Energy costs are unlikely to sink notably anytime soon, and German steelmakers will be struggling to hand them down to customers, says Peter Fertig, analyst at Frankfurt-based MBI Infosource. Steel prices could peak above today’s values, but the way down could be steeper.
Since shortly after this year’s price peak induced by the invasion of Ukraine, order intake has continuously remained below output, with mills’ negotiating power weakening continuously. “Order intake has been diminishing like butter in the sun, and a recovery of demand is not in sight,” Fertig said at MBI’s annual Stahl Tag conference on Tuesday, attended by Kallanish. New orders for flat products could remain low, or even fall further, he cautioned.
Regarding the extreme energy costs, “there will not be much room for decreases now, and in the long run they will remain higher than in previous years,” he observed. In normal times, mills used to hand the costs down in full, or even imposed a premium when energy prices rose, but nowadays they are facing losses, he added.
Due to the merit-order principle, electricity prices are tied to natural gas prices, which have become more critical since supplies from Germany’s main source, Russia, were reduced. The merit-order principle defines the market price for electricity by the most expensive production route, namely gas power plants. This is an economic principle “which you can abolish only by blocking gas-based electricity altogether, but then we are missing the flexibility of supply sources,” he said.
According to Fertig’s “quantitative model”, the average German price of hot rolled coil in 2023 might peak at €925/tonne ($889), above the current average of close to €800. His worst-case scenario sees the price sinking to €375, with a most likely base scenario still below today’s price, at €650. Cold rolled coil premiums over HRC could see a range of €75-175.
Rebar, which has long benefited from relatively healthy construction activity, at best could peak at little above today’s price, at €1,100/t, but will more likely drop to €760, or in the worst case sink to €450. Prices for wire rod will range slightly above those for rebar, according to Fertig’s forecast.
Christian Koehl Germany