Positive outlook for east/central European steel: Executives

Michael Weingartler, Construction Market and Housing Policy Expert at Eurocontruct

The steel industry in central and eastern Europe is set to see continued support from positive economic growth in 2018, executives at the EUROMETAL regional conference in Vienna said Tuesday.

In 2017 economic growth in the central and east European region was positive. Regional growth is to remain strong this year, but a modest slowdown is expected going forward.

Analysts expect the region’s economy to expand by 3.6% in 2018, led by higher GDP forecasts in Romania (4.2%), Poland (3.8%), Hungary (3.5%), Czech Republic (3.2%) and Croatia (2.8%).

“In 2018 [the steel industry] will still be ok, but we are cautious that this might not be sustainable. We hope there won’t be a drop, but there might be a slowdown. We are prepared to use the brakes,” said Jan Moravec, corporate audit manager at Ferona.

The outlook for steel demand in 2018 is also good, with some positive demand indicators seen in large steel-consuming sectors, such as construction and automotive, speakers said. However, there are risks around reduced EU funding in the longer term, partly affected by Brexit.

Car production is expected to grow by over 20% in the next five years, while construction is seen growing by over 23% in the next three years, noted Gabriel Holub, sales manager at US Steel Kosice.

“The construction industry is currently in a rather comfortable position, with a favourable outook for 2018,” said Michael Weingartler, Construction Market and Housing Policy Expert at Eurocontruct. “Solid economic growth in the EU supports positive outlook for construction and output should increase
4% in east and central Europe in 2018, with Poland, Hungary and Czech Republic leading the growth.”

Erica Sesay, PLATTS

Steel flats imports would be most impacted by EU safeguard

Gabriel Holub, from Slovakian flats steel producer US Steel Kosice

Flat products imports will take the main hit from the EU’s safeguard investigation into steel imports launched in reaction to the declaration of US tariffs on steel (25%) and aluminum (10%), including against the EU, according to Georges Kirps, the head of EUROMETAL.

Speaking at a regional meeting in Vienna on Tuesday, Kirps noted that import volumes of flat products into the EU market last year were 20.3 million and accounted for 69% of the total volumes under the safeguard investigation. By comparison, longs and tubular products volumes were respectively 6.4 million mt and 2.7 million mt, or 22% and 9% of the total.

All product categories under investigation represent 18% of the EU steel supply chain.

According to Gabriel Holub, a representative of Slovakian flats steel producer US Steel Kosice, owned by the US Steel group, said Section 232 represented the main downside risk for the European market as it will likely lead to similar measures taken by other countries. But at the same time the EU safeguard measures, if adopted, should help to protect the EU market against massive inflow of material from other regions blocked by the US, he added.

A member of the trading community at the meeting called the current safeguard procedure in the EU a “very difficult situation” for independent service centers, traders and distributors, who are depending on imported material beside the material they buy from the EU mills.

“There has to be a healthy mixture between both otherwise we lose our competitive edge,” he said. “We need to have the opportunity to buy right and left and not just from two big mills in Europe controlling 70% of the market.

Wojtek Laskowski, PLATTS

Independent SSC future seen bright, protectionism a threat

Garry Furey, general manager of Czech service centre Mi-King SSC

Independent service centres have a bright future as they are able to tailor services to the needs of individual customers better than mills and can offer more competitive pricing. This was the opinion among the majority of participants at the Central Europe Regional Meeting of Distributors’ association EUROMETAL.

During the panel discussion, Czech service centre Mi-King SSC general manager Garry Furey said besides being able to service smaller customers, distributors can also offer non-EU material. “We provide something to non-EU mills because we give them the ability to sell in Europe and not let down their customers in Europe,” he said at Tuesday’s meeting in Vienna attended by Kallanish. Moreover, distributors are able to operate in the local language of the countries they are based in.

Branimir Minchev of Steelimpex Bulgaria

As a tube producer, Branimir Minchev of Bulgaria-based Steelimpex agreed that service centres and distributors better cater for small-tonnage orders and specific requirements. Steelimpex conducts back-to-back business as it does not want to store purchased hot and cold rolled coil for a longer period so that it is not damaged, he said. The firm therefore prefers to sell small tonnages to stockholders for processing.

Jan Moravec, executive director – corporate audit at Czech distributor giant Ferona, said mill-tied distributors can be inefficient. “These (mill-tied) distribution networks are basically forced to follow certain strategies and they are not flexible enough,” he opined. These distributors are not able to purchase from a wide selection of sources and may therefore not offer the optimal product, he added.

“I also think the future is independent centres,” Minchev responded. These firms are “…much more flexible, they can buy from everywhere, they can deliver different material and they are able to… find the best price.” Moreover, local service centres can reduce risk for foreign companies selling into individual countries, he added.

An opposing view was, however, offered by Roland Fazekas, president of Hungarian stockholder Carboferr. “I don’t think independent service centres have that bright a future,” he warned. “We can see it in the anti-dumping procedures: it was a fight between integrated mills and independent players on a large scale… and we could see that now it’s really in the favour of integrated.”

Mills have moved more into stockholding in recent years due to the zero interest rate environment that makes it easier to keep stock and serve smaller customers, Fazekas said. This will only change when interest rates rise and mills are forced to return to traditional means of financing, he added.

Ralf Reintjes, managing director of German trader Primex Steel and ISTA executive committee member

Ralf Reintjes, managing director of German trader Primex Steel and ISTA executive committee member, said “…independent service centres are the backbone of the industry.” However, they are in danger due not only to the anti-dumping measures but also to the EU’s safeguard probe launched in response to Section 232, which is a “…general attack on imports.”

“There should be a certain structure on the import side, we should not have a Wild West market,” Reintjes continued. “All the independent traders, service centres, distributors are depending on imported material besides the material they buy from EU mills. There has to be a healthy mixture between both, otherwise we lose our competitive edge.” Distributors need a body independent of Eurofer to represent them in EU trade cases, he suggested.

Central European distributors fear market correction

There is likely to soon be a reduction in steel consumption and prices in Central and Eastern Europe as the market is overheated after an “…extremely good” 2017. So said Jan Moravec, executive director – corporate audit at Czech distributor giant Ferona, during Tuesday’s Central Europe Regional Meeting of Distributors’ association EUROMETAL.

“2018 will still be ok, but we are extremely nervous – if we do not perform, we are nervous, and if we perform too much we are nervous as well because it’s not sustainable,” Moravec said during the panel discussion at the meeting in Vienna attended by Kallanish.

“We really think we are on the top, I mean the V4 countries… We hope there will be no drop, but there will be a certain slowdown and definitely a certain reduction, but of course no one knows when,” he continued. US tariffs have clouded the situation further.

Roland Fazekas, president of Hungarian stockholder Carboferr

Roland Fazekas, president of Hungarian stockholder Carboferr, added: “We could see very nice figures for the construction market… for Hungary and Poland, but we already see the price correction in the rebar market, for example, and in terms of demand the past two months was really a challenge for our business. In some segments, in flats, quarto, for example, the market is quite stable, but in longs we already see that a storm is coming.”

If the EU is not given an exemption from US tariffs, moreover, Italian suppliers will return to supplying the European market, Fazekas added.

Moravec said potential risks for the Czech market include reduced consumption; price volatility; the performance of Germany, on which Czech steel suppliers rely; and Chinese and Russian exports. Moreover, customers’ payment discipline could cause problems. Opportunities include digitalisation and investment into other products such as plastic or composite materials, in order to offer customers a complete package.

In a presentation earlier in the day, Moravec observed the success of populist governments in the V4 region should not have a negative impact on the recent good economic growth.

US steel tariffs should have little direct impact on European steel sellers as no EU countries are among the US’ major suppliers. The tariffs are therefore “…not critical or vital for the European industry in general,” Moravec opined. “On the other hand, there is the risk of pressure towards prices because all the countries, if they are not able to export to the USA, they will be trying to find new markets.”

Kallanish

New EU trade investigation concerns Italian stainless distributors

Italian distributors and processors of stainless steel products say that they have concerns about the ongoing EU trade investigation on possible new safeguard measures, Kallanish learns from a note issued by local association Assofermet. The measures are intended to limit the imports of ferrous products and therefore could also impact the stainless sector.

The European Commission initiated an investigation in April over possible new safeguard measures for steel. This was in response to the imposition of Section 232 import tariffs in the US and the threat of a re-direction of volumes to the EU (see Kallanish passim).

Assofermet notes that, within the stainless steel sector, new barriers would be especially harmful for the distribution segment. It calculates that Italian distributors could lose up to 30% of their turnover as a result and that stainless prices could rise immediately.

The association adds that the EU stainless steel sector already suffers from a limited internal competition due to recent consolidations both in production and distribution. “European production is also incapable of completely satisfying local demand,” Assofermet notes.

As a result, the imposition of new barriers or a quota system for the stainless steel sector would impact the distribution market significantly. This would further increase the risk of delocalisation and put the fragile recovery seen lately in jeopardy, the note concludes.