Eurofer: Steel likely to stabilize after short-term rebound

Historically high steel prices showed the market was undergoing a “very strong, impressive short-term rebound” after a demand plunge in 2020 due to COVID-19, but it was too early to call this a supercycle, Alessandro Sciamarelli, director of market analysis and economic studies at the European Steel Association (Eurofer), told S&P Global Platts commodity journalists in a May 25 interview.

Industrial activity and steel production have rebounded more strongly than previously expected since Q3 2020, paving the way for a strong demand recovery in 2021, Sciamarelli said.

The upwards movement in steel and raw materials prices, part of a bigger global trend driven primarily by the US and China, was likely to stabilize once the imbalance between supply and demand slowly fades away, because such high prices are unsustainable in the longer term, he said.

Eurofer, a producers’ group, “does not agree that trade barriers are contributing to increased prices and to drive prices up,” Sciamarelli said.

Platts assessed steel hot rolled coil EXW Italy assessment up Eur40/mt ($49/mt) to Eur1,140/mt May 25, its highest-ever level, amid what was described as a “drastic material shortage” and high spot market activity. The daily HRC EXW Ruhr assessment increased Eur27.50/mt to Eur1,132.50/mt.

European steel activity ‘still rather low’

To put the rebound into context, steel market activity in Europe was “still at rather low levels” in historical terms, as the recovery has been from a low level, Sciamarelli said. The sector had already been experiencing some weakness even before the pandemic, demand having fallen 5% in 2019, he said.

Europe was hit more than some other steel-producing regions by COVID-19 and most mills still needed time to ramp up productions from stoppages during the pandemic, according to the Eurofer director.

“Even so, we are rather optimistic on the outlook for steel in Europe,” he said.

In the rest of 2021, steel consumption should continue to grow, according to Sciamarelli, who expressed particular optimism for the construction sector which accounts for around 35% of steel consumption and is set to receive “a lot of impetus from governments and the public sector”, and is well-placed to drive demand this year.

Automotive demand, which accounts for 16% of steel consumption in Europe, is rebounding from its 2020 slump but may remain relatively weak this year, amid uncertain economic prospects, he said.

According to Eurofer’s recent quarterly Outlook report, an expected 11.7% increase in apparent consumption in the EU this year won’t entirely offset declines of 5.3% in 2019 and 11% in 2020. More moderate growth of 4.9% is foreseen for 2022, potentially bringing demand back to pre-pandemic levels only at that time.

Scrap volatility

Ferrous scrap scarcity continued to be seen in Europe during the second half of 2020 due to the pandemic limiting arisings and distribution. Given strong demand and the trend towards wider use of scrap for electric arc furnace-based steel production in the move towards industry decarbonization by 2050, scrap supply and pricing volatility was not ideal for the EU steel sector, Sciamarelli said.

“We have seen some scrap export restrictions from some neighboring countries, relevant trade partners, which in Europe we oppose strongly and there are hopes these could all be removed as soon as possible. We hope the EU waste shipment directive revision will fully acknowledge scrap as a fully recyclable material to be used in steelmaking,” he said.

Platts assessed Turkish imports of premium heavy melting scrap 1/2 (80:20) unchanged at $515.75/mt CFR on May 25, remaining at the highest level since the Platts index began in April 2010.

The proposed Carbon Border Adjustment Mechanism — for which the European Commission is expected to make a proposal in June — will be a milestone towards the definition of green steel and towards decarbonization of the steel sector, Sciamarelli said.

This could be key in helping steel consumers understand which products are “green” and promote use of these products, he said, adding that higher carbon prices could be an incentive to decarbonize the industry and encourage the use of alternative fuels including hydrogen.

M&A

Liberty Steel’s announcement this week it was putting some UK plants up for sale has fueled speculation that European steel could be set for a new wave of merger and acquisition activity. Liberty Steel also has plants in the EU.

According to Sciamarelli, the steel sector was quite stable in terms of market players.

However, “the economic theory is that whenever there is a crisis in an industrial sector … acquisitions become cheaper,” he said, adding he “would not be surprised if a Chinese or Indian player might be interested in some assets that might become available” and invest in the EU steel sector.

Non-EU companies are prohibited from owning more than 50% of companies in the EU, Sciamarelli noted.

— Annalisa Villa and Diana Kinch