SteelOrbis talked to Assofermet, association of Italian distributors of scrap, raw materials and steel products, about the major topics in the EU steel market such as demand, price trends, energy costs and safeguard measures.
How would you describe the current demand situation in the EU steel market, especially comparing flats to longs?
To better understand what is happening, it is necessary to analyze the flats and longs markets separately.
I would define the former as two-speed: the producers who starting from December 2022, supported by vigorous demand driven by the restocking process of distribution and end-consumers - amid the reduced capacity due to the shutdown of many plants during the second half of 2022 as well as lower supply of imported materials - have been able to embark on a path of rising prices, a process that is far from exhausted.
Distribution, on the other hand, after an initial rally in January, aided by a general contraction in demand, has been forced to follow commercial policies that have led to the application of sales prices that are no longer recovering and therefore no longer in line with those of new supplies.
Contrary to plans, in long products, which are traditionally closer to final consumption linked to the construction industry, producers have not found the necessary cues to increase prices. Difficulties related to low demand, weakened moreover by the “bogeyman” of the recession feared last autumn that fortunately seems not to be materializing, are at the root of the constant reduction in quotations in this sector, that still does not appear to be seeing any recovery.
The current period is thus characterized by light and shadow. A general weakness in demand in the main user sectors such as automotive, household appliances and construction, together with the uncertainties related to the transition to zero-emission technologies, the EU's desired policy of countering inflation, and the general uncertainties related to the conflict in Ukraine that do not suggest particularly reassuring signs for the short term, is countered by positive sentiment fueled by the hope of a solution to the conflict, together with the effect of the use of National Recovery and Resilience Plan (NRRP) funds intended to fuel a vigorous economic push.
What can you tell us about the steel price trends in the EU going forward?
What conditions the market - and consequently price trends - is the utilization of EU production capacity, the production costs of steel mills, import opportunities within the limits imposed by protectionist measures, and apparent and real demand. A first reading of the current situation shows that the structural increase in production costs destined to rise further also as a result of the new investments linked to the Green Deal, together with the reduced production both at the European and international level to which is also added the slowdown in production in Turkey and the consequent problems linked to logistics due to the huge earthquakes that devastated part of the country, should represent solid support for quotations during the coming months, also due to the forecast of an increase in demand for the second half of the current year.
As a result of the energy situation, some mills had to suspend operations or cut utilization rates last year. But as energy prices are declining and the weather is getting better, how will this be reflected in the steel industry?
During 2022, the two energy resources impacting electric furnace-based production, namely, gas and electricity, put steel mills in great difficulty, while, moreover, during the second half of the year they were faced with a market characterized by a strong compression of demand that constantly pushed prices down. The peaks in energy costs reached during the summer period made electric furnace steelmaking dangerously uneconomical, forcing many producers to stop or at least reduce their production. Today, although a climate of uncertainty remains due to the conflict in Ukraine and its possible escalation, the cost of gas has returned to even lower values than before the war, while the cost of electricity, although almost halved compared to the 2022 average, remains high compared to the past.
Based on these assessments, I can say that steel mills, particularly those with electric furnaces, have regained their serenity, so that, barring any new twists and turns, they will be able to operate with greater peace of mind since the basis for calculating their output has been restored.
In the quota period starting from January 1, long product quotas for example are not being quickly utilized as they have been in past quarters, while imports from Algeria, Egypt and Vietnam, which are outside the quota, increased. How do you expect this to affect the market balance? Do you think there will be any measures against the new longs suppliers such as North Africa? Or will there be any adjustments against flat imports?
The safeguard measures, which we have firmly contested since their adoption in 2018, do not correctly reflect the real market situations, let alone succeed in performing the function of protecting the EU market, because it is their very static nature that makes them de facto ineffective. There are producer countries allocated a specific quota that, for mere reasons of economic expediency, decide to allocate their production elsewhere precisely because it is more profitable, leaving the EU quotas unfulfilled, and, since there is no possibility of automatically transferring these quotas to other countries, the system undergoes a de facto reduction in actual availability.
Conversely, situations may exist in which some countries not included in the safeguards suddenly find themselves pouring large quantities of their steel production into the EU.
Abnormal import volumes are monitored by the EU Commission, and it is plausible that, if deemed detrimental to the interests of the EU steel industry, investigations will be undertaken with the aim of counteracting possible dumping or with the goal of imposing quotas on the volumes that can be imported from the country.
We, at Assofermet, are not against the application of rules that go to protect the EU production system, we only ask that distribution together with manufacturing be listened to and thus be able to offer its contribution so that the rules aimed at quotas on imports are adhered to in the market and indeed protect steel production, but without harming the other links in our precious supply chain, ensuring the possibility of supplying the quantities and qualities of steel that European manufacturing needs.
How do you view the ban on scrap exports to non-OECD countries?
We are quite concerned about the looming export restrictions on waste shipments from the EU to OECD countries and the ban on exports to non-OECD countries.
Let us look at the numbers. The average annual availability of ferrous scrap in the EU market is about 110 million mt. while exports to non-EU countries in 2022 totaled 17.6 million mt. This is excess material that goes for export because unfortunately the EU steel industry, which is notoriously BOF-based, is unable to use all the scrap collected. Instead, it sometimes prefers to source by ship from non-EU sources for commercial reasons. In 2022, for example, despite the ample domestic availability of scrap, also linked to the drop in EU steel production from 152.8 million mt to 136.7 million mt, the EU steel industry imported about four million mt of ferrous scrap.
We are absolutely aligned with the EU Commission in achieving the goals of circular economy and climate neutrality to safeguard the resources of our land and planet. But we also know, as industry insiders know, that the slow and only partial transition to electric furnaces by European steel mills will require long years of transformation and investment. Throughout this period, a gradual greater absorption of scrap will therefore take place, without, however, completely exhausting the EU domestic revenue, some of which will remain in the market.
We consider it a stretch to demand that a commodity such as ferrous scrap, which exists in the EU market in such quantities, be included in the current list of critical raw materials, which for all intents and purposes are critical, as they are completely absent or almost absent on the EU territory and require the introduction of appropriate measures.
The feeling is that, in the revision of the waste shipment regulations from the EU, in addition to purely environmental objectives that we support, there are commercial arguments underlying the increasingly restrictive push.
This is precisely why we fear the bleak horizon we see approaching. If the export ban materializes soon as projected, we will see the closure of many companies in the sector, the loss of many jobs, and finally the rupture of the very virtuous cycle of circular economy that is the goal of the new European policies and that our companies, in absolute autonomy, have been representing for decades.