EU restocking to support prices, China unpredictable: panel
Flat steel prices in Europe will be supported by blast furnace mills cutting production amid losses, which will spur buyers to book product for first-quarter delivery. However, China remains an unpredictable element that could destabilise the current price floor. So said participants at Kallanish Flat Steel 2023 in Istanbul last week.
Demand is more stable than expected, said Mario Borsese, co-founder & managing partner at DP Trade, adding that stockists have adapted to keeping low inventories after the lessons of 2022. The lead times of producers determine the market trend. European BF mills are “losing massively” today and, since China is not cutting production, will need to reduce output to survive. This will spur a wave of buying for January and February delivery, Borsese commented.
Vogel Stahl owner and director Friso de Vries agreed that prices have bottomed but cautioned: “We’re currently protected by raw materials prices which are putting a floor under steel prices and preventing mills’ margins from diminishing.” But much depends on China, where building permit issuance is down 20% this year. “That’s the future pipeline for construction steel demand. So, I don’t feel very comfortable, not yet,” he added.
ArcelorMittal Flat Carbon Europe head of operational marketing & pricing Bart Staelens pointed out customers have learned to live with lower inventory levels, to limit the impact of shocks. “We do not see a crash in demand,” he observed. The displacement of Asian steel tonnages to Europe, amid rising Chinese exports this year, “shows the safeguard system is not creating a structural supply shortage in Europe”, he added.
Yildiz Demir Celik deputy general manager commercial Selçuk Yilmaz meanwhile said post-earthquake reconstruction still represents a big steel demand opportunity in Turkey. However, this is likely to materialise only from 2025 once the economy recovers.
On the topic of the Carbon Border Adjustment Mechanism (CBAM), Borsese was adamant it will forever change steel trade from 2026. For Chinese BF investments across Asia, the EU will no longer be a destination market – “it will be over”, he noted. This also goes for Indian steel, which currently has a big presence in Europe.
Ian Roper of Kallanish Consulting Services said CBAM is sure to lift the consumer cost of steel. It will hit manufacturing sectors in Europe with still higher input costs amid already high energy and carbon costs.
While there are still many aspects to be improved about CBAM, it is necessary to create a level field in Europe, added Staelens. The demand by society to improve the climate is growing. “Customers are starting to understand what is the value [of low-emission steel] for them. And they are ready to pay a premium,” he concluded.
Adam Smith Poland
EU, US fail to secure deal on steel, aluminum sustainability; extend deadline to year-end
The US and the European Union have been unable to secure an agreement for a Global Arrangement on Sustainable Steel and Aluminium (GASSA) at a summit in Washington but have extended the deadline for negotiations until the end of the year, according to a joint US-EU statement.
The joint statement comes as European Commission President Ursula von der Leyen and European Council President Charles Michel met with US President Joe Biden to discuss a range of issues including curbing excess steel and aluminum capacity and supporting decarbonization within the metals industry.
“Throughout these two years, we have made substantial progress to identify the sources of non-market excess capacity,” the statement reads. “We have also achieved a better understanding of the tools to address the emissions intensity of the steel and aluminum industries. We look forward to continuing to make progress on these important objectives in the next two months.”
The statement did not list the specific areas of contention that still need to be addressed.
The GASSA initiative is aimed at developing common rules for trade in the steel and aluminum sectors in order to restore market conditions on the international steel markets and to limit the CO2 intensity of steel and aluminum in all types of production. It stems from an Oct. 31, 2021 agreement regarding the Section 232 tariffs first put in place by former President Donald Trump in 2018 under which blanket import tariffs of 25% on steel and 10% on aluminum were applied for most countries.
At the time, the US and EU reached an interim arrangement that replaced the Section 232 tariffs on EU-origin metals with quotas — 3.3 million mt/year for steel and 384,000 mt/year for aluminum – in effect from January 2022. However, this arrangement is set to expire at the end of this year with the EU pushing for the removal of tariff rate quotas, or TRQ as part of a final deal.
The original deadline to wrap up GASSA negotiations was set at Oct. 31.
Steel groups respond
German Steel Association President Bernhard Osburg said in statement the group regrets that “a great opportunity has been missed here and now appeal to the EU Commission to use the time until the end of the year to look for common solutions and agree on effective measures.”
“Time is of the essence: The steel industry in Germany and Europe is in the midst of the transformation to climate neutrality and thus in an extremely vulnerable phase,” he added.
In the face of the current markets downturn, the European metals industry is especially keen to promote exports.
Up to 1 million mt/year of primary aluminum capacity in Europe was taken offline in the last two years. This year sees no relief as demand for primary aluminum outside China — impacted by high inflation, energy prices and supply chain bottlenecks — contracted by 5.5% in first half 2023. Overall, the global market appears in surplus with the H1 supply exceeding the 33.7 million mt demand by 700,000 mt with 600,000 mt of this accumulated outside China.
Platts, part of S&P Global Commodity Insights, assessed domestic prices for hot-rolled coil in Northwest Europe at Eur605/mt EXW Ruhr Oct. 20, unchanged on the day.
Kevin Dempsey, CEO of the US-based American Iron and Steel Institute said the industry “appreciates the US government’s ongoing efforts to negotiate a new international arrangement to address both non-market excess capacity in steel and the carbon intensity of steel imported from around the world,” but is “disappointed that to date the EU has not been prepared to agree to US proposals to establish new trade measures that can effectively address these two key issues, which are critical to the future of both the US and EU steel industries.”
“We recognize that these discussions are challenging and we thank the Biden administration for continuing to press for an agreement that ensures the long-term viability of the American steel industry,” Dempsey said in a statement. “We will continue to advocate for an agreement that provides for meaningful and enforceable measures to restrict steel imports from all countries that contribute to non-market excess capacity and that also provides for tariffs on imports of higher carbon emissions intensity steel products.”
Authors: Euan Sadden, Justine Coyne
US, EU extend negotiations on global steel, aluminum pact as no deal reached at summit
The US and EU were unable to reach an agreement for a Global Arrangement on Sustainable Steel and Aluminum during a summit in Washington Oct. 20. Negotiations for a GASSA deal will continue until the end of 2023, extending an original targeted deadline of Oct. 31.
Background
- On Oct. 31, 2021, the EU and the US agreed to re-establish historical transatlantic trade flows in steel and aluminum.
- The US agreed to suspend Section 232 duties (25% on steel and 10% on aluminum) and allowed duty-free importation steel and aluminum from the EU at a historical-based volume while the EU suspended its rebalancing duties on selected US products including steel and aluminum.
- The US and the EU agreed to suspend the WTO disputes they had initiated against each other regarding the US Section 232 measures and the EU’s additional duties.
- The EU and the US also agreed to negotiate a global arrangement to address carbon intensity and global overcapacity across the steel and aluminum industries with an Oct. 31, 2023 deadline set to wrap up negotiations.
Why it matters?
Trade
- Without an agreement in place or extension granted, the US Section 232 tariffs on EU steel and aluminum would go back into effect at 12:00 am Jan. 1, 2024. EU retaliatory duties against the US could also be put back in place.
- The move by the US and EU to address emissions in addition to excess capacity is a new approach to trade remedies that typically only target dumping and subsidies.
Emissions
- The International Energy Agency estimates that direct CO2 emissions due to crude steel production is approximately 1.4 mt CO2/mt of steel produced. Overall, the steel industry accounts for about 6-9% of global CO2 emissions, depending on estimates.
- The global aluminum industry accounted for 270 million mt of direct CO2 emissions in 2022, about 3% of the world’s direct industrial CO2 emissions, according to the IEA.
- According to the IEA, both the steel and aluminum industries are not on track to achieve net zero emissions by 2050 on a global basis.
Excess capacity
- According to the Organization for Economic Cooperation and Development Steel Committee, global steelmaking capacity increased to 2.46 billion mt in 2022, with excess capacity surging to 632 million mt.
- A September report by the OECD Steel Committee found global steel production is projected to reach 2.5 billion mt in 2023, with an increase of 56 million mt this year alone, marking the largest annual expansion in a decade.
- China’s aluminum output has surged over the past two decades, with the county accounting for roughly 59% of global aluminum production in 2023, according to data from the Aluminum Association. Total aluminum production in China this year is estimated to be 41.2 million mt, up from 2.4 million mt in 2000.
- A 2021 study by the OECD that looked at 32 aluminum firms—representing 70% of the market—globally found that firms in China receive vastly more government support than similar firms in the rest of the world. The report estimates the value of China’s support to have ranged between 4% and 7% of the annual revenue of these firms compared with about 0.2% of annual revenue at other firms in the sample.
- The global aluminum surplus is expected to be about 800,000 mt in 2023, Alcoa CEO William Opliger said during the company’s third quarter conference call Oct. 18.
Steel Prices
- Global steel prices have been under pressure in 2023, falling from record highs reached in 2021 and 2022 as demand recovered from the COVID-19 pandemic and as prices rose in the wake of the Russia-Ukraine war.
- The benchmark Platts TSI US hot-rolled coil index has averaged $908/st year-to-date through Oct. 19 on an ex-works Indiana basis, according to S&P Global Commodity Insights data. This is down from a full-year average of $1,016/st in 2022.
- Domestic prices for hot-rolled coil in Northwest Europe have averaged EUR733/mt year-to-date through Oct. 19 on an ex-works Ruhr basis, down from a full-year 2022 average of EUR904/mt, according to S&P Global data.
- Domestic prices for hot-rolled coil in China, meanwhile, have averaged $585/mt year-to-date through Oct. 19, down from an average of $680/mt for full-year 2022 on an FOB basis for SS400 grade coil, according to S&P Global data.
Aluminum Prices
- Global aluminum pricing has been challenged in 2023 on lower demand in most end markets, particularly building construction and packaging.
- In the US, the benchmark Platts aluminum P1020 transaction premium delivered Midwest has averaged 24.28 cents/lb this year through Oct. 19 down from a full-year average of 29.69 cents/lb in 2022, according to S&P Global Commodity Insights data.
- In Europe, the Platts P1020 aluminum duty-paid in-warehouse Rotterdam premium has averaged $295/mt this year through Oct. 19, down sharply from a full-year average of $461/mt in 2022.
Authors: Euan Sadden, Justine Coyne
EU energy reform signals positive, says Unesid
According to national steelmakers’ association Unesid, once the text has been finalised, it will be necessary for the Spanish government to have the political determination to ensure competitive, stable and predictable prices for industrial consumers.
Unesid points out that, despite the Spanish government’s and other countries’ attempts, the current system “sanctifies” pricing in the spot market, in such a way that all electricity that is negotiated in that market will be transacted at the price of the most expensive, usually that generated with natural gas.
“If mechanisms that effectively encourage bilateral contracts are not established, the industry will be forced to pay for a significant portion of its electricity at the rate of natural gas prices,” the association observes.
Regarding contracts for difference (CFD), Unesid maintains that the agreement will allow the countries to ensure prices to final consumers, and will provide an important guarantee to electricity producers.
CFDs allow national governments to agree on a stable price for the purchase and sale of electricity in a fixed period with suppliers and then return the difference depending on whether the final price has been higher or lower than what was agreed, Kallanish notes.
The association, however, is concerned that “while the agreement supports the French government’s treatment of its consumers or the German government’s plans to dope its industry, other countries with a smaller budget or political will may unfairly leave their industry at a clear disadvantage”.
The reform is the EU’s long-term response to the energy crisis experienced in 2022 as a result of the Russia-Ukraine war. Despite a high share of renewables in power generation, sharp increases in gas prices have led to more expensive electricity, since the EU electricity market was mainly based on the use of fossil fuels. After implementing measures to counter the rise, such as subsidies and the suspension of VAT, the reform is now focused on long-term solutions, to avoid similar situations in the future.
Todor Kirkov Bulgaria
EU, US continue sustainable steel agreement negotiations
The EU and US will continue negotiating on the Global Arrangement on Sustainable Steel and Aluminium (GASSA) till the year-end deadline, after failing to reach an agreement in time for Friday’s EU-US summit in Washington.
The summit had been hotly anticipated to produce an interim agreement that would go some way to establishing a permanent GASSA between the EU and US, with other developed economies also expressing a desire to join, Kallanish notes.
Eurofer said earlier this month the meeting should outline “an ambitious framework that will provide clear guidance and include the substantive elements of” GASSA, while the details will need to be worked out in the coming months.
The OECD recently noted that global excess steelmaking capacity has exceeded 600 million tonnes/year, with the majority found in Asia, the Middle East and North Africa. Some 150m t/y of new capacity additions scheduled by 2026 are meanwhile primarily carbon-intensive blast furnaces, Eurofer pointed out.
However, negotiations were reported to have broken down on the eve of the summit. The EU-US joint statement following the meeting focused on geopolitics and made little mention of GASSA, other than to say: “Throughout these two years [of negotiations], we have made substantial progress to identify the sources of non-market excess capacity. We have also achieved a better understanding of the tools to address the emissions intensity of the steel and aluminium industries.”
“We look forward to continuing to make progress on these important objectives in the next two months,” the statement published on 20 October adds.
If no agreement is reached by year-end, Section 232 duties will be reimposed on EU steel supply.
Adam Smith Poland
European prices stabilise for now, CBAM looms: conference
Steel prices in Europe are now finding stability. Going forward, with the Carbon Border Adjustment Mechanism (CBAM)’s crucial role in promoting “greener” steelmaking practices and growing importance of scrap in green steelmaking, the industry is poised for significant changes.
The emergence of a two-tier market in Europe is likely amid CBAM, while divergent economic dynamics across different regions are contributing to the increasing complexity of the steel industry’s landscape.
These issues were discussed by panellists at Kallanish Flat Steel 2023 in Istanbul last week, with southern Europe editor Emanuele Norsa leading the discussion.
One of the central themes discussed was the state of steel prices in Europe. Despite hitting a low point, it was noted that current stability is primarily attributed to raw materials costs. While steel mills are eager to increase prices, their efforts face obstacles due to the prevailing weak market sentiment.
The EU is now subsidising its steel industry as part of its decarbonisation efforts. This was considered unthinkable a decade ago but is now deemed a necessity. Opinions on CBAM vary, with some seeing it as a way to level the playing field and others viewing it as just another trade measure. In any case, it is expected to increase costs for European end users.
The panel emphasised that CBAM, whose effects will be felt tangibly from 2026, is now regarded as an indispensable instrument in the drive towards decarbonisation. This marks a significant shift in consumer behaviour, notably among customers, including automakers, who are now increasingly inquiring about low-emission steel products.
Scrap will become increasingly important as a “green” steelmaking feedstock, leading to potential shortages, pointed out Ian Roper of Kallanish Consulting Services.
Elina Virchenko UAE
European HRC prices don’t rise despite mills’ efforts, although cheapest options vanish
The lowest prices that had been available earlier in October have disappeared from the market, sources said.
“The mills cannot really maintain prices below Eur600/mt ex-works as production costs are high,” a South European service center said. “As for import, there are few offers just below Eur600/mt CIF South Europe, and they are uncompetitive. It also seems that safeguard quotas will not be filled for the first quarter, so buyers will have to buy from local suppliers.”
Lack of competitive import offers, combined with production cuts in Europe, have been supporting domestic coil prices.
Germany’s ArcelorMittal temporarily idled blast furnaces No. 2 and No. 3 at its Bremen site Oct. 1. ArcelorMittal has also shut blast furnace A at its steel plant in Ghent, Belgium, and was planning to close a furnace at its Fos-sur-Mer site in France. Blast furnaces at the Salzgitter plant in Germany and Tata Steel in the Netherlands have also remained idled for maintenance.
Those factors, however, have not fully offset negative effects from weak demand. Trading activity has remained limited from both end-users and distributors.
“Neither mills nor traders see moves in the market,” a German service center source said. “Therefore, I do not see possibility of increase. Still, the mills are looking for every single ton to book and still are ready to give discounts for reasonable quantity. In my opinion, mills are now collecting orders if there are any, may schedule volumes for the first quarter and half 2024 in order to fill up their production as much as possible.”
Some market sources, however, said buyers have started to slowly return to the market, although the volumes remained below normal for this time of the year.
“Order books of big mills are not as bad and stocks of distributors are not as high as some market participants claim, so some restocking should start soon, and prices are unlikely to move down,” a Northwest European distributor said.
Platts assessed domestic prices for hot-rolled coil in Northwest Europe down by Eur5/mt day on day at Eur605/mt ex-works Ruhr Oct. 19.
Tradable values have been heard at Eur590-620/mt ex-works Ruhr, with the majority of data reported at Eur600-610/mt ex-work Ruhr.
Platts assessed domestic prices for hot-rolled coil in South Europe unchanged day on day at Eur600/mt ex-works Italy Oct. 19.
Tradable values have been reported at Eur600/mt ex-works Italy. Some sources also reported achievable prices at Eur580-590/mt ex-works Italy, but the information was not widely confirmed in the market.
Author Maria Tanatar
Platts is part of S&P Global Commodity Insights.
Blastr signs cooperation for clean electricity
Blastr Green Steel (Blastr) has signed a letter-of-intent (LOI) with Norwegian power company Sogn og Fjordane Energi (SFE) for long-term supply of clean electricity to Blastr’s pellet plant.
The pellet plant is projected to be built on Lutelandet on the west coast of Norway, to supply feedstock to Blastr’s ultra-low CO₂ steel plant currently under development in Inkoo, Finland. In August, Blastr selected the Lutelandet industrial area as a potential location for the development of a plant for converting iron ore pellet feed into direct reduction (DR) pellets. The site has established industrial infrastructure, access to renewable energy, and a deepwater port at a strategically placed North Sea location.
Under the LOI, Blastr and SFE will work together to establish a long-term power supply agreement, Kallanish understands. The parties target signing a final agreement by the end of 2025, subject to Blastr attaining relevant regulatory approvals and making a final investment decision for the Lutelandet plant.
Blastr also has an LOI with Redcar Bulk Terminal (RBT) at Teesside, United Kingdom, as another potential location for the pellet plant. By considering two sites in parallel, Blastr maintains optionality during the development process to optimise the green steel value chain.
Christian Koehl Germany
German mills call for intervention on power costs
The voice of Germany’s steelmakers, federation Wirtschaftvereinigung (WV) Stahl, has issued another call on the Government to provide for an easing of the electricity costs that keep devouring the margins of mills.
“We urge the government to provide for lower electricity prices, as our member companies are in the midst of an unprecedented transformation,” says WV Stahl’s managing director, Kerstin Maria Rippel. In order to achieve change in technology, in particular for decarbonisation, companies depend on affordable power more than ever before, Kallanish learns from Rippel.
She points out that especially the cleanest route of making steel, electric arc furnaces, is also the worst hit by power costs. The situation is all the more painful, as most EAF mills are medium-sized companies.
An immediate cause for the call were the latest crude steel production figures, which for EAFs in August declined year-on-year for the 18th time in a row. In the first eight months of the year, EAFs produced 6.8 million tonnes of crude steel, which was some 12% below the corresponding 2022 period. With only 707,000 tonnes made in August, the output was even lower than the previous low point in 2009, during the financial crisis, WV Stahl underlines.
Production from basic oxygen converters deviated only minimally from the previous year, with 17.6m tonnes made in the first eight months. Both routes taken together produced 24.3m tonnes, down 4% y-o-y.
Christian Koehl Germany
Trade, demand indicate EU HRC prices bottomed: GMK
The downward price trend in Europe for hot rolled coil and other flat products has bottomed, according to Ukraine-based consultancy GMK Center.
Speaking at Kallanish Flat Steel 2023 in Istanbul on Thursday, GMK chief executive Stanislav Zinchenko stressed that underlying data point towards stability in end-use demand in Europe in the second half of 2023 versus H2 2022.
“We calculate that by the end of the year, end user demand overall in Europe will be marginally higher compared with full year 2022. We have seen a slowdown since July, but we have not seen a dramatic fall,” Zinchenko said.
According to the latest outlook issued by Eurofer in July, EU real steel consumption should grow 0.3% year-on-year in 2023. This outlook could nevertheless be revised downwards in the coming weeks.
Despite the uncertainty, GMK believes the latest price drops in Europe were mainly dictated by import competition. “In October, nevertheless, we see that import offers of HRC in Europe have stopped being competitive; therefore, imports’ negative pressure is easing,” Zinchenko observed. By the end of the year, steelmakers in Europe are expected to try and lift offer prices, he added.
GMK expects HRC prices in Europe to fluctuate in the range of €640-750/tonne in 2024. “With the current raw material costs, we see €640 as the floor for the market,” he noted. This outlook is based on iron ore prices remaining above $105/t and coking coal above $250/t.
According to Kallanish indices, HRC prices in both Italy and northern Europe have been suffering from downward pressure since the beginning of the second quarter. In recent weeks, the market has confirmed the view that prices are near bottom, but a real recovery of transaction levels has not yet materialised.
Emanuele Norsa Italy