The impact of the Carbon Border Adjustment Mechanism (CBAM) is yet to be fully reflected in EU steel prices, while distributors’ survival depends on the mechanism being extended downstream. Distributors need to adapt to changing customer needs and Europe, in general, to the changing global landscape if its industry is to survive.
So concluded panellists at the EUROMETAL Regional Meeting Central Europe in Warsaw this week, attended by Kallanish.
Energy and labour costs are more dominant factors in EU pricing than CBAM. However, this is mainly because the market is still working through large inventories accumulated during the front-loading of imports before CBAM and the tariff-rate quota system were implemented. “Now it’s just a matter of [inventories] being digested by the market, and this will come,” said Konsorcjum Stali long products purchasing head Marcin Matysiak.
CBAM did boost EU steel prices by some 5% in the first quarter, but keeping steel-containing manufacturing within Europe is the more pressing issue, argued Carboferr chief executive Roland Fazekas. A decade ago his company invested downstream into machining and engineering capability to produce parts for sectors such as automotive. “We are fighting with the tier ones and the OEMs at the same time. Plus, we are having the mills on the other side,” he noted.
The firm was once contracted to provide parts for BMW production in Hungary. “It was an issue with the counterparty, what we outsource to China, what we keep in our own production. The effective [EU] import duty on a Chinese precision tool is 1.5%, roughly. If we just look at quarto plates directly imported from China, it is 70% import duty. I think the Chinese are laughing all the way down on us, that how come we are so stupid?”
“We are at the first line between the upstream and our customers. Customers create demand,” said Wojciech Gruszka, CEO east ArcelorMittal Distribution Solutions. “If we allow to push this production of metals, processing of metal outside of Europe, we will die … We know that they [customers] are starting switching to [importing] the semi product. They are cutting costs.” CBAM is therefore “a good direction but this is not enough”, he noted.
There may be some resistance from authorities to implement downstream goods tariffs, however, due to fears over retaliation against EU manufacturing exports, Fazekas added.
In any case, trade barriers should be limited in duration and have clear targets, noted Ferona ceo Jan Moravec.
European policy needs to facilitate industrial survival amid the changing global landscape. Its mills are suffering losses while distributors are operating at close to zero profit margin, Moravec continued. ESG reporting requirements mean companies “have to have departments … maybe scientific teams for analysing all the rules and the standards,” he noted. Green Deal targets should be realistic, while market protection should move faster, as it does in the US, rather than authorities overanalysing, he added.
Investments to adapt are also crucial. “2-3 years ago, we sold … more or less about 200 items, and the average [sale] was two tonnes. Now we are selling almost 1,000, average 100 kilo. It means that it’s a complete change,” said Stalprofil board member Zenon Jedrocha. “We have to invest plenty of money for the two-high storage system, and it’s a fully automatic system that allows us to sell such more items.” He added that “plenty of distributors” have invested at high interest rates in Poland but “we are waiting since years for a better time”.
Konsorcjum Stali recently completed its new service centre investment to respond to customers’ changing logistics and quality needs, while Ferona is investing into digitalising its processes to respond to changing consumer behaviour.
Demand for premium-fetching green steel has so far meanwhile been tempered, partly by the squeezed profit environment. “Every single change on our side, regarding prices, even during the contract time, one quarter, two quarters, for them [our customers] is a problem that they cannot accept,” Gruszka noted. “They cannot take the burden of the increasing of the raw material from our side. They are not working on three-digit margins, right?”
Without government incentives for green steel use, “our customers do not care at the moment [about green steel],” said Moravec. Moreover, the definition of “green” steel first needs to be agreed before a market can be created.
In terms of future steel demand, Central and Eastern Europe should be a beneficiary of manufacturing relocation from western Europe, said Fazekas. Consumption is likely to remain flat for the next 2-3 years, Moravec noted. Distributors will look to grow their business in tandem with returning EU steel capacities, even if demand remains flat, Gruszka noted. Jedrocha highlighted EU-funded projects should spur demand in Poland, while Matysiak concluded Konsorcjum Stali is also prepared for expected improved demand.
