The Polish market remains dependent on imports

In 8 months 2024, the share of imports in apparent consumption was 82%

Polish steel industry is going through difficult times: domestic production is decreasing, and demand is mostly met by imports. Polish plants are losing their competitiveness, in particular due to the high cost of electricity. More and more products from Asian countries are appearing on the market – distributors are looking for options to meet domestic demand at the most profitable offers.

Despite the problems of the steel-consuming industries, Poland remains a large enough market in which local producers are able to regain their position, and the upcoming launch of Hut Czestochowa could be the first step in this direction.

More details — in interview with Piotr Sikorski, the Head Manager at Polska Unia Dystrybutorow Stali (PUDS).

What dynamics of steel consumption in Poland do you see this year? What are your feelings about the market?

When we talked about the steel market in Poland last year, it may have seemed that the first half of the year was moderate, but if we repeat it somehow, the market will end the year on a positive note. It turned out that this was only the beginning of problems that unfortunately continue to this day.

It’s a very tricky year we have. Looking at the data alone, it may seem like the market is improving, as we’re seeing an 8% y/y increase in consumption so far this year.  It looks quite impressive, but please remember about the low base effect. Moreover, only in August did consumption drop below 1 million tons/monthly for the first time this year – below the stable minimum for the market. However, if we look at the market more broadly, the picture is not so positive. Since mid-2023, prices on the Polish market are practically in a downward trend and inventory levels remain high, which with a rising cost is a vicious combination for business profitability. The August and September macroeconomic data are also disappointing, probably reducing GDP at the end of the year to below 3%. This will also drag down the level of steel consumption growth, which will probably drop at the end of the year from the currently mentioned 8%.

How can you describe activity in different steel consuming industries? For example, we see that according to new residential starts construction market in Poland is revitalizing. Is it really so?

The condition of the construction market is currently causing my greatest concerns. As for the residential market, after several months of solid growth, investor activity stabilized in September. There was an 1% y/y decline in building permits and a 1% increase in the number of construction started. The decline in developers’ sales undermine the upward trend. Among the largest companies, this decline was 12% in three quarters, and in the third quarter alone the sale was 44% down y/y.  The market currently offers the highest number of flats since 2016. This might be the biggest cause of stagnation, next to uncertainty regarding government’s future housing programs, reflected in a drastic decline in granted housing loans. Unfortunately, this may result in investors suspending projects, denying a much-needed impulse for the steel industry. In other segments, the situation is only worse. In the three quarters of 2024, non-residential construction recorded a decline of 13% and engineering construction by 8%. If I were to look for positives, I would point out the increasing, although still too slow, pace of contracting EU funds from the 2021-2027 budget and the almost three-fold increase in the NRRP budget to be launched in 2025, compared to the current year.

What is import’s share in steel consumption, considering different segments of the market? Market of flat products traditionally depends on imports in the EU. What is the situation in Poland?

Even though the import of steel products to Poland in 2024 is decreasing, and in the case of flat products – remains at the last year’s level, import penetration is still very high.

In January-August 2024, the share of imports in the apparent consumption of all finished products amounted to 82%. For flat products it was 95%, for pipes and tubes  – 94%. Due to dominant position of long products in steel production in Poland, the share of import in this group amounted “only” to 57%.

Do you feel any direct or indirect impact of increasing Asian imports? What are the main sources of steel imports in different segments?

As I said, so far in 2024 imports are falling, but despite this, Asian supplies are increasing. These are not yet significant amounts in terms of tonnage, but the growth dynamics is. I am thinking mainly of flat products, which have the highest import penetration. For example, this year we are seeing an increase of over 140% y/y in deliveries of hot-rolled products from Indonesia and a 160% increase in deliveries of cold-rolled sheets from Japan. In my opinion, in terms of volumes, supplies of coated sheets from South Korea are starting to be noticeable for the market – here the increase has already amounted to 91% and even higher from India – 113%, each almost 100 thousand tons this year.

It is worth emphasizing that in each product category, the European Union is the dominant supplier of steel to Poland (mainly Germany), and among third countries, of course, Ukraine.

 Is there a chance for Polish steelmakers to increase their share on the domestic market? What conditions are necessary for this?

A very difficult question. If the answer was simple, the level of import penetration of major product groups would look completely different. Poland was and is heavily dependent on imports of finished steel products. To some extent, it is caused by the structure of production. The Polish market produces mainly long products, but consumes mainly flat ones. Therefore, the import of flat products is indeed very high, accounting for nearly 70% of all imports. So, on the one hand, some systemic changes would have to take place, but above all, the Polish steel industry must be more competitive in relation to foreign, mainly European, supplies. There is still a lot to do here, especially with regard to energy prices for mills. I can’t stress this enough: having strong domestic suppliers pays important function of stabilizing both prices and supply.  On the other hand, you can`t blame distributors they seek the best deal possible.

Do you see any competition distortion because of continuing imports of Russian slabs in European countries?

Any market disruptions are currently difficult to see, mainly because the market is weak and can be easily compensated. The real test will be a high market, which will proof how strong the dependence on Russian semi-finished products really is. Supplies of Russian slabs to Poland are marginal, but on the other hand, significant import of products, based on Russian slabs is present on the market and doing quite well. This is something that obviously poses a threat to supplies, especially for strategic purposes.

How do you assess the situation on the domestic plates market? What are the main drivers on it?

Poland has all it takes to make this segment develop dynamically, also based on domestic production, which currently accounts for a negligible percentage of deliveries. End customers from construction, shipbuilding, energy, machinery and mining are strongly present on the market, although of course, in the current market situation, they also have their problems. This is a really large market, approximately 1 million tons per year, i.e. 12-15% of all steel consumption in Poland. Unfortunately, it is not sufficiently powered from the military side. Poland spends a lot of money on armaments, but largely buys it abroad. Plates market would look completely different if greater production for army needs was carried out domestically.

How can you assess prospects of Huta Częstochowa’s relaunch? If this plant resumes production, how can it impact on the market? Can the market absorb additional supplies of plates?

There is definitely a place for Huta Częstochowa on the Polish market, both in terms of profile of production and its characteristics. Unfortunately, the mill has a very turbulent history and lacks a stable period in which it could built its position on both the Polish and European markets. And the domestic market is a really large one, of which domestic production accounts for only a tenth. As in the case of other groups of flat products, the level of import is huge.

A year of shutdown is certainly not conducive to rebuilding the plant’s market position, especially in the context of competition such as Vitkovice Steel, which has normalized its financial and ownership situation and also has a stable source of low-emission semi-finished products.

The steelworks begins, so to speak, once again, the old-new stage, as it returns to the state owned company after 20 years.  The four-month lease for Węglokoks is probably the first step to acquisition. The value of the facility is still relatively high, and the starting price will probably be higher than the one it had after the bankruptcy of ISD. I hope that production will start in the new year and this time it will become a permanent part of the Polish steel industry.

Andrii Glushchenko

Source: gmk.center