t list price increase. Some buyers are prepared for a €5-10/t increase on reduced output from Taranto in the fourth quarter and higher iron ore prices in January-August.

But not all Italian mills have been affected by increased iron ore costs, with the others being a re-roller and an electric arc furnace (EAF)-based producer. They are also expected to lift offers in September, albeit by far less than €30, although it is uncertain that Arcelor’s increase would be enough to outweigh persistently poor demand.

In Europe, apparent demand last year was stronger than real buying, which has left too much inventory in the system this year, exacerbating the price slide.

Third-country offers are also sliding. And with Indian material being sold into Vietnam below $480/t cfr, some believe the country’s producers could reduce offers into Europe. Indian mills have been offering into southern Europe at around €460/t cfr and slightly above in recent days, while Turkey is also becoming more competitive, with sellers acknowledging that the market is well below $500/t fob now.

Although the possibility that a 30pc cap on imports into Europe could affect sentiment and aid mills in attempted price increases, some say arrivals are already low and offers have stayed uncompetitive in comparison with European producers. Recent scrap price falls could allow for more discounts from Turkey, but some say this would only make Turkish mills temporarily competitive.

One mill in the Visegrad region was heard to have reduced its offers by €20/t to move tonnes at a time of thin demand.

Sellers question the likelihood of ArcelorMittal implementing increases, given the uncertain macroeconomic backdrop and falling raw material costs, although mills never passed off the higher costs when iron ore was above $120/dmt. Some queried whether deals would be concluded at lower levels as the mill looked to fill its order-book. That said, it remains off market in the UK and is talking about November arrivals, with some buyers questioning the amount of cold-rolled coil and hot-dip galvanised coil that will be available.

The European Commission (EC) has approved the acquisition of majority control in Spanish steelmaking group Gallardo Balboa by American investment fund Kohlberg Kravis Roberts (KKR).

“The Commission concluded that the proposed transaction would raise no competition concerns given the minimal horizontal overlaps and vertical links between the activities of the companies,” the EC says. The transaction was examined under the simplified merger review procedure, the EC adds in a note monitored by Kallanish. 

On 19 July the Spanish group confirmed it was in advanced talks with KKR to refinance its debts (see Kallanish passim). At the time it did not officially mention the fact KKR was taking over majority control of the entire group through the acquisition of shares.

KKR had already taken control of other assets belonging to the group headed by Alfonso Gallardo in 2014, specifically in the cement and paper production sectors.

Gallardo Balboa produces steel through the EAF route at a number of sites in Spain. It is specialises mainly in the supply of long products and tube.

Vertically-integrated steel producer NLMK has begun supplying non-grain orientated dynamo steel to the Russian Electrotechnical Group (Ruselprom). This will be used for manufacturing wind turbine generators used in the construction of Russian southern Rostov region’s first renewable energy project, the company says.

NLMK already has already begun to supply steel for the project, which will see the 90 MW Azov wind farm generating around 300 GWh/year of renewable energy. Output from the farm will thus offset around 260,000 tonnes of CO₂ emissions annually. NLMK’s NGO steel will be used to make wound rotor induction generators of 3.5 MW capacity each. Its low magnetic properties will enable around a 10-15% increase in efficiency of the machinery, NLMK notes.

The steelmaker does not reveal how much steel will be used for this project, but says the deliveries have started, adding that it has supplied around 25,000t of dynamo steel to Ruselprom in the last five years. The two companies have been cooperating for the past 20 years, Ilya Gischin, NLMK sales director is noted as saying.

NLMK has around 81% share of the Russian NGO steel market, which it produces at its principal steelworks in Lipetsk. The company is eyeing India for the construction of a transformer steel facility, where it has a strong foothold (see Kallanish 30 July).

A carbon tax on imports into the European Union as proposed by European steelmakers is understandable but would eventually be unfair for steel consumers, says Andreas Schneider of Stahlmarkt Consult.

At Eurofer’s ‘European Steel Day’ it was suggested that steel imported into the EU ought to be subject to the same CO₂ costs as paid by European mills under the Emissions Trading Scheme (ETS).  Such an approach makes no sense because it does not essentially support climate-friendly steel production, but defends a certain cost position, Schneider argues.

He criticises the EU steel industry for promoting the image that EU-made steel is in principle clean, whereas imported steel is not. However, many overseas mills are very modern and able to produce steel with emissions as low as the best-of-class in Europe, Kallanish notes.

“The question is how and by whom the real additional costs are to be determined neutrally,” Schneider asks. The costs depend on factors such as the specific CO₂ emissions per tonne of steel, the mill of origin, the production volume and the CO₂ price. This means that a large margin between individual plants is just as pre-programmed as strong fluctuations over time. “Should even the ‘dirtiest’ EU plants benefit from an import duty?” he wonders.

Across-the board taxation would mean a flat discrimination of foreign vendors, Schneider finds. He notes that it is not necessarily politically-wise for the EU to impose its own climate targets on the rest of the world. Also, such a move would add fuel to the growing trend of erecting trade barriers. This would be especially harmful to the export-intensive industries in Germany, he cautions.

Turkish military pension fund OYAK’s takeover of British Steel – expected to be completed at the end of this year – will strengthen the position of OYAK’s subsidiary Erdemir Metalurji Group in the European Union as it will become the region’s third largest steel producer and should reach new markets with a new product range.

OYAK

OYAK is Ataer Holding’s parent company, and the largest shareholder in Erdemir Maden Metalurji Group, Turkey’s biggest steel producer. The Group currrently has a 9 million mt/year installed capacity. This capacity will reach 13.5 million mt after the British Steel takeover, OYAK says. The Group’s turnover is also expected to reach around $10 billion following this merger.

Erdemir Maden Metalurji Group’s Eregli works (Erdemir) produces HRC, CRC and galvanized coils, plate and tinplate, while the Iskenderun works (Isdemir) produces billet, wire rod and HRC.

In addition to iron and steel, OYAK has interests in sectors including cement, automotive, agriculture and energy. 

BRITISH STEEL

Britain’s second-largest steel producer, British Steel, which went into compulsory liquidation on May 22, has 3 million mt of installed products capacity although its crude steel capacity has been put as high as 4.5 million mt. It has production sites in the UK, France and the Netherlands.

The company produces rails, construction steel, profiles and wire rods. British Steel’s strong position in rail production will make OYAK a strategic player in that market.

HANDOVER PROCESS

“Through the acquisition of British Steel, our Group will increase its effectiveness in the value chain and the weight of value-added products in its final product portfolio. Our priority will be to increase the production capacity and to invest in clean steel production in British Steel,” OYAK Mining Metallurgy Group Head Toker Özcan said.

OYAK has received exclusivity to conduct a detailed financial, legal and operational review of British Steel for a period of 2 months. During this period, close negotiations will be held with customers, suppliers, employees and trade unions for the future success of British Steel. After the successful completion of the detailed inspection process, expected at the end of October, the handover is expected to occur before the end of 2019. 

OYAK however may face some difficulties especially in negotiations with the trade unions, as unions are stronger in the UK than in Turkey, and this may raise the labor costs of the company, an industry source in Turkey told Platts. 

Meanwhile, according to a Financial Times report Monday, OYAK plans a productivity drive that could lead to several hundred job losses among British Steel’s more than 4,000 workers.

“This may cause some serious problems in the negotiations with the trade unions. Raw materials procurement also could be costlier than Turkey in UK, while a non agreement Brexit may have some negative effects in meeting EU customers’ orders’ and British Steel’s access to the EU region. A hard period is waiting OYAK during this restructuring process,” Turkish industry source observed.

ADVANTAGES OF TAKEOVER

But, following the handover, British Steel may return to its previous days of glory with the synergy created by Erdemir, sources said.

“Turkey is the world’s 8th largest steel producer with 40 million mt of liquid steel capacity and accordingly an important player of the global steel industry. The latest investments abroad by Turkish firms within the last years, like Borusan’s US and Italy, Noksel’s Spain and Tosyali’s Algeria investments are showing that Turkey will be a more important international player and an arbiter in the coming years,” an executive of a Turkish steel producer told Platts Tuesday.

“These kind of investments are providing competitive advantages to firms as well as some protection against the globally increased protection measures,” he noted.

“Erdemir’s latest move is a very important development. Although the companies are producing different products, I believe this will create a sinergy. But, of course Erdemir has also some investment and transformation plans,” he concluded.

Drawing attention to Turkey’s important position in the global markets, another top executive of a Turkish steel producer said: “Taking into account the output, export and import figures, Turkey is one of the five top players in the global steel industry. But, it remains passive in these kind of investments. But, this is changing with recent investments by some Turkish firms in recent years. Erdemir’s British Steel investment is one of these and it is important for Turkey’s strengthening position in the global steel markets. Hope these kind of investments will continue.”

Erdemir could reach new markets with an enlarged product range after the British Steel handover, sources noted. Meanwhile, some analysts feel the takeover will also allow Erdemir to obtain cheaper credit and hedge its exchange risk more easily. Some credit rating agencies have reduced Erdemir’s credit rating this year in line with Turkey’s country rating, amid sharp exchange rate fluctuations and economic slowdown in Turkey.

— Cenk Can

ArcelorMittal is evaluating the expansion of its organic coating line at the Avilés mill in Spain by adding new electro-galvanizing and cutting facilities, Kallanish learns from the company. The steelmaker says that it has begun the environmental assessment administrative procedure for the project.

“ArcelorMittal wants to move forward with the environmental impact assessment process before making the decision to expand and diversify its production. This in order to quickly restart the organic coating line when market conditions allow,” the company says.

The organic coating line in Avilés has been mothballed since 2012. The company has also an electro-galvanizing line at its Sagunto mill with an annual production capacity of 300,000 tonnes of zinc-coated steel.

Steel traffic through one of Western Europe’s major steel ports, Antwerp, continued to grow for the fifth successive year in 2018, Kallanish learns from information published by the terminal. The volume of imports increased again year-on-year.

Iron and steel products categorised within non-containerised general cargo saw total movements in and out of the port rise by 3.9% from 8,350,565 tonnes in 2017 to 8,677,200t in 2018.

Iron and steel products arriving totalled 4,759,502t, up by 4.3% on-year. Exports amounted to 3,917,698t, a rise of 3.4% on those in 2018.

Up to 2015, the annual volume of iron and steel exports had exceeded imports through Antwerp. Since then the balance has swung firmly in the other direction, indicating a major contributory factor in the launching of steel safeguard measures by the EU last year.

The imported volume of 4.76mt of iron and steel through Antwerp in 2018 was also the highest such figure since 2008. It was still well behind the record figure for iron and steel arrivals via the terminal of 6.99mt seen in 2017. 

thyssenkrupp Materials Services is lining up more than €70 million ($78m) investment for its operations in Germany, Hungary and Poland, Kallanish learns from the company.  Its main project is the greenfield construction of a logistics hub in Rotenburg on the Wümme river in Lower Saxony.

The new German hub will have a storage space of some 36,000 square metres, and hold a volume of up to 20,000 tonnes of materials, to enable “… the widest possible availability of materials,” the company says. This project alone is assessed to cost €60m. Construction will be starting at the end of the year and will extend into 2021.

Another €11m has been lined up for expansion of existing sites in Poland and Hungary. Nowe Marzy, the company’s central site in Poland, built in 2017, will see built another 13,500m² warehouse. Another new 6,500m² workshop will be built at the company’s Hungarian site in Budapest.

“The sites will be equipped with connected processing facilities and digitally harmonised processes so that we can offer better response to customer requests, while they can concentrate on their core business,” says tk Materials Services’ ceo, Klaus Keysberg.

Oyak Group has signed an exclusivity agreement to buy British Steel, a spokesperson for the Turkish military pension fund tells Kallanish. Its subsidiary Ataer Holding has received exclusivity to conduct a detailed financial, legal and operational review for a period of two months, scheduled for completion at end-October. The acquisition is expected to be finalised by year-end.

During the exclusivity period, Ataer Holding will hold close negotiations with British Steel’s customers, suppliers, employees and trade unions.

Oyak General Manager Süleyman Savas Erdem says: “We, as Oyak, Turkey’s largest professional pension fund, believe in the importance of merging world league players into our Group. Accordingly, we have achieved one of the biggest achievements of the Turkish steel industry and signed a preliminary agreement to buy the industrial giant of UK, British Steel. We, will continue to evaluate opportunities globally in line with our growth-oriented vision and we will continue our investments to provide sustainable high benefit to our members.”

Oyak Mining Metallurgy Group Head Toker Özcan adds: “Through the acquisition of British Steel, our Group will increase its effectiveness in the value chain and the weight of value-added products in its final product portfolio. We will continue to monitor global markets and take proper actions to contribute to our strategic goals. The acquisition of British Steel under the Ataer umbrella is the first step taken in the future plans of our Group. Our priority will be to increase the production capacity and to invest in clean steel production in British Steel.”

Scunthorpe-based British Steel has a 4.5 million tonnes/year crude steel capacity allocated to production of speciality long steel products including high-quality rail, sections and wire rod. Ataer owns a 49.3% stake Turkey’s largest steelmaker, Erdemir, which counts billet and wire rod among its product range, but is predominantly a flat steelmaker.

Once again, as it has been over the last 20 or so years, the UK steel sector is being rescued from purdah by inward investment. The Turkish military pension fund through its subsidiary Ataer Holdings (see related article) has entered exclusive sales talks with the UK Official Receiver to acquire British Steel, the Receiver confirms to Kallanish.

Heads of an agreement to purchase British Steel have been signed, triggering a period of detailed due diligence of the company ahead of its full sale, the government office continues.

“Several bids were received for British Steel and the agreement now signed between Ataer Holdings A.S. and the Official Receiver sees the preferred buyer in exclusive talks to confirm their intention to take on the steel making business and its subsidiaries,” the Receiver says.

In a statement sent to Kallanish trade association UK Steel’s director Gareth Stace welcomed the move. “Today’s announcement is enormously positive news for British Steel, its workers, and UK manufacturing as a whole. British Steel’s production facilities in Scunthorpe and elsewhere in the North East represent one third of the UK’s steel production and are a major strategic asset to our country; their loss would leave our manufacturing, construction and infrastructure capability in a considerably poorer state,” he says.

Both the Unite and GMB trade unions have reacted to the move. Unite gives what it calls “… a cautious welcome” to the news. The GMB simply says that it is the British Steel employees who should remain the focus of any deal.  “This dedicated and loyal workforce must not be an afterthought amidst all of the speculation,” the trade union says in a statement.

The Official Receiver says that it will continue looking to conclude this process in the coming weeks, “… during which time British Steel continues to trade and supply its customers as normal,” it says.

Credit must be given to the former Business Secretary in the Theresa May government, Greg Clark, on whose watch the initial moves to save British Steel were launched, Kallanish observes. Unlike his predecessor Sajid Javid who sat on his metaphorical hands and watched SSI UK fall spectacularly in 2015, Clark has been a pro-active and supportive influence in the current British Steel rescue efforts.

Clark has now returned to the parliamentary back benches under Boris Johnson, while Javid is Chancellor of the Exchequer.