Assofermet: Worst period is behind us and concerns about a possible heavy recession are slowly subsiding

Friday, 23 December 2022 17:17:15 (GMT+3)   |   Brescia

2022 has been a challenging year between the energy crisis, rising production costs and the Russia-Ukraine war. How would you describe it?  

2022 has been a very particular year, basically characterized by three phases. In the first period, until February 24, the pulling back of quotations continued amid a relative stable mood of demand after an extraordinary 2021. 

From February 24, with the hostilities in Ukraine, prices, driven by strong apparent demand and rising energy costs together with lower steel availability from the invaded and invading country, reached record levels in a very short time. 

Starting in May, a long period began, ending only at the end of November, characterized by a heavy reduction in sales volumes and a steady decline in quotations, reaching an overall drop of up to 60 percent from the peaks reached in March and April. 

Extreme caution is now the prevailing sentiment: the awareness of the economic difficulties that steel mills are facing and the probable consequent increase in steel prices is contrasted with an uncertain situation in the downstream market that will hinder the rise of quotations. Uncertainty arises from the factors such as the high inflation rate, the European Central Bank's questionable policy of counteracting it by raising the interest rate, and the dramatic rise in energy costs represent a drag on demand, but at the same time economic indicators, the unemployment rate and investments driven by the NRRP [National Recovery and Resilience Plan] hint at a possible general upturn of confidence.  

What do you expect for the industry and the global market in 2023?  

I believe that the worst period is behind us and concerns about a possible heavy recession are slowly subsiding. There are some extremely important industries such as automotive and home appliances that remain in critical condition, but there are many other sectors such as those related to agriculture, renewable energy production and exploitation, and investments related to the NRRP that will support consumption in the coming year. Reports from economists and analysts in recent weeks are cautiously optimistic albeit against a backdrop of high inflation and uncertainties related to the continuation of the terrible conflict engulfing central Europe.  

Timid positive signs are also coming from China for the easing - though still overly cautious - of restrictive policies, in contrast to the spread of Covid. Another positive element appears to be the possible evolution of safeguard measures as two revisions are expected by 2023 - one periodic, provided for in the regulatory framework itself, and one promoted by the WTO at the urging of Turkey. In addition to the restructuring of the law so that it does not hinder imports to the point of jeopardizing the health of European manufacturing itself, effectively protecting only EU steel producers, the possible removal in advance of June 30, 2023 of the entire rule is also under consideration. Assofermet has been asking for that for some time, judging it to be totally inadequate and unfair, as well as unresponsive to the sudden changes in market situations. It should be emphasized how much the combination of import restrictions because of safeguard measures and the production slowdown of steel mills in the Covid period contributed to the rise in quotations during the second half of 2021, triggering the inflationary process now supported by energy costs and interest rates.  

What do you think of the EU carbon border tax that was recently announced and is scheduled to come into effect in 2023?  

We welcome any measure that combats pollution if the burdens of it do not fall exclusively on EU manufacturing. In the absence of common standards aimed at limiting CO2 emissions in all countries on our planet, dangerous inequalities would be created that would harm the very countries that are most environmentally virtuous. The CBAM will have the function of counteracting the import of steel from those countries found to be more polluting. At the same time European steel producers will be forced to invest large amounts of capital to adapt their production to the new standards. 

In January 2023, the transition period will begin, which requires registration of operations for the duration of three years after which importers will be required to pay taxes calculated on the tons of CO2 associated with steel introduced into the EU. In the absence of common global policies, we would see a dramatic loss of competitiveness of the entire European industry. Our manufacturing will be forced to pay higher steel prices than international competitors just as EU steel mills will lose export competitiveness to foreign producers. 

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