Flat steel price drops triggered by cheap imports
The prices for flat steel in Europe started to go down in May this year, despite reduced availability resulting from accident stoppages at ArcelorMittal plants in Spain and in France, as well as a declaration of force majeure at Tata Steel in the Netherlands.
“The recent price drop [in the flat steel market] was ‘imported’ from China – it is not a European factor,” Stanislav Zinchenko, head of Ukrainian commodities think-tank GMK Center, said.
In May, the gap between domestic and import HRC prices in Europe exceeded €100 ($109) per tonne, while lead times were similar, Fastmarkets reported at the time.
The lack of flat steel that follwed the ArcelorMittal accidents resulted in increased demand for imports, and that prompted the domestic price reduction, because of the huge gap between European and overseas coil prices, Fernando Espada, president of Eurometal, said.
“We were losing 6,000 tonnes per day [of flat steel production] in Aviles and an additional 10,000 tpd in Dunkirk,” he added.
Flat steel prices at bottom, likely to stabilize
The price downtrend that has dominated the European flat steel market in recent weeks seems to have come to an end, with prices seen recently to be stabilizing.
One commentator said that the risk of further price reductions in flat steel was limited to about €50 per tonne, because current prices were close to the bottom of the market.
Fastmarkets’ most recent calculation of the daily steel HRC index, domestic, exw Northern Europe, was €670.00 ($733.03) per tonne on June 22, down by €10.00 per tonne from €680.00 per tonne on June 21.
The latest calculation of the Northern European index was down by €21.25 per tonne week on week, and by €105.42 per tonne month on month.
Other meeting delegates tended to support the idea that flat steel prices would stabilize at their current levels, with further downtrends unlikely, Fastmarkets heard.
“We think we are at the bottom [of the market] but, of course, no one knows. We assume that, in the autumn, we will see some stability [in HRC prices] and [clearer] prospects for the future,” Jan Moravec, chief executive officer of distributor Ferona, said.
“Regarding demand [in Central Europe], the machinery and automotive industries are still doing okay, and have quite a stable outlook for the next 2-3 months. We have a problem with the construction sector, due to a lack of projects, but that is mainly a problem for [the long-steel business],” he added.
“All mills in Europe are losing money [on current flat steel prices],” Espada said. “We should see stability for 2-3 months, but that will be because of vacations.”
Possible price rebound in September
Delegates were careful about making predictions for the fourth quarter of 2023, given the volatility in the market, but they agreed that output reductions at European flat steel producers could be the major influencing factor driving flat steel price rises.
“We’ve already seen [blast-furnaces going offline] several times in the past two years,” Espada said.
The level of stock across supply chains was rather low at the moment, with buyers tending to destock and maintain inventories at minimum levels, market sources said.
Indeed, apparent steel demand has been trending below real steel demand recently, with buyers reluctant to build up stocks because of the highly volatile market environment.
“[Flat steel] inventories in the EU are at record low levels now,” Zinchenko said.
But at the same time, import opportunities will also be limited because of the restrictions of lead times, or unattractive prices, or the filling of import quotas.
This could create a market opportunity, however. “If European mills decide to reduce supply, and there [is no push] for imports either – because of lead times or prices or quotas – there will be a chance [to look for a price rise],” Espada said.
European Carbon Border Adjustment Mechanism (CBAM) rules will be applied from October 1, 2023, but with a transition period during which EU authorities will test the CBAM without imposing any duties. Full implementation will start in 2026.
“[From] October 2023, overseas steel suppliers to the EU will [be required to report] their emissions to the EU authorities, but no tariffs will be applied,” a trading source said. “The test period will help the market to understand how the system is going to function.”
The CBAM will be gradually phased-in from 2026 to 2034, alongside the phasing-out of the free carbon allowances applicable under the European Emissions Trading Scheme (ETS).
The phasing-out of free allocations to industries under the ETS will start with a 2.50% cut in 2026. By 2030, the free allocations will be almost halved (down by 48.50%), before being completely eliminated in 2034.
“[A total of] 94% of ETS carbon allowances is distributed [and] only 6% is paid for. From 2026, the mills will have to start paying for it,” Roland Fazekas, CEO of Carboferr, said.
“And [this will affect] not only [the] steel industry. Cement, chemical transportation – the EU will be bringing together all these industries [under CBAM] regulations, and all these industries will be competing for allocations [for CO2 emissions],” he said.
“And you can bet that the correlation between demand increase and price increase will not be linear,” he warned. “It will be exponential.”
Fazekas estimated that CO2 allowance prices would jump to €200-250 per tonne when free allocations are phased-out.
“Purchasing green energy is necessary for distributors as well, to offset our own emissions, because the prices of green energy will be much higher 3-5 years from now… If we have to pay the full CO2 price for a product, we will not be competitive any more,” he said.
“By the time CBAM is fully effective [and free CO2 allowances are phased-out] our costs will be much higher, and the price of steel will not be covering our costs,” he added.
Another problem relating to CBAM, delegates heard, was that it did not take into account steel exports, compromising European steel mills’ competitiveness.
In the original version of CBAM, proposed in 2020, the European Commission offered to return the fee for CO2 emission to EU mills for exports outside the Union, because overseas suppliers were not burdened with such costs.
But that would have been against the rules of the World Trade Organization, because “it might be considered subsidizing,” one source said. So returning CO2 emission fees to EU exporters would not be possible.
“This means that only electric-arc furnace-based mills can be competitive in exports after 2026 [when the free ETS allocations begin to be phased-out and with CBAM being phased-in],” Espada said.
“Blast-furnace-based EU mills will have huge problems [when trying] to compete outside the EU,” he added.
“The market will adjust,” Virinder Garg, commercial director of Liberty Steel Group, said. “High-value-added steel products will probably continue be exported, but commodity grades will face challenges.”
Green steel market not mature yet, but demand will grow
Current demand for green steel in the spot market in Europe was quite low, with mainly hand-to-mouth sales to end-users reported. In the next 3-5 years, however, it was expected to rise gradually.
“We must have green steel in our stock eventually,” Zenon Jedrocha, vice-president of the management board and commercial director of Stalprofil, said.
“Currently, there is no demand at all [for green steel in the Czech Republic],” Ferona’s Moravec said. “But the pressure to go green will come shortly. I see it coming via banks [which will prioritize financing deals using green steel] and the public sector [via regulations obliging buyers to use green steel in construction].”
On June 8 this year, Fastmarkets launched a new suite of green steel prices, intended to capture the differential between traditional flat-rolled steel prices and prices for steel produced with emissions (including Scopes 1, 2 and 3) of no more than 1 tonne of CO2 per tonne of steel.
Fastmarkets’ most recent calculation of the green steel, domestic, flat-rolled, differential to HRC index, exw Northern Europe, was €200-300 per tonne on June 22, stable week-on-week.
The wide range reflected the relatively low liquidity and the “case by case” approach to trading green steel products, sources said.
“Premiums of €200-300 per tonne are not really affordable for steel service centers, because it’s too risky to buy a position, so all transactions are back-to-back,” a service center source told Fastmarkets.
Demand for green steel was expected to increase gradually in the coming years, however, driven by industry regulations. Some industries, such as carmaking, have already been showing more interest in green steel purchases, looking to secure long-term contracts with mills, with deliveries to commence in 2025-26.
“The number of customers who are willing to pay a premium will increase day by day,” Liberty’s Garg said.
“There are some buyers who are willing to pay [the premium], and there are some markets that are more mature, such as Sweden, Norway and Finland. Slowly, we see this [demand for green steel] arriving,” Espada concluded. “Eventually, green steel will become a commodity. Everything we sell will be green.”
Published by: Julia Bolotova