Assofermet: downstream slowdown, pricing pressure Italian service centres
Reduced sales volumes and high costs continue to plague the Italian service centre and distribution sector, which is wedged between steelmakers and end users, Italian trade association Assofermet says in a market note seen by Kallanish.
In response to the upstream price increases for coils, service centres are now being compelled to raise prices of coil derivatives and pass the hiked costs on downstream. Firms are aiming to enhance financial positions and secure margins for the conclusion of the year.
The prevailing sentiment for December is one of a wait-and-see attitude. “November saw the consolidation of rising [hot rolled coil] quotes from EU steel mills despite much weakened demand from the downstream market, which still does not seem to be waking up. It is precisely this decoupling between the upstream production sector and downstream consumption which both confuses and worries all operators,” the note states.
Steelmakers are under pressure to enhance their financial performance, and the production cuts announced for 2025 are a response to persistently pressured margins. Assofermet is observing a stagnation in demand from various end users, which is preventing any new growth in prices and volumes.
EU producers, however, are rigidly insisting on increasing prices, driven by a reduction in available import quotas alongside anti-dumping duties, which make purchasing from the import market uncompetitive.
In November, distributors experienced a notable decline in volumes, accompanied by reductions in margins and turnover, primarily driven by persistent price weakness.
Assofermet recently launched a new calculation platform enabling coil buyers to assess potential anti-dumping and anti-subsidy duties as part of European Commission investigations. The initiative aims to support members’ understanding of the EU regulations regarding anti-dumping investigations. The calculator assists in evaluating the potential timing and imposition of duties.
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Federacciai at SteelOrbis Italy Forum: decarbonization risks becoming deindustrialization
Speaking at the SteelOrbis Italy Forum 2024 being held in Milan on October 8, Antonio Gozzi, president of Federacciai, the Italian federation representing steel companies, began his speech highlighting the critical issues that the Italian and European steel industries are facing, pointing out that, since the steel industry is a cyclical sector, the slowing demand – caused by several factors including geopolitical uncertainties and rising interest rates – has brought about oversupply.
These two issues are also affecting the decarbonization issue in the European steel industry, Gozzi commented. Disagreeing with the earlier statements made by Paolo Sangoi, president of the steel section of Assofermet, Gozzi said, “I think we all have to work for climate change, but the way the green deal is being applied to Europe deserves further analysis. In particular, the measures that have been taken did not consider impact analysis and cost-benefit analysis. In this way, decarbonization risks becoming deindustrialization, and that would be a débacle for Europe.”
This is because the closure of integrated steel mills will lead, according to Gozzi, to the interruption of the production of a particular type of flat steel that is essential to the automotive industry, which cannot be manufactured through EAF technology. This forces the suffering European automotive sector to import this product from outside Europe, mainly from Asia, Japan, China and South Korea, i.e., from competing countries in the automobile sector.
According to Gozzi, there will be no major investments in European steelmaking from a structural point of view in the next five to 10 years, because steelmaking is a long-term looking industry, and for now it is hard to make predictions. A key issue, however, is definitely the scrap industry, because as decarbonization of steel production is a global issue, there is a shift of production from electric furnaces from 25 percent to 43 percent around 2030, which will make scrap even a more strategic and critical material.
More than 60 countries have already taken measures to curb exports, and that is why Federacciai is calling for it to become a critical raw material which needs to be protected.
Another issue is that domestic scrap in Italy is more expensive than imported scrap, and one wonders how these many electric furnaces will be fueled. The way seems to be DRI, but the issue is controversial in Europe, as it requires particularly large investments. The plant investment must be accompanied by an investment in carbon capture technologies, because DRI is not neutral, even if it halves the blast furnace’s carbon footprint. Added to this is the cost of gas, which is the main power source for DRI.
Gozzi said he believes instead that as of today the priority is to concentrate all resources in the recovery of Taranto, so that it can return to being a plant that produces at least 6 to 7 million tons, which is the breakeven point.
The last topic addressed by Gozzi was trade policies. He said he believes that Europe made a mistake in not joining the US proposal for free trade through NAFTA (North American Free Trade Agreement), thus closing off a possible profitable market for exports.
Assofermet at SteelOrbis Italy Forum: collaboration across the supply chain is key to decarbonization
SteelOrbis has come back to Italy after seven years with SteelOrbis Italy Forum 2024, attracting almost 200 participants. The conference held in Milan on October 8 opened with an Italian steel market overview by Assofermet, the Italian association representing Italian distributors of scrap, raw materials and steel products.
“We are living through a particularly challenging historical moment,” declared Cinzia Vezzosi, president of Assofermet. The Green Deal, launched in 2019, has given a strong push to complex plans, setting ambitious goals with tight deadlines. In this ecological transition, recycled steel emerges, according to Vezzosi, as the most environmentally friendly raw material and a key component for the future of the steel industry. Recycled steel offers three fundamental advantages: it is eco-friendly, acts as an “iron carrier,” and is immediately available. Additionally, the spread of electric arc furnaces (EAFs) is a key factor in improving the circularity of steel production.
In this context, Italy holds a prominent position. “84 percent of Italian steel production comes from EAs, compared to 46.5 percent in the EU and 72 percent in the United States,” Vezzosi explained. This places Italy at the forefront in Europe and globally. A further increase in the demand for recycled steel is expected, and Vezzosi emphasized that this material is already available in significant quantities across Europe. “Increasing the demand for recycled steel would provide a great boost to the sector, making the entire supply chain more resilient.”
To fully take advantage of the availability of the material, technological advancements are necessary, both in industrial plants and machinery, which will also reduce quality waste and increase the availability of “old scrap”. However, regarding DRI (direct reduced iron), the president of Assofermet pointed out that it alone will not be able to meet global demand, although it can improve the quality of the final product. “Scrap will be needed to make up for the shortages in charge and iron content,” she affirmed.
The topic of transition and the current challenges were also addressed by Paolo Sangoi, president of Assofermet Acciai. Sangoi highlighted how the global economic landscape is impacted by the Chinese economic crisis, the inaccessibility of the Russian market, and conflicts in the Middle East and Ukraine. These factors act as a “drag” on economic recovery, worsened by rising costs and declining service quality in manufacturing. Major issues include commercial defense policies and the risk of excessive protectionism.
Sangoi emphasized the importance of imports to the Italian economy, but recent discussions on antidumping measures against countries such as Japan, Vietnam, South Korea, India, and Turkey, which are already subject to quotas, could trigger retaliatory actions and further difficulties for international trade.
In this uncertain context, the Italian manufacturing system is under increasing pressure, Sangoi said. The efforts required by the European Union to achieve carbon neutrality are substantial, and, while the Green Deal offers opportunities, it could place significant strain on strategic sectors, like automotive, which are already hit by global crises. The challenges that emerged in 2024 have fueled fears of a possible “collapse” of the Italian industrial system, with the risk that many companies might relocate to countries with less stringent regulations.
Sangoi concluded by expressing hope for an open and constructive dialogue among all associations and stakeholders in the steel supply chain, both nationally and across Europe, to ensure a sustainable energy transition while preserving the sector’s competitiveness.
Extreme protectionism to cause shortage if demand resumes: Assofermet
Potential EU anti-dumping duties on hot rolled coil from Japan, Vietnam, Egypt and India could result in a material shortage on the domestic market, according to a market note by Italian steel trade association Assofermet.
Paolo Sangoi, president of Assofermet’s distribution segment, warns that the competitiveness of Italian buyers and service centres is being impacted by the compromised opportunity to import coils from third countries, Kallanish notes.
Currently, the market is experiencing a period of stagnant consumption and low coil prices, with the distribution sector being the weakest element of the value chain due to low margins and profits.
Nevertheless, Sangoi contends that a material shortage may occur, potentially resembling the events of 2021 and 2022, if demand increases and consumption improves.
In the event of a resumption of consumption and the absence of imports, the shortage that has been observed in the past may resurface, resulting in significant challenges for buyers. Currently, EU steelmakers are reported to be open to negotiation.
The EU’s 15% import cap has already eliminated 1.6 million tonnes from the market for European buyers, Sangoi says.
Japan, Vietnam and Egypt have already been hit by the imposition of the 15% quota cap under the current EU safeguard measure without the need of further AD measures.
“The higher cost that importers will be forced to bear will inevitably be passed on to end customers, producers of components and finished steel products, undermining their already precarious level of competitiveness in international markets,” it says.
The consumption resumption is not anticipated to occur this year; however, the situation may begin to recover in the first quarter of 2025.
The price trend must change direction, as both producers and coil buyers have a genuine need for price increases throughout the entire value chain.
Nevertheless, this is impossible without a commitment to reduce output, according to Sangoi.
The EU initiated an anti-dumping investigation on imports of hot-rolled flat steel from Egypt, India, Japan, and Vietnam, according to the Official Journal of the European Union on 8 August.
The complaint was lodged on 24 June by the European Steel Association Eurofer.
The products under investigation include certain flat-rolled products of iron, non-alloy steel, or other alloy steel, including cut-to-length and narrow strip products, not beyond hot-rolled, clad, plated, or coated (see Kallanish 9 August).
The Chinese economic crisis has further exacerbated the lacklustre demand for service centres.
“Italy’s GDP remains positive; however, Germany’s stagnation is exceedingly concerning. The path of reducing the cost of money, which has been announced, does offer some optimism for the medium term, as it could potentially stimulate demand.”
According to Assofermet, the sales volume contraction in July was less severe than anticipated, with cold-rolled and coated products outperforming hot-rolled products.
However, August was adversely affected by the prolonged production shutdowns, which resulted in a decline in prices and the market was extremely weak in September with no real resumption after the summer break.
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Cinzia Vezzosi (Assofermet): the quality and cost of scrap will be crucial
The element that has now marked 2024, i.e. the lack of demand, is also the one that is worrying the distribution the most.
And if a recovery in the third quarter is now unlikely, the possibility of a more positive development in the medium term is possible.
Cinzia Vezzosi, president of Assofermet, explains this in a siderweb interview. She clarified on recycled steel and scrap: quality and costs will be decisive.
Assofermet: Italian service centres report negative first half
Italian service centres’ sales volumes for the first half of 2024 were about 15% lower compared to the first half of 2023, Italian steel trade association Assofermet says in its market note monitored by Kallanish.
The negative trend can be attributed to persistently unsustainable prices and low margins. June saw an overall decline in demand, a situation that has been ongoing for an extended period of time.
Some end users are expressing interest in negotiating supply for the fourth quarter of 2024 and the first quarter of 2025. Their goal is to secure the current low level of quotes for these periods.
“Maximum attention is now being paid to the consequences of the amended version of the [EU] safeguard … This change is set to dramatically impact the flows of this raw material [hot rolled coil] … Our concern focuses … on the lack of availability of the raw material and the consequent difficulty in maintaining stocks at an adequate level to meet the demand from end users. This adds to the inevitable price increase that EU producers will charge, due to the reduced import capacity,” Assofermet warns.
Production shutdowns at EU steel mills in August will be extensive. This is likely to strongly penalise the downstream segment. Despite the ongoing crisis in consumption, service centres will have to accept significant price increases for steel in order to maintain production and fulfil orders. “This may result in a loss of competitiveness in international markets,” the note states.
The distribution segment is facing a tired market and low visibility. Volumes for flat products are reported to be stable, while those for beams, which typically experience a surge during this season, are currently on the upswing. Finished product demand is stagnant in general but steel prices have remained relatively stable over the past few weeks.
July is expected to be a challenging month in terms of demand and price levels due to the extended closures announced by several steel mills leading to a potential shortage of certain products, Assofermet concludes.
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Assofermet Steel Market Note – May 2024
Carbon Flat Steel Service Centers
April was subdued in terms of volumes sold, even though there was greater buying interest from a number of specific buyers.
Although the period was characterized by a slowdown in business due to many holidays in Italy and central European countries, some positive signs came from those very end users who, driven by the rebound in coil purchase quotations, decided to cautiously cover their sheet and strip needs for the coming months.
Service centers were caught in the stranglehold between producers and consumers, in a market characterized by uncertainty. They have continued to operate under declared insufficient operating margins.
The recent increases in purchase quotations, confirmed by both EU and non-EU mills, added to the import limits imposed by the Safeguard Measure, erga omnes duties and the effects of the CBAM, are pushing distribution and pre-processing operators to change pace by following and reinforcing the upward path of their sales quotations, already undertaken in this first decade of May.
Raw material stocks, available at service centers, appear to be slightly above average due to the slowdown in sales estimated at about 10 percent in the first quarter.
The overall situation may not be a problem today since, as mentioned, quotations appear to be on the rise.
Even tough the conflicts in Ukraine and the Middle East are bound to still impact world economies, some signs of optimism are coming from the EU for the long-awaited and announced round of lowering the cost of money, which is expected to finally begin in June.
Stainless Flat Steel Service Centers
April saw improving demand accompanied by low supply caused by strikes at two major European producers in Finland and Spain and limited imports. The strike at the Spanish producer is still ongoing and has now lasted for more than three months.
The month of May opened with lower demand and new demands for increases from producers.
The EU commission, after a nine-month long investigation, has also just published the anti-circumvention regulation regarding cold-rolled imports from Taiwan, Turkey and Vietnam, confirming the exemption of major producers in these countries.
The decision is welcomed and will make the market better balanced, guaranteeing room for imports by producers while blocking duty-evading operations.
Steel Warehouses
In April weakness remains in the downstream market, that does not seem to want to restart on last year’s volumes. Prices, for which the reversal point was supposed to have been reached, also show no signs of recovery.
Both the flats and the longs, while without any collapse or exceptional movement, left a few cents on the ground throughout April.
The much heralded rebound, however, seems to have taken shape in the first days of May, with volumes in line with 2023 and with noteworthy increases on the price side, both in the flat world and, finally, in the long world.
Whether the premises, will solidify into a real recovery will depend, as usual, on numerous endogenous and exogenous factors.
The ECB seems ready to cut the official discount rate next month, but rumors no longer speak of a downward ride, as was feared at the end of last year, and it is likely that the May rebounds are already the result of the announcement of the June reduction.
Of course, the unfolding of the war in Ukraine, the outcome of which seems increasingly uncertain as time goes on, is certainly not helping markets to enter a phase of stability that would do so much good for the macroeconomic situation.
Flat Tinplate Steel Service Centers
Discreet turmoil on demand for ready material, both due to elongations in lead-times of European ironworks reported up to 14 weeks (as opposed to the usual 7-8), and a price increase of several tens of euros, indicating the expected reaching of the bottom. On the import side, a recovery in quotations is also denoted, supported by the further increase in logistics costs.
May 2024 Steel Market Note – Assofermet
CBAM complications, safeguard hinder steel activity: Assofermet
The normative framework of the EU Carbon Border Adjustment Mechanism (CBAM) and safeguards on steel imports is hindering the daily activity of Italian and European steel companies, says Italian steel trade association Assofermet.
The challenges in filling CBAM reports, the economic repercussions expected from the mechanism starting in 2026, as well the safeguard measures in force from 2018 are a deep concern for Assofermet’s many members.
The European Commission (EC)’s Directorate General for Trade and the Directorate General for Taxation and Customs Union asked the association to highlight the critical issues of the mechanism to help with drafting the final version. “It has been assured that our perspective will be taken into account, especially for the future evolution of CBAM … Agreeing that CBAM will also generate increased costs for downstream end-users in the steel supply chain, it was pointed out to the Commission that if certain finished products … are not included in the mechanism, the European industry will lose competitiveness, given its global role,” Assofermet warns in a note sent to Kallanish.
The association notes an open-minded attitude from Italian authorities to listen to the problems of the entire steel supply chain stemming from regulations and willingness to continue dialogue on the regulatory framework. While the first quarterly report deadline for CBAM has passed, the safeguard on steel imports is currently set to expire at the end of June 2024. “There are no official updates yet on a possible extension after the first half of this year,” Assofermet concludes.
31 January was the deadline for importers to submit their first report detailing emissions as part of CBAM. The European Commission nevertheless announced this week that due to a technical incident, it is offering the possibility to request for a 30-day delay for submission (see Kallanish passim).
During the ongoing transitional phase of CBAM, European importers of steel need to file quarterly reports in the European Commission system, starting from those for the fourth quarter of 2023. During the transitional period, importers are required to report on the quantity of imported goods and resulting direct and indirect emissions. No payments will be due. The transitional phase is planned to conclude at the end of 2025.
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Acciaierie d’Italia low output impacts EU steel availability: Assofermet
The prolonged ownership crisis at Acciaierie d’Italia (ADI) and its lower output may lead to a structural shortage of flat steel products, not only in Italy but also at a European level, Italian steel trade association Assofermet warns.
“The quality products available thanks to Taranto production are very often not available within the EU perimeter. Buyers are therefore forced to turn mainly to Asian steel mills, facing import restrictions which increase costs … The crisis at ADI is part of an already very complicated context for the steel sector,” Assofermet says in a document sent to Kallanish.
EU safeguard measures result in a decrease in the quantity of steel imported into the EU. The Carbon Border Adjustment Mechanism (CBAM) will meanwhile introduce a tax on goods coming from territories outside the EU from 2026. The result will be an inevitable increase in the cost of steel products available in the EU.
“The national [Italian] manufacturing sector’s growth needs a primary steel industry, upstream of the supply chain, that can support it with the necessary quantity of steel,” comments president of Assofermet’s flat steel division Paolo Sangoi.
ADI’s production crisis is happening at a time of low steel availability in Italy and Europe. “Steel output is decreasing: the production levels of 2012, the year of the seizure of the hot-end area of the Taranto plant, have not been reached over the past ten years … With declining steel production and the rising cost of steel, it is essential to preserve the industrial value of the plant,” Assofermet concludes.
ADI, the joint venture between state company Invitalia and ArcelorMittal, registered steel output below 3 million tonnes in 2023, according to preliminary data. This is below the shareholders’ initial objective of 4mt in 2023 and 5mt target in 2024.
ArcelorMittal says it is open to an amicable solution to the conflict with authorities, and prepared to give up its stake to partner Invitalia for a price that “is only a fraction” of the company’s investment into ADI since 2018. While Invitalia refused ArcelorMittal’s recent offer, the steelmaking group assures it is still on the table (see Kallanish passim).
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CBAM unclear, hits downstream sector hardest: Assofermet
The definitive application of the Carbon Border Adjustment Mechanism (CBAM) could lead to an increase in steel import prices of around 15%, Italian trade association Assofermet warns.
“CBAM introduces a sort of new ‘environmental customs duty’ to discourage steel imports … We welcome a collective commitment to promote a sustainable economy and reduce the environmental impact of our industry but we believe that greater attention should be paid to the economic consequences of the CBAM regulations which, if not radically revised, risk undermining the competitiveness of an important part of the EU manufacturing sector,” Assofermet steel division president Paolo Sangoi says in a note sent to Kallanish.
“The cost of steel coming from non-EU territories could increase by up to 15%. This would have important repercussions on the entire Italian and European economy,” he continues, adding that the mechanism is extremely complex and its procedures remain unclear.
The CBAM mechanism currently applies only to some steel products, which impacts end-users and downstream companies, exposing them to unfair competition with importers of competing finished products who would face no restrictions or taxation, Sangoi observes.
The transitional CBAM period will expire on 31 December 2025. Until that time, buyers will have to fulfil only a part of the mechanism’s regulations. Assofermet hopes that before the start of the definitive period, on 1 January 2026, the EU will be able to modify the approach of the measure “to reconcile the just and necessary environmental transition with the inevitable economic consequences that will arise from the implementations of the EU Green Deal and Fit For 55”, Sangoi concludes.
According to European Commission data, in 2022 over 31 million tonnes of steel were imported into member states, Kallanish notes.
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