German mills’ costs remain high until spring 2024
Production costs for German steelmakers reached a critical level in the fourth quarter, and will not drop for another couple of months, says Andreas Schneider of Stahlmarkt Consult.
According to his calculations, costs for oxygen-route mills rose by €80/tonne ($88) from July to October, and have remained unchanged since. He attributes this mainly to notably higher prices for coking coal, which rose from $237/t in early July to almost $317/t at the end of the year, according to the Kallanish coking coal fob Australia index. It is the highest price level for coking coal, as well as for German production costs, since March, Schneider notes.
“Given that spot market prices for steel have fallen over recent months, steelmakers will hardly break even,” he writes in his regular blog. Schneider notes that coil mills have kept making money on annual contracts, at prices way above spot prices. He questions, though, if the customary separation of contract versus spot prices can be maintained.
Recent contract negotiations took place in an environment of spot prices brought up by mills since November, at least nominally, while purchasing activity remained weak. Carmakers initially asked for a year-on-year reduction of at least €100/t, which in many cases would have undercut the spot price. Eventually, they confined themselves to a y-on-y reduction of around €50, “because they know they need to keep the mills alive if they want to have steel in the future”, as one observer put it.
The base costs for electric arc furnace mills have risen as well, but to a lesser extent. In winter, in particular, prices for scrap tend to be at their highest, while power prices have remained flat, Schneider notes. He assumes that costs for both routes will remain as is for the winter months, and very cautiously suggests that “come spring, they might come down somewhat”.
Christian Koehl Germany
Italian authorities consider different options for Acciaierie d’Italia
The Italian government is considering different options to guarantee the business continuity of Acciaierie d’Italia (ADI), formerly known as Ilva. Authorities are preparing for a meeting with the private partner, ArcelorMittal, on 8 January.
The outcome of this meeting however is not expected to resolve the current issue. A source close to the dossier says the government is considering the best way to “divorce” from the private partner. According to rumours unsubstantiated by the company, ArcelorMittal, the current majority shareholder, is willing to pay its share of the additional €320 million ($352m) capital increase to sort out the company’s immediate needs.
However, the government and the private partner are clashing on the significant funds – over €1 billion – needed to release the steelmaker’s assets. These were seized previously by the extraordinary administrator of the former Ilva plant due to legal conundrums.
The lease of Taranto’s equipment from the administrator is set to expire on 31 May, which is when the equipment should be purchased, the source explains. The original expiration date in May 2022 was already postponed to this year. Given all the legal issues and bureaucracy, ArcelorMittal is said not to be willing to pay to purchase the equipment.
“The government is realising ArcelorMittal will not invest and that a consensual divorce is the best way to separate. The €320 million is nothing compared to what the steelmaker needs. On 10 January, Taranto’s latest gas bill will be due but there are also many suppliers and shipping companies in need of payment, as well as vessels at the port that cannot unload material,” the source comments.
Acciaierie d’Italia may see its gas supply cut if the bill remains unpaid. For a future commercial procurement contract, gas operators are asking for a downpayment of about €100m because they know ADI may not be able to pay, but ADI needs financing for the downpayment.
At the coming meeting with ArcelorMittal, the government intends to request “precise guarantees on investments, production levels, worker safety, plant and environmental protection”, says a note from the presidency of the Council of Ministers. The unions will be called again after the meeting.
Last week, authorities met unions in Rome, in what was “yet another negative meeting at Palazzo Chigi”, Uilm secretary general Rocco Palombella says in a note obtained by Kallanish.
“The government remains the only believer in Italy in a future for the former Ilva linked to ArcelorMittal … The environmental plan has not yet been completed, there are safety problems due to the lack of maintenance … There is no condition to continue having the former Ilva managed by ArcelorMittal …Without a change in governance, there cannot be a future for the former Ilva, for environmental recovery, for employment protection and production continuity,” Palombella adds.
Invitalia is expected to become majority shareholder in 2024, while ArcelorMittal will retain a 40% shareholding. In 2021, ArcelorMittal deconsolidated the assets and liabilities, including the remaining lease and purchase liability, of Acciaierie d’Italia Holding, formerly AM InvestCo Italy. On the other hand, Invitalia and the Italian government have been slow in making decisions and in paying out funding. Meanwhile, production at Taranto continues to be slow (see Kallanish passim).
ArcelorMittal declined to comment.
Natalia Capra France
European HRC prices stable amid holiday break; production cuts may spur rises
The European HRC market has remained largely inactive following the Christmas and New Year break.
Market sources expected trading to resume in the second week of January, with cautiously optimistic moods prevailing among sellers.
With production outputs in the region having been cut in the second half of 2023, lead times were stretching and mills were able to target higher prices as a result.
On top of that, import prices have also been rising recently, and interest for overseas coil has been limited due to the smaller gap with European prices, safeguards-related risks and long lead times.
Besides, several market sources told Fastmarkets that one major European producer has reportedly booked sizeable volumes of HRC imports before the Christmas break to reduce overseas coil availability in Europe.
But some buyers remained concerned over the lack of end-user demand and some capacities coming back online in the first quarter of 2024.
“I think a rollover of [HRC] prices is the most likely scenario, given the slow consumption,” a distributor source in northern Europe said. “We’ll see next week, the market is still in a holiday mood.”
In northern Europe, offers from integrated mills for March delivery were reported at €720-750 per tonne ex-works before the holiday break, while tradable values were estimated by buyers at €680-710 per tonne ex-works on Tuesday.
Fastmarkets calculated its daily steel hot-rolled coil index domestic, exw Northern Europe at €695.00 ($767) per tonne on Tuesday, down marginally by €0.50 per tonne from €695.50 per tonne on December 29.
The index was also down by €0.50 per tonne week on week but up by €24.12 per tonne month on month.
No activity was heard in the Italian market, and Fastmarkets calculated its daily steel hot-rolled coil index domestic, exw Italy at €688.33 per tonne on Tuesday, unchanged since December 22.
Published by: Julia Bolotova
Turkey’s Erciyas Pipe signs export deal to EU
Turkish pipemaker Erciyas Çelik Boru and its partners will produce natural gas pipe for the European market, says Erciyas in a bourse filing seen by Kallanish.
The value of the contract totals €164.8 million with Erciyas Pipe’s share at 22.5%.
Shipments are expected to be realised in 2025.
Erciyas Pipe has an annual production capacity of 600,000 tonnes.
Burcak Alpman Turkey
PWO Group sources low-emissions steel from Salzgitter
PWO Group, a German automotive supplier originally known as Progress-Werk Oberkirch, intends to purchase carbon-reduced steel from Salzgitter starting in 2026, Kallanish learns from the group.
It says it has signed a partnership agreement with Salzgitter Mannesmann Stahlservice GmbH with the intention of reducing greenhouse gas (GHG) emissions when purchasing steel, the most important raw material for its business. “This will enable us to offer our customers an environmentally friendly alternative to conventionally produced steel in the future,” PWO says.
“We have already achieved extensive reductions in greenhouse gas emissions in our production and energy procurement processes,” comments PWO chief executive Carlo Lazzarini. “Now, we are also accelerating the decarbonisation of our value chain.”
Group chief financial officer Jochen Lischer adds: “By 2030, we want to reduce our absolute GHG emissions in Scope 3 by 28% versus the base year of 2019. The purchase of ‘green steel’ from Salzgitter Mannesmann Stahlservice, with a CO2 footprint in production that is up to 95% lower, will help us to realise this goal.”
Christian Koehl Germany
Thyssenkrupp Materials sells Spanish unit to Arania
Thyssenkrupp Materials Services has announced the sale of Spanish subsidiary thyssenkrupp Materials Processing Lamincer S.A.U. to Arania S.A.U., a unit of Grupo Arania.
Thyssenkrupp Materials Processing Lamincer was founded in 1986 in Mungia, in the Basque province of Biscay. The German group initially held a minority stake, and took full ownership in 2009, making it part of tk Materials Processing Europe. The Spanish cold-roller firm has 75 employees, a capacity for around 40,000 tonnes/year, and specialises in carbon cold-rolled strip, structural steel and micro-alloyed materials.
Tk Materials had already initiated the focusing of its own portfolio in 2019 as part of the strategic development of “Materials as a Service”. The sale of the Spanish company is a further step in this direction, Kallanish learns from the German group. As a cold-rolling company, Lamincer is not part of the core business of the materials distribution and service provider, tk says, but notes that it continues to be active at several locations in Spain.
Steel processor Grupo Arania has five production locations and presence in 65 countries, and employs more than 1,000 people with a sales turnover of €500 million ($555m). It is divided into business units for cold-rolled strip, welded tubes, heavy loads and lightweight loads storage systems.
Christian Koehl Germany
German steel industry bemoans continuing output drop
The downward trend of German steel production has sustained itself through year-end 2023, the country’s steel federation Wirtschaftsvereinigung (WV) Stahl writes in a review titled “Energy costs and low economy lead to historic production drops.”
For the full year 2023, the federation expects a year-on-year decline of 4%, to around 35.5 million tonnes of crude steel. 2023 would thus be one of the weakest years ever in terms of output.
In particular, the electric arc furnace route faced a big slump, by 11% to an estimated 10.1m tonnes, a level last seen 30 years ago, the federation notes. In comparison with the year before the energy price shock in 2022, EAF production fell by nearly 20%.
The federation expresses particular concern over the length of the recession that accompanies the drop of production. Since March 2022, output has fallen over a period of 21 months, with one minor uptick in September 2023. A negative cycle of this length has not been seen in Germany so far, WV Stahl states.
In November, crude steel output came to 2.7 million tonnes, down 2.4% on November 2022. Kallanish notes that the more pronounced fall occurred on the blast furnace route (-6.7%, to 1.83m tonnes), likely attributable to temporary shutdowns at several mills, while EAF production rose by 8.7%, to 871,000 tonnes. The federation does not provide an interpretation for this latest uptick.
Christian Koehl Germany
Biden formally extends EU tariff exemptions through 2025
According to the President’s plan, outlined in full on the White House website, EU steel and aluminium products are subject to “a tariff rate quota (TRQ) that restricts the quantity of steel articles imported into the United States from the EU without the application of the tariff.”
The US and EU agreed to the TRQ volume of 3.3 million tonnes.
“[This volume] is consistent with the objective of reaching and maintaining a sufficient capacity utilisation rate in the domestic steel industry,” reads the President’s proclamation.
TRQ measures replace the 25% tariff imposed on EU steel as discussions discussions over the Global Arrangement on Sustainable Steel and Aluminium continue.
“During the past two years, the United States and the EU have made substantial progress to identify the sources of non-market excess capacity and the actions needed to address distortions resulting from that non-market excess capacity. The United States and the EU are continuing their discussions on global steel and aluminium arrangements to restore market-oriented conditions in their steel and aluminium sectors and support the reduction of the greenhouse gas emissions intensity of steel and aluminium across all modes of production,” Biden states.
In an American Iron and Steel Institute (AISI) statement, president and ceo Kevin Dempsey shares approval for Biden’s proclamation.
“AISI welcomes the Biden administration’s action today to extend the TRQs on EU steel for two years to allow additional time for negotiations on the proposed Global Arrangement on Sustainable Steel and Aluminum. The American steel industry strongly supports the administration’s efforts to establish new mechanisms to address effectively global non-market excess capacity in steel and the higher carbon intensity of imported steel versus clean American steel,” Dempsey says in the AISI statement.
Earlier this month, the EU agreed to suspend its retaliatory measures on the US Section 232 tariffs through 31 March 2025.
Kristen DiLandro USA
US confirms extension of steel, aluminum TRQ for EU through 2025
According to a statement released by the White House late Dec. 28, US President Joe Biden determined that specified volumes of eligible steel and aluminum articles from the EU “will no longer threaten to impair the national security and have decided to exclude such imports from the EU up to a designated quota from the tariff.”
The TRQ impacts the US’ 25% tariff on steel imports and 10% tariff on aluminum imports that have been in effect against most exporting countries, including the EU and its member countries, since 2018 under Section 232 of the Trade Expansion Act, a provision that allows tariffs for national security purposes. In response to the 2018 tariffs, the EU implemented what it called “rebalancing tariffs” on various US goods such as whisky and motorcycles.
The US has since removed the tariffs or replaced them with alternative arrangements, such as TRQs, for trade allies. In 2021, the Biden administration reached a deal with the EU that temporarily replaced the metal duties with the TRQ through the end of 2023. The EU, in turn, suspended its retaliatory tariffs for the same timeframe.
The US’ TRQ allows up to 3.3 million mt of steel, 18,000 mt of unwrought aluminum and 366,040 mt of semi-finished wrought aluminum to be imported duty-free from the EU each year. Certain other steel and aluminum products are completely exempt and do not impact the quota totals. Specific volumes within the quota are disbursed among the EU member nations and are based on historical US import volumes.
However, the EU still seeks the complete elimination of the tariffs and quotas, according to its Dec. 19 statement that confirmed its extension of the retaliatory tariff suspension on US goods.
The US imported about 4 million mt of steel products and 283,000 mt of aluminum products from the EU in 2022, according to US Commerce Department data.
Role of GASSA
As part of the original 2021 tariff-relief agreement between the US and EU, the two governments pledged to work toward a more permanent trade solution that would extend beyond 2023 and address both carbon emissions and global overcapacity in the steel and aluminum industries, especially in relation to third-party countries and governments. The potential deal has since been referred to as the Global Arrangement on Sustainable Steel and Aluminum, or GASSA.
The two sides were not able to come to a GASSA agreement by a mutually self-imposed deadline in October 2023, thereby raising concerns that tariffs would be reinstated. However, the US and EU released respective statements on Dec. 19, acknowledging the complexity of the GASSA negotiations and the willingness to continue cooperation. At the time, the EU announced its extension of the retaliatory tariff suspension with the understanding that the US would soon confirm its extension of the TRQ.
“During the past two years, the US and the EU have made substantial progress to identify the sources of non‑market excess capacity and the actions needed to address distortions resulting from that non-market excess capacity,” Biden said in the Dec. 28 White House statements. “ The US and the EU are continuing their discussions on global steel and aluminum arrangements to restore market-oriented conditions in their steel and aluminum sectors and support the reduction of the greenhouse gas emissions intensity of steel and aluminum across all modes of production.”
US groups supportive
US steel industry groups, which have long supported the Section 232 tariffs, expressed support for the extension of the TRQs and ongoing work on GASSA.
“The American steel industry strongly supports the administration’s efforts to establish new mechanisms to address effectively global non-market excess capacity in steel and the higher carbon intensity of imported steel versus clean American steel,” American Iron and Steel Institute CEO Kevin Dempsey said in a statement. “We look forward to continuing to work with the administration on these issues that remain critical to the future of both the US and EU steel industries.”
Similarly, Steel Manufacturers Association President Philip Bell said the TRQ extension was critical for continued cooperation on GASSA.
“The proclamation sets the stage for continued discussions on the proposed Global Arrangement on Sustainable Steel and Aluminum,” he said in a separate statement. “SMA supports the US government’s solution-focused approach toward an agreement that addresses both non-market excess capacity and reducing carbon emissions from around the world.”
10 key themes for steel & ferro-alloys in 2024
1) Low-grade iron ore to remain key in China
Low-Fe iron ore will be a mainstay amongst Chinese blast furnaces (BFs) as a cost-efficient alternative amid uncertain margins.
Chinese buyers are expected to seek cheaper options, such as Indian fines, as cost-effective alternatives to Australian fines, following a shift in procurement strategies in response to low steelmaking margins in 2022-2023.
Production ramp-ups from Australian miners such as Rio Tinto, alongside new entrants such as Mineral Resources, are expected to increase regional supplies.
2) Structural tightness in global coking coal supply to sustain
Structural supply tightness is likely to remain in 2024. Premium hard coking coal production from major producing countries, such as Australia, China and the US, is not going to have any major growth next year, sources said. Major mines, except for Blue Creek in the US, are not expanding due to higher royalties and increasing difficulties in hiring manpower, as well as financing difficulties amid the global decarbonization drive.
Meanwhile, demand from countries such as India and Indonesia is most likely to increase, notably with new cokeries and BFs being built and commissioned, although demand from the EU and the US may decline amid shifts to electric-arc furnaces (EAFs).
3) China’s direct/indirect steel exports to face greater trade defenses
China’s steel exports, which have been strong in both direct and indirect forms and underpinned Chinese steel prices in 2023, will face increasing pressure from trade defense activities in the global market in 2024, market participants said.
The China Iron and Steel Association (CISA) said in a trade report that China’s steel exports are expected to be more challenging, given the tougher trade environment across overseas markets.
Chinese export volumes are likely to be subdued by preparations in the EU, Brazil and India to undertake more anti-subsidy investigations, import duties and quality approvals.
4) Widening spreads in steel product pricing across the globe may bring price adjustments
Spreads between US hot-rolled coil prices and those in China and Europe have been widening again in recent months after falling from wider levels mid-2023. This may cause downward pressure on US HRC prices in 2024, some market participants have said.
They added that such pressure could come from increased exports from nations like China that increase global supply amid weaker global demand caused by slowing economies in China and Europe.
5) Ferro-alloys trading squeezed by finance costs
The high interest rate environment means continued elevated financing costs. In the ferro-alloys markets, this caps small- and medium-sized traders’ scope for spot business and consumer appetite for restocking. Many traders have been squeezed out of the market, since they are unable to hold positions on ferro-alloys and other raw materials due to high costs. Unless the trader has an already-agreed-upon sale, they are unlikely to add any ferro-alloy inventory. This is effectively consolidating supply options and forcing many traders to rely on back-to-back business.
6) High-manganese ore supply vs weakening demand in China
The high volumes of manganese ore sold to China and held in port-side inventories are likely to be major fundamental factors to look out for in 2024.
The abundance of material shipped to China, in particular higher-grade ore, will continue to have an impact on both high- and low-grade markets, sources said.
Although port stocks have been falling ahead of the year’s end, market participants said these levels remain high, especially amid production cuts weakening demand for manganese ore and low consumption from China’s struggling construction sector.
7) Green hydrogen to drive steel decarbonization
The decarbonization of the steel industry will continue to be a leading topic in 2024, and sufficient green hydrogen and renewable energy supply at competitive prices is crucial.
Current hydrogen prices are around €5 per kg and need to be much lower to be commercially viable for steelmaking.
Europe needs to build out its production of fossil-free electricity, but the volumes needed for large-scale electrolysis to produce green hydrogen are significant. Therefore, it makes sense to place the most energy-intensive operations close to where the electricity is available. A build out of green hot-briquetted iron (HBI) production could then feed steel mills where BFs have been replaced by EAFs. In the Middle East-North Africa (MENA) region, many companies are also trying to transition to greener production.
But such plans require significant investments and introducing them to the steelmaking process could increase costs, sources said, notwithstanding 2024’s unknown economic environment.
8) Volatile freight rates a key consideration
Uncertainty and volatility over global freight rates is a major concern that will likely spill over into next year, sources said.
The global shipping industry has been suffering from a tighter supply of ships amid a drought depleting water levels in the Panama Canal, with canal authorities limiting the number of vessels passing through the major waterway connecting the Atlantic and Pacific oceans.
This has led to delays for ships passing through the canal, as well as some vessels bypassing it completely and taking longer routes.
Limited ships, especially in periods of high demand, have resulted in price spikes in 2023, which have, in turn, added to cost pressures for market participants.
9) Europe to remain one of the key outlets for Russian slabs and pig iron
The EU will remain a key destination for Russian slab and pig iron in 2024, because quotas provided by the European Commission (EC) are around historical levels of imports from Russia.
This stands out as a contradiction of wider European efforts to reduce reliance on Russia, in which Russian finished steel products have been banned.
The slab quota has been extended for four years due to lobbying from European re-rollers.
Russia has a number of re-rolling facilities in the EU. Large production volumes and employment opportunities mean it will not be easy to replace sizeable Russian slab volumes, sources say, with some consumers saying they can’t find suitable alternatives.
However, Ukrainian re-rollers operating in the EU managed to diversify their sources for imports of semis away from Russia, according to the European Steel Association (Eurofer).
10) All eyes on supply chain transparency
Supply chain transparency will remain high on market participants’ agenda, including in the iron, steel and ferroalloy markets, even as the war in Ukraine drags on. The EU formally adopted its 12th package of sanctions on December 18, which included new import restrictions on ferroalloys, pig iron and spiegeleisen — a type of ferro-manganese — coming into the EU from Russia. Sources said they would be watching low carbon ferro-carbon markets in particular, because they have been heavily reliant on Russian supply.