German mills’ costs remain high until spring 2024

Production costs for German steelmakers reached a critical level in the fourth quarter, and will not drop for another couple of months, says Andreas Schneider of Stahlmarkt Consult.

According to his calculations, costs for oxygen-route mills rose by €80/tonne ($88) from July to October, and have remained unchanged since. He attributes this mainly to notably higher prices for coking coal, which rose from $237/t in early July to almost $317/t at the end of the year, according to the Kallanish coking coal fob Australia index. It is the highest price level for coking coal, as well as for German production costs, since March, Schneider notes.

“Given that spot market prices for steel have fallen over recent months, steelmakers will hardly break even,” he writes in his regular blog. Schneider notes that coil mills have kept making money on annual contracts, at prices way above spot prices. He questions, though, if the customary separation of contract versus spot prices can be maintained.

Recent contract negotiations took place in an environment of spot prices brought up by mills since November, at least nominally, while purchasing activity remained weak. Carmakers initially asked for a year-on-year reduction of at least €100/t, which in many cases would have undercut the spot price. Eventually, they confined themselves to a y-on-y reduction of around €50, “because they know they need to keep the mills alive if they want to have steel in the future”, as one observer put it.

The base costs for electric arc furnace mills have risen as well, but to a lesser extent. In winter, in particular, prices for scrap tend to be at their highest, while power prices have remained flat, Schneider notes. He assumes that costs for both routes will remain as is for the winter months, and very cautiously suggests that “come spring, they might come down somewhat”.

Christian Koehl Germany