A sharp decline in apparent steel demand amid significant destocking during the fourth quarter of 2022 caused ArcelorMittal’s European business to record an operating loss in the three-month period, but a modest recovery is expected in 2023, the steelmaker said on Thursday February 9.
Key steel market developments
Fundamentals in the European steel market remained challenging during the December quarter of 2022, with steel prices plummeting amid a contraction in demand, according to market sources.
The war in Ukraine flustered the European steel market and caused a wave of a panic-buying in February-March 2022, with prices for flat and long steel reaching new historical peaks and breaking records set in the 2021 European summer.
That, however, resulted in massive overstocking, so hot-rolled coil prices began falling from April 2022 until the year-end due to the toxic combination of slowing end-user demand and this oversupply.
For example, Fastmarkets’ calculation of its daily steel hot-rolled coil index domestic, exw Northern Europe averaged €657.19 ($705.20) in the fourth quarter of 2022, down by €140.95 per tonne from €798.14 per tonne in the previous quarter and down by €317.89 per tonne from €975.08 per tonne in the fourth quarter 2021.
Steel prices declined at a faster rate than those for raw materials during the fourth quarter of 2022, leading to shrinking spreads and squeezed margins at steelmakers, according to ArcelorMittal.
European buyers had been trying to reduce their stock levels throughout the second half of 2022, with a peak of the destocking cycle occurring in the fourth quarter, market participants said.
Overall, apparent steel consumption in Europe declined by 7-7.5% in 2022, according to ArcelorMittal.
Impact to ArcelorMittal
During the December quarter of 2022, ArcelorMittal Europe recorded an 18.07% decline in steel shipments, to 6.8 million tonnes, compared with 8.3 million tonnes in the corresponding period of 2021.
Crude steel production at company’s European mills also dropped as a result of output cuts announced during the quarter to balance the oversupplied market.
Notably, crude steel output at ArcelorMittal Europe amounted to 6.9 million tonnes in the fourth quarter of 2022 compared with 8.6 million tonnes in the same period in 2021.
ArcelorMittal Europe’s sales dropped by 16% in October-December 2022, to $10.08 billion, compared with $12.08 billion in the corresponding period of 2021. This was the result of both reduced shipments and lower steel prices.
And finally, ArcelorMittal Europe recorded an operating loss of $10 million in the final quarter of 2022, compared with an operating income of $158 million in third quarter 2022 and $1.9 billion in the fourth quarter 2021.
Outlook for 2023
While the company expects real steel demand to decline marginally in Europe in 2023, apparent steel consumption is expected to show a moderate year-on-year growth of 0.5-2.5%.
Indeed, market conditions started showing early signs of improvement in January 2023 with a restocking drive supportive price rises in flat steel sector, ArcelorMittal said.
Fastmarkets’ calculation of its daily steel hot-rolled coil index domestic, exw Northern Europe averaged €720.36 per tonne in January 2023, up by €77.63 per tonne from €642.73 per tonne in December 2022.
Also, energy prices have reduced significantly from multi-year highs observed in the second half of 2022, alleviating the pressure on margins.
“As we look ahead, evidence suggests that the customer destock we saw in the second half of 2022 has peaked, hence providing support to apparent steel consumption and steel spreads. Although geopolitical uncertainty remains high, we remain confident in the strength and resilience of ArcelorMittal, and in our ability to successfully execute our strategy of growth, decarbonization and sustainable returns through all aspects of the cycle,” Aditya Mittal, ArcelorMittal’s chief executive officer, said.
Published by: Julia Bolotova