Polish steel billet, bar and rebar producer Cognor said Tuesday that it may have to adjust production and reduce billet sales this year if coronavirus-induced difficulties and electric arc furnace (EAF) mill cost inflation continue, although it added that it operated at full capacity in the first quarter.
Cognor expects difficulties caused by the coronavirus to continue into the next quarters and potentially necessitate adjustment to the company’s production to match the quantity of profitable sales.
The steelmaker said it faced a series of challenges in Q1, including the task of diverting its activity from the automotive business — severely hit by social contact restriction measures — toward less profitable sales areas. It also implemented organizational changes to protect employees from the infection, while making sure its facilities run without disruptions amid increased staff absence.
However, the company said it maintained full production capacity utilization in the first quarter and achieved a net profit of Zloty 2.8 million.
Cognor said its Q1 result came against the backdrop of 10% and 19% year-on-year falls in the EU and Poland’s respective steel outputs.
In January-March, the steelmaker reduced its production by 2.3% year on year to a little over 180,000 mt, while its 211,137 mt combined shipments of scrap, billets and rolls were up by 4.8%.
The prices for scrap, billets and most of its finished products decreased and conditioned an 11.5% year on year drop in the company’s Zloty 460 million revenue. Q1 EBITDA, however, improved by 14% to Zloty 30.5 million and EBITDA margin rose to 6.6%, up from 5.2% in Q1 2019, thanks to high rolled steel shipments. These grew 11% quarter on quarter and 11.5% year on year to 137,010 mt or 65% of the total.
EAF steel advantage faltering
The feedstock cost position of EAF producers compared with blast oxygen furnace (BOF) mills remained positive in Q1, but there are indications of gradual deterioration in that regard, the company said.
The current trend manifests itself in a faster scrap price increase as compared to the increase in the cost of BOF input materials and, if this continues, EAF-based manufactures may lose their competitive advantage and sell at least less unprocessed steel (e.g. billet) as a result.
Next year, Cognor said it expects that under an act by the Polish parliament providing for financial aid to large carbon dioxide emitting companies, meant to partially compensate them for the increase in CO2 emission allowance prices, it will be eligible for a total of Zloty 10 million in compensation for its CO2 rights expenses over 2020.
— Ekaterina Bouckley