Category: Latest Updates

More European steel market sources are adopting a stronger bearish outlook on HRC price developments after the summer months, with domestic prices still stable Aug. 19. As more mills return from their maintenance periods and force majeure after the summer, and with automotive not expected to return with acute demand, prices could take a downturn, sources told S&P Global Platts.

More material was said to be available from mills, returning mills and imports, with large mills in Brazil and Serbia also heard to be offering into the EU after a quiet spell.

“The market is very quiet, and imports are a lot cheaper than they were in June – my feeling is that there will come some pressure and prices may decrease,” a European cold-roller source said.

How rapidly prices might fall still depends on the level of demand in the latter half of the year, though sources stood by their doubts about how strongly the automotive and construction sectors might rebound in September.

“Auto still has big problems with semiconductor and chip shortages. Our hope was that OEMs would have higher demand in the second half but [that] will be postponed to next year because of shortages of so many materials,” the same source said, adding that customers in other segments like construction don’t have enough staff.

In the Italian market, activity was quiet on the buy- and sell-sides, with most producers out for the entirety of August.

“The three weeks of August is closed for summer holiday and they have the big maintenance in the year. Consider that all the Italian companies are closed till end of this week,” an Italy-based trader told Platts.

— Amanda Flint

Steel prices should notably retreat from their current record levels over the next two years, but remain above their historical averages in the medium term, says Moody’s. They will be underpinned by more solid demand and supply fundamentals and rising carbon costs on tightening emissions reduction policies in some regions, especially in Europe.

“Demand improvements should be driven by a continued recovery in steel-using end markets, such as (renewable energy) infrastructure and automotive, as Moody’s forecasts global light vehicle sales to reach pre-pandemic levels only by the middle of the decade,” the credit rating agency says in a note seen by Kallanish. “In addition, an expected re-stocking of still-low inventory levels globally should further fuel steel demand over the next few quarters.”

“The market environment benefits from structural improvements, as the recent prolongation and tightening of trade defence measures in Europe and the removal of value-added tax rebates on Chinese steel exports, should be supportive of more balanced international trade flows and limit the risk of excessively rising imports pressuring steel prices, as, for instance, seen in Europe in 2018,” it adds.

This comes as Moody’s assigned a Baa3 long term issuer rating to ArcelorMittal. It concurrently withdrew the Ba1 corporate family rating (CFR) and Ba1-PD probability of default rating (PDR), as per the rating agency’s practice for corporates transitioning to investment grade.

It also upgraded the senior unsecured rating on the group’s medium-term notes (MTN) programme to (P)Baa3 from (P)Ba1, the senior unsecured ratings to Baa3 from Ba1, the short-term rating on its Commercial Paper to P-3 from NP, and its other short-term rating to (P)P-3 from (P)NP. The outlook on all ratings has been changed to stable from positive.

The upgrade to Baa3 with a stable outlook reflects ArcelorMittal’s significantly strengthened operating performance and recovery in credit metrics over recent quarters and, in particular, in Q2, Moody’s concludes.

Adam Smith Germany

Iron ore prices should ease further in the coming months after the iron ore price rally started to show signs of weakening, according to Fitch Solutions. Demand from Chinese steel producers peaked in the first half of 2021 and this is coinciding with improved global supply.

The research firm has nevertheless revised upwards its 2021 iron ore price forecast from $160/tonne to $170/t, as prices rallied slightly above its expectations in H1. Beyond 2021, the firm expect iron ore prices to follow a multi-year downtrend, with prices forecast to decline to $75/t average by 2025.

As for China, “we expect the demand impact from stimulus to start wearing off from late 2021 as construction projects reach completion and the pipeline of further new projects lessens, with the Chinese Government focusing on tightening credit lines,” Fitch Solutions says in a note seen by Kallanish. “Additionally, the government is on a steel production limiting drive as an avenue to decarbonise the economy, where the aim for 2021 steel production is to total around 2020 levels.”

With China’s steel production increasing by 11.4% year-on-year in H1, however, H2 production would have to decline by approximately the same levels, which Fitch Solutions believes is realistically unattainable. Nevertheless, steel production will slow down in H2, dragging on iron ore demand.

The agency simultaneously expects Chinese domestic production of iron ore to increase as China attempts to reduce import dependency, especially as diplomatic relations remain frosty with Australia.

On the supply side, improving production growth from Brazil and Australia has started to loosen tight supplies on the seaborne market, though Vale will take longer to return to pre-Brumadinho dam collapse capacity levels, Fitch Solutions says. “With all miners holding onto production guidances, we expect better production figures throughout the rest of the year, compared to H121 in order to meet targets,” it concludes.

Adam Smith Germany

EU construction industry output is expected to rebound 5.5% on-year in 2021 and then by a further 4.5% in 2022. Automotive output is meanwhile seen rebounding 15.3% from a very low base in 2021, followed by 7.9% growth in 2022, says European steelmakers’ association Eurofer.

Following Covid-19-lockdown-induced residential construction activity stoppages in 2020, conditions in 2021-2022 will remain only marginally supportive due to only slight improvements in economic conditions and incomes, Eurofer says in a report sent to Kallanish. “There is already a widespread dichotomy between the upper-segment housing market, which is boosted by higher demand of better homes due to tele-working, and the lower-income segment,” the association comments.

“Civil engineering is expected to be an important growth area for the construction sector as governments invest in infrastructure as a counter-cyclical tool to boost economic performance,” Eurofer continues. “This segment will also be supported by EU-wide public policies (Next Gen EU, etc) whose effects, however, will be seen only to a limited extent during 2021.”

In the automotive sector, general economic uncertainty across the EU during the ongoing pandemic and subdued consumer confidence, due to poor disposable income developments, have continued to impact car demand. The recovery in EU production remains somewhat fragile and exposed to uncertainty factors.

If normal business conditions resume from the second half of 2021, it will take time for activity to return to pre-2019-downturn levels. Demand remains the biggest challenge, as consumers are likely to remain discouraged until the macroeconomic picture and consumer disposable income substantially improve, Eurofer observes.

“In 2021, provided that the industry has been able to restore its production to normal levels, and with WLTP distortions having faded out by then, the launch of new models – many of them hybrid or fully electric vehicles – could be a supportive factor, combined with some improvement in real wages and labour market dynamics on the demand side,” Eurofer comments. “Full recovery in global trade and external demand from major markets such as the US, China and Turkey will remain a key factor for EU car exporters.”

Adam Smith Germany

Liberty Steel Group’s Polish heavy plate mill, Huta Czestochowa, is expected to increase production to 1 million mt/year, with current production at its highest monthly levels since 2017, the company said Aug. 18.

With Liberty having restarted the plant within a few weeks of taking over the lease in December 2020, in July more than 57,000 mt of greensteel slab was produced, up from 16,000 mt in January, while the rolling mills increased their production of greensteel heavy plate up to 42,000 mt in July from 12,000 mt in January, it said.

The company said it expects the Czestochowa plant made products to be used in major infrastructure projects due to be started shortly under the Polish Government’s Recovery Plan.

Liberty said the plant achieved positive EBITDA within seven months of taking over the plant’s lease, with EBITDA of Eur7.1 million ($8.3 million) for the month of July.

“We will now be focusing on further increasing our plant’s production of high quality GREENSTEEL, setting this plant up for a strong and sustainable future,” Liberty Czestochowa Executive Director Krishnamoorthy Venkatasubramanian said.

In May, Liberty Steel Group completed the acquisition of Huta Czestochowa, which it started leasing in late December, with the acquisition price put at $51.55 million.

Liberty Steel has exercised its option to acquire the mill, with an 840,000 mt/year crude steel capacity, from the Polish administrative court. The mill had run into difficulties under its previous leaseholder, Sunningwell International, and was idled in October.

— Filip Warwick

Production at Russia’s Krasny Oktyabr (Red October) decreased in July compared with the previous month, the company says. It amounted to 16,691 tonnes of stainless steel, down by 24.8% on-month, Kallanish notes.

In June, production was 24,900t of stainless steel (see Kallanish passim).

Red October nevertheless managed to maintain its leading position in the production of stainless steel in the first half of the year. Moreover, it is consistently the leading Russian exporter of stainless steel, with a 22.4% share in Russian stainless exports, according to national special steel association USSA.

The Volgograd-based steelmaker produced 207,990t of stainless steel in 2020, up by 2% on-year.

In July, the plant began the repair of heat-treatment furnaces in the rolled processing shop (see Kallanish passim). The equipment will return to service after a three-year downtime and two furnaces are planned to be commissioned in August.

Heat-treatment furnaces are used for the processing of high-quality rolled steel, which is marked with “QT” – heat-treatment quenching and tempering – and mostly exported.

Thanks to the commissioning of the furnaces, the throughput of the plant will increase, and the workshop will be able to fulfil a larger number of orders for this type of product, the enterprise said earlier.

In June, the company successfully produced reworking shaped and rectangular billet from hull steel, which will be used in the construction of military ships for Russia’s navy.

Svetoslav Abrossimov Bulgaria

The onset of hydrogen-based steelmaking will increase scrap use in steelmaking, thereby reducing overall iron ore demand, although the pellet market will expand rapidly, says Wood Mackenzie. Coking coal will meanwhile remain an indispensable feedstock for steelmakers in India as the country’s steel demand outpaces its ability to decarbonise, Kallanish notes.

Carbon emissions in the steel sector must fall by 75% from today’s levels to limit global warming to within 2C, says the research company. This means reducing global steel emissions from over 3,000 million tonnes of carbon dioxide equivalent in 2020 to just 780mt CO2 by 2050. This will pose a major challenge, especially to rapidly growing developing economies, as the steel industry will need to balance managing rising demand and pressure to decarbonise.

Wood Mackenzie says five things need to happen for the steel sector to achieve a 2C warming pathway. These include doubling scrap use in steelmaking, trebling direct reduced iron production and use, reducing global average electric arc furnace emissions intensity by 70%, and reducing blast furnace-basic oxygen furnace emissions intensity by 30%. Lastly, 45% of residual carbon emissions (around 500m t/year) must be captured and stored.

This presents a huge opportunity for DRI. “Although the rise in scrap consumption would lead to total iron ore demand falling by 24% below our base case, the market for pellet products would expand by 35%,” says Rohan Kendall, head of iron ore research. This would boost DRI trade. Australia and Brazil could be well positioned to produce H-DRI for export. China and Europe would be key DRI importers.

To achieve scrap use growth, scrap recycling rates would have to increase from 80-85% to 95%. India and China scrap supply chains would require substantial development which would contribute to displacement of iron ore demand, notably taking effect post 2030.

Annual metallurgical coal demand is seen halving from Wood Mackenzie’s base case scenario to 622mt by 2050. Seaborne metallurgical coal trade would fall, although domestic coal in China would bear the brunt of declines.

“Seaborne imports would be all but eliminated during the 2040s in China, leaving only a nominal volume of the highest-quality coking coals imported to coastal mills,” says metallurgical coal principal analyst Anthony Knutson. India, on the other hand, would double its import requirement to 123m t/y.

“PCI demand comes under great pressure in a 2C scenario falling by 50% or 37mt as hydrogen injection rates increase,” Knutson adds.

A successful rollout of carbon capture and storage would provide an opportunity for continued use of metallurgical coal in steelmaking as emissions captured via this pathway are from BF/BOF steelmaking, Wood Mackenzie concludes.

Adam Smith Germany

Cognor benefited from the continued steel demand recovery and still higher prices in the second quarter. Revenue surged 57% on-year in Q2 to PLN 716.1 million ($184.5m), while net profit soared 260% to a new quarterly record of PLN 78.8m.

In the first half of 2021 the Polish steelmaker’s overall sales rose 4.3% on-year to 432,972 tonnes. Finished product sales increased 4% to 271,329t but semi-finished steel deliveries fell 17% to 79,807t. Scrap sales rose 21% to 81,836t.

H1 revenue surged 42% to PLN 1.3 billion and net profit ballooned 406% to PLN 124.7m, Kallanish notes.

Spreads widened thanks to the faster increase in steel prices then scrap prices, while costs reduced due to the lower consumption of some input materials following the completion of investments to increase efficiency.

The firm’s Huta Stali Jakosciowych (HSJ) unit saw exports comprise 56.5% of H1 sales, while at Ferrostal Labedy they accounted for only 11.4%. Buyers Wobi-Stal and Sambud-2 accounted for over 10% each of Ferrostal Labedy’s sales.

Adam Smith Germany

India will become the world’s largest steel exporter in the coming years, surpassing China, on the back of its capacity expansion, global steel demand, and China’s export restrictions, according to Jindal Steel and Power (JSPL) managing director V.R. Sharma.

“India is seeing a massive capacity expansion, expected to get commissioned in over four to five years,” Sharma said in an exclusive interview with Kallanish. “China, on the other hand, is reducing exports to fulfil its domestic demand, making a clear space for India to become the global steel exporter. The whole world is working on a stimulus package to develop infrastructure, which ultimately creates a huge steel demand in the coming years.”

India should not see the ASEAN countries as competitors, Sharma explained. “China is not exporting anything, the Philippines is not exporting anything, neither Malaysia nor Thailand. Although there can be exceptions, but India is supplying steel to these nations,” he observed. “All these countries have their domestic demand and we don’t see them exporting in the coming future.”

JSPL is eyeing the expansion of its Odisha-based steel unit’s capacity and a new project installation in Andhra Pradesh. “We are entering into the hot rolled coil segment, with a steelmaking and rolling mill capacity expansion of 3 million tonnes/year at our Odisha-based unit. The expansion will be partly a greenfield project and partly a brownfield project. The company will be investing INR 21,000 crore [$2.82 billion] and the project is likely to get commissioned in March 2023,” Sharma commented.

“The Andhra Pradesh project will be installed in the port-based city of Krishnapatnam. The company is very much keen to install the unit near the port for the ease in import of raw materials and minerals. The project will have a 3m t/y steelmaking capacity and is likely to get commissioned through the fiscal year 2026,” he added.

In line with the government’s production-linked incentive (PLI) scheme for specialty steel, JSPL is working on producing specialty steel to serve Indian Railways. “JSPL congratulates the Government of India for their initiative on reducing imports of specialty steel by introducing the PLI scheme. JSPL has taken two keen projects out of the PLI scheme, which includes the grade 1175 heat-treated rails project used for deploying high speed and heavy load tracks. Another project being the production of 1080 grade head hardened rails used for metro rail services,” Sharma concluded.

Sayed Aameer India