Europe energy crisis creates opportunity for Southeast Asian steelmakers

Companies active in the steel industry in Europe are increasingly turning to steel imports from Asia amid spiking energy costs and barriers to imports from the Black Sea region, sources told Fastmarkets on Tuesday September 6.Steel semi-finished products are not subject to import duties or quotas in the EU, while long steel materials from Southeast Asia are seen as replacements for Turkey-origin products, whose costs are also increasing sharply due to the energy prices but which nevertheless routinely take up all of the available EU import quotas.

Asia has become a cheaper market from which to source products, and has not shown any significant energy cost rises because Asian nations are not directly reliant on supplies of Russian gas via the Nord Stream 1 pipeline. Some, such as India and China, have even benefitted from purchasing Russian coal at lower prices in recent months, sources said.

Deals done
Over the past few weeks, semi-finished and long steel sales from Southeast Asia to Europe were estimated to total more than 100,000 tonnes, Fastmarkets heard.

Steel billet was heard sold by blast furnace (BF)-based steel mills in Malaysia and Indonesia at $515-525 per tonne fob recently and will go to buyers in Germany or Poland, according to market participants. At least 30,000 tonnes was sold from Indonesia to Germany and Poland, Fastmarkets heard.

The same BF mill in Indonesia sold a 10,000-tonne cargo to traders late last week at $515 per tonne fob, and this will go to a steelmaker in Turkey, according to sources.

Price arbitrages have been aided by falling costs for bulk freight because ships were widely available. The freight cost for large vessels containing steel shipped from western India to Europe was quoted at $80 per tonne, Fastmarkets heard on Tuesday.

“Buyers in Europe are purchasing billet and finished long steel from Asia because they are worried about steel supply. They may not be able to get steel from their usual suppliers there due to energy costs,” a trader source in Singapore told Fastmarkets on September 5.

European gas prices have soared this year due to the Ukraine-Russia war, with Russian natural gas producer Gazprom shutting the Nord Stream 1 pipeline and cutting off supply to European countries such as Germany. This was widely seen as a reaction to the imposition of trading sanctions on Russian companies and individuals by the west because of their support for Russia’s invasion of Ukraine.

“This is all driven by the [uproar around] energy costs in Europe. The EU cannot allow its own industry to be [destroyed] so I think it will provide subsidies which will stop these steel imports by next month,” a representative of a major Chinese trading firm said.

“EU steelmakers will ask, ‘How can I afford to close my factory?’ It is 100 times more difficult to close factories in Europe than in Asia due to [the difference in] labor laws,” he added.

Europe supports Asia prices
Transactions to Europe and Turkey were helping Southeast Asian BF-based mills to raise their steel offer prices despite tepid import demand in their own region, sources said.

“The Indonesian and Malaysian steel producers are already sold out of October-shipment rebar cargoes, which is why they are not urgently looking to sell rebar into Southeast Asia and can wait for November-shipment negotiations to start,” a fabricator source in Singapore told Fastmarkets on September 5.

Traders said that the major Indonesian mill had increased its offer price for wire rod to $580 per tonne fob this week on account of stable demand, an increase of $10 per tonne from its previous offer, although Asian buyers were not purchasing at that price.

Fastmarkets also heard that the Indonesian steelmaker raised its offer price for 3sp-grade steel billet to $525 per tonne fob on Tuesday, up from $515 per tonne fob last week.

European mills try to raise prices
Energy prices in Europe have been out of control in recent months.

For example, in July 2021, average electricity prices in Italy were around €400 ($397) per MWh, up from about €271 per MWh in June 2022 and sharply up from €103 per MWh in July 2021, according to local energy service company Gestore dei Mercati Energetici (GME). During the week ended August 21, average electricity prices in Italy exceeded €500 per MWh.

In July 2022, the average wholesale price of electricity in Germany exceeded €315 per MWh, nearly four times the price in July 2021. During August, the price for energy in the nation surpassed €500 per MWh for the first time in history, sources told Fastmarkets.

Faced with these unprecedented energy price rises, steel mills have started to increase their prices.

In late August, Europe’s leading steelmaker, ArcelorMittal, announced €50-100 per tonne price rises on all coil products and a €100 per tonne price increase for long steel products

But European steel market fundamentals have been too weak recently to support such huge price rises, especially in the flat steel sector, sources said. European flat steel buyers have been overstocked with commodity grades, while end-user demand from the key automotive industry has been persistently low.

As a result, European mills started to cut their output in an attempt to balance the market.

Notably, ArcelorMittal said recently that it will shut down blast furnaces in Bremen, Germany, and Gijon, Spain, due to the high energy prices and lower demand. It will also shut down the direct-reduction unit at its Hamburg long steel plant – producing wire rod – from the fourth quarter, and will reduce hours for workers at other locations.

“The high costs of gas and electricity are a heavy burden on our competitiveness. In addition, from October, there will be the gas levy planned by the federal government, which will continue to burden us,” ArcelorMittal Germany chief executive Reiner Blaschek said on September 2.

“As an energy-intensive industry, we are [very seriously] affected. With gas and electricity prices increasing tenfold within just a few months, we are no longer competitive in a market that is 25% supplied by imports. We see an urgent need for political action to get energy prices under control immediately,” he said.

Wire rod buyers look for new sources
European non-integrated wire rod processors have been strongly reliant on imported wire rod deliveries.

Since 2016, EU mills have been selling less wire rod in the spot market because they have preferred to process it themselves and sell directly to end-users, sources told Fastmarkets.

The import safeguard measures introduced in 2019 made imports more complicated for European buyers, with several key suppliers constantly exceeding their quota allocations for wire rod.

Among the major wire rod suppliers to the EU are Turkey, Russia, Belarus and Ukraine.

For example, in 2021, total wire rod imports to the EU amounted to 2.8 million tonnes, according to data from regional industry association Eurofer. Of that amount, Turkey supplied 347,730 tonnes (13% of total imports), Russia 330,974 tonnes (12%), Belarus 225,658 tonnes (8%) and Ukraine 194,785 tonnes (7%).

But Russia’s war against Ukraine has changed trade flows drastically.

As a result of the military actions since the invasion on February 24, Ukraine has been cut off from its major sea ports, Odessa and Mariupol, and can no longer export steel products by sea. Ukrainian producers have had to seek alternative routes, such as rail or road deliveries, but the volume of steel exports from the nation has dropped.

In March 2022, the European Commission imposed a ban on imports of finished steel products from Russia and Belarus. As a result, these two countries were granted no new safeguard import quota volumes for the second quarter of 2022.

With those wire rod volumes, as well as material from Ukraine, missing from the market, European buyers are now booking cargoes from countries that do not have individual quota allocations, such as India, Indonesia and Egypt.

Indonesia has increased its wire rod deliveries to the EU significantly. In the first six months of 2022, it exported 65,159 tonnes to Europe, up from 27,162 tonnes for the entire year of 2021.

India has also boosted shipments to the region. In January-June 2022, it delivered 69,158 tonnes to the EU, up from 23,875 tonnes in the full 12 months of 2021.

Published by: Julia Bolotova, Paul Lim, Lee Allen