After a rocky 2020 as COVID-19 hit both supply and demand, European steel mills see prospects for only a moderate increase in crude steel production in H1 2021, to be outpaced by a demand recovery backed by government economic stimulus.
Four major blast furnaces are currently being brought back on stream, while another three will go offline for maintenance later this year. Product tightness in some areas — driving some steel product prices to up to 13-year highs — may therefore be expected to continue, maintaining upwards price pressure as lead times stretch until Q3.
According to the World Steel Association, the EU produced 138.8 million mt of crude steel in 2020, down 11.8% on the year, and a third consecutive year of decline from the recent peak of 169 million mt in 2017. Industry sources do not foresee a return to pre-pandemic levels until at least 2023 in the case of production and 2022 in the case of demand.
European steelmakers’ association Eurofer forecasts that only 7.4% of the regional production volumes lost in 2020 will be made up in 2021 with further volume growth of 4.1% in 2022. Consumption will recover faster, Eurofer says: gaining 13.3% in 2021 and a further 3.4% in 2022, after last year’s 13% decline.
“2020 is likely to be one of the worst years on record, even if we will see positive figures in the fourth quarter,” said Axel Eggert, Eurofer director general, in a report this month. A Q3 rebound failed to compensate for exceptionally poor H1 performance, Eggert said.
Infrastructure
** Crude steel production in the broader European area, including Russia, CIS and Turkey, finished 2020 at 268.58 million mt, 6% below levels at the start of 2019, according to worldsteel data.
** Demand in 2020 was substantially hit by shutdowns in the automotive sector, which accounts for 19% of steel consumption, but which had largely recovered by Q4, partly on government stimulus encouraging electric vehicles production.
** In the EU, the pre-pandemic steel production decline is blamed partly on high import levels and changes in the automotive industry due to tightening emissions legislation.
** Government stimulus flowing into regional economies from Q3 2020 kickstarted both steel demand and prices after the pandemic’s first wave, prompting the restart of some blast furnaces (BFs) and electric arc furnaces (EAFs).
** EU steel production and demand are set to benefit from the European Commission’s EUR1.8 trillion ($2.19 trillion) recovery plan for a post-COVID-19 Europe, to support regional economies and steel industry decarbonization.
** Jefferies International analyst Alan Spence estimated mid-February that up to 5 million mt of EU capacity was still offline, although as much as 80% of the nearly 25 million mt of crude steel capacity idled by COVID-19 at the height of the pandemic in early 2020 is back online.
** Russia continues Europe’s largest crude steel producer by far, with 73.401 million mt produced in 2020, up 2.6% on 2019, with rising exports from some companies favored by a weak ruble. Russia’s MMK Magnitogorsk is set to idle its BF No. 9 in December for 134 days’ maintenance.
** Turkey marginally overtook Germany as Europe’s biggest steelmaker outside Russia in 2020. Turkey’s 2020 output increased 6% on the year to 35.764 million mt, compared to Germany’s 35.658 mt, which was 10% below 2019 output.
** Turkey’s steelmakers produce mainly from EAFs which are easier to switch on and off according to demand fluctuations than blast furnaces, where ramping up and cooling down many take weeks of careful monitoring to prevent damage.
** Isdemir, Turkey’s biggest integrated steelmaker, restarted its BF No. 2 in January after maintenance: it now has three of its four blast furnaces running.
Trade flows
** After a 2017-18 surge, steel imports into the EU have been restricted since mid-2018 by a three-year import safeguards system to expire June 30. Carbon steel imports fell 15.4% on the year in 2020 to 20 million mt, almost a third lower than the 2018 peak of 29.3 million mt, Eurofer reported.
** Lower EU imports are partly due to China attracting greater import tonnages of third-country steel in recent months to feed strong domestic demand. Rising international steel prices have also made imports less attractive in the EU market.
** China emerged in 2020 as a major importer of semi-finished steel. Russian mill NLMK said in October 2020 that despite freight rates to China being $20-$30/mt higher than to Europe, it foresaw relatively high levels of steel slabs to China until April.
** Mills in Turkey expect their exports to increase 10% on the year to 23 million mt in 2021, following a 2.8% decline to 20.6 million mt in 2020.
** Turkish mills continue to diversify their export business in the face of continuing trade barriers in major export destinations including the EU and US, shipping to 197 countries in 2020, according to Turkish Steel Exporters’ Union CIB.
** Adnan Aslan, CIB chairman, expects 2021 to be a “very positive” year, even if exports to the EU and the US remain limited. “Turkey has started to dominate Africa, Far East and South America markets in the last three years, with the removal of China from these markets,” he said.
** Russian imports were the second highest source of hot rolled coil, or HRC, imports into the EU in January-November 2020 at 1.27 million mt, after Turkish-origin imports at 1.64 million mt. The European Commission announced a provisional anti-dumping duty of 4.8-7.6% on imports of HRC from Turkey early in 2021.
** Ferrous scrap usage fell 10.5% on the year in H1 2020 to 209.83 million mt due to lower demand and collection and shipping restrictions during COVID-19 lockdowns, reported International Recycling Bureau BIR. This led to market distortions, with Russia raising its scrap export tariff and South Africa temporarily banning exports. China opened up to ferrous scrap imports on Jan. 1 following years of tariff barriers.
Prices
** A marked price uptrend in steel prices generally since late 2020 has been driven by a tightness of materials as demand rebounds, particularly of coil products in some parts of the EU, aggravated by logistic bottlenecks and extreme weather in Germany.
** S& P Global Platts’ North European domestic EXW Ruhr HRC pricing has averaged EUR710/mt since the start of January, having gained more than 70% over the last six months, amid lagging production and soaring costs of raw materials including iron ore, hovering around nine-year highs. Platts’ North Europe HRC assessment reached EUR730/mt Feb. 24, continuing at a 13-year high.
** In long products, Platts’ Turkey FOB export rebar assessment stood at $640/mt this week, 45% higher than a year ago. While US dollar values have weakened over the past year, accounting for some dollar-denominated price gain, the strong rebar prices also reflect a construction industry demand upturn in many nations, and a recent surge in scrap prices.
** Platts’ assessment for Turkish Heavy Melting Scrap 1&2 (80:20) import scrap – the main raw material for steel long products – hit $482.50/mt on Jan. 4 – its highest since the commodities price spike of early 2011 – squeezing mills’ margins despite the higher finished product prices.
— Diana Kinch, Laura Varriale
