European steel demand unlikely to rebound in 2023, Eurometal meeting hears

European steel distributors expected a difficult year for business in 2023 because of worries about consumption, the energy crisis, and a looming recession in Europe, market sources said during EUROMETAL’s regional meeting in Milan, Italy, on September 14-15.

The disruptions to global supply chains created by Russia’s unprovoked war against Ukraine, and the resulting energy crisis in Europe, were expected to take a toll on the steel sector in the area, the regional steel industry association’s meeting was told.

Fellow European steel association Eurofer expected steel consumption among the 27 EU member nations to drop by 1.7% in 2022. But this would be followed by a 5.6% recovery in 2023, it said.

The region’s steel distributors, however, had doubts about there being a steel consumption recovery in 2023, Fastmarkets heard.

Imbalance in steel market
Russia’s war against Ukraine has rattled the global steel markets, and caused a wave of a panic-buying during February-March. That pushed prices for flat and long steel to new historic peaks and broke records set in summer 2021.

For example, Fastmarkets’ calculation of its daily steel hot-rolled coil index, domestic, exw Northern Europe, averaged €1,278.50 ($1,276.91) per tonne in March 2022, up by €326.49 per tonne from €952.01 per tonne in February and up by €489.60 per tonne from €788.90 per tonne in March 2021.

But since April 2022, HRC prices in Europe have been falling non-stop amid slowing end-user demand and the overstocking that resulted from the earlier panic-buying.

“Steel sales during the second half of [2022] have been much lower than anyone would expect, so distributors still have quite large stocks [of flat steel products],” a distributor in southern Europe said. “In fact, steel sales in July 2022, which is traditionally a good-selling month for the sector, were even weaker than in July 2020 [the Covid-19 pandemic year].”

Eurometal’s stock index for flat steel service centers in the EU was 107 in June 2022, compared with 71 in June 2021. The index uses the 2018 average as its 100-point basis.

More production cuts expected
European steel producers have started to make massive cuts to output this month, with ArcelorMittal in the lead, idling five blast furnaces across its European assets recently.

“[But] more steelmakers need to cut output in order to stabilize the prices [for flat steel products],” another source said.

The chronic overstocking and weak demand from end-user sectors meant that more production cuts were needed to balance supply and demand, market sources said.

“Production cuts at [European] mills were announced too late. The situation [with steel demand] was already clear in May,” an Italy-based distributor said. “Further production cuts should be implemented until supply and demand are in balance.”

Sources agreed that the effect of the current production cuts on the European steel prices were still uncertain, and they expected more European mills to curtail their output to balance the market.

Energy prices to be main price driver
Despite weak demand for steel in Europe, the producers have been pushing for higher prices for both flat and long steel products recently, seeking €50-100 per tonne increases to account for the rises in costs.

“It is a cost-driven price increase, not demand-driven, so it will be extremely difficult to achieve it in transactions,” another trading source said.

For example, in July 2022, the average wholesale price of electricity in Germany exceeded €315 ($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.

Energy prices in Europe were expected to remain high in the long run due to the uncertainty in the market and the risk of further disruptions to Russian gas supplies to the EU.

“The year 2023 will be a year of low demand and high costs,” another distributor said.

Import pressure on European prices
Recently, the gap between overseas and domestic HRC prices in Europe has been enormously wide. Consequently, European market participants have suggested that the arrival of cheaper imported HRC in Europe might constrain the potential price growth early in 2023.

Notably, if more output cuts were to be implemented in the autumn of 2022, by the first quarter of 2023 European mills might reach a point when the balance between supply and demand was restored. So producers might try to implement price rises.

But if the European market were to be flooded by cheaper overseas-origin coil, a price rise would be quite hard to achieve.

Notably, Asian suppliers were currently offering HRC for delivery early in the first quarter of 2023 at €680-700 per tonne cfr to Italy, while that country’s mills have been offering HRC to the domestic market at €800 per tonne exw this month.

Published by: Julia Bolotova