European Stainless Steel Prices Lose Link To Raw Material Costs

European stainless steel prices continue to fall, relative to the costs of the constituent raw materials. The “basis plus alloy surcharge” pricing system has been abandoned for most deals between the producers and the major buyers, such as large distributors and stockists. Nevertheless, the mills continue to publish their alloy surcharges. Therefore, it is possible to calculate a nominal basis price, by subtracting the alloy extra from the “effective price.”

On several occasions, this year, transaction values have risen by less than the increase in the published alloy surcharges, or fallen by more than the decrease in the mills’ announced figures. In either case, the nominal basis price is reduced.

The numbers produced, in recent months, have fallen far below the figures historically thought to represent the producers’ breakeven levels.

The root of this problem lies in the discrepancy between the cost of raw materials – in particular, nickel – and the demand for finished stainless steel. Traditionally, stainless steel production has been the overwhelmingly largest consumer of nickel. Consequently, demand for the alloy has been the major fundamental factor in nickel pricing. In recent times, though, the commodity value of nickel has been affected by anticipated future requirements for the metal, by manufacturers of electric vehicle batteries. This has been compounded by supply constraints, such as the nickel ore export restrictions imposed by the governments of Indonesia and, previously, the Philippines. Consequently, the nickel price increased, this year, in a manner seemingly out of line with activity in the stainless steel industry.

In mitigation, due to their modest production volumes, the European mills have been able to achieve discounts in their outlay for stainless steel scrap. Recent reports suggest that they have been paying less than 60 percent of the intrinsic LME price for the nickel contained in the scrap. Assuming a 60 percent scrap mix in their steelmaking process, this could have recently saved around €300 per tonne of crude stainless steel produced, compared with the cost of paying the full LME nickel price.

Source: MEPS International Ltd.MEPS Stainless Steel Review

Demand Growth Required to Sustain Rise in US Steel Prices

US steel prices, for flat products, have been under negative pressure, for much of this year. In an attempt to halt further price deterioration, domestic producers announced consecutive list price hikes, totalling US$80 per short ton, in recent weeks. This has been the catalyst for an uptick in purchasing activity. Extended delivery lead times, due to planned mill outages, and a continued shortage of import alternatives, have had a stabilising effect, while creating a pricing floor in the market.

This will offer some welcome respite to US steelmakers. US steel prices are expected to move up, either side of the New Year. Inventory replenishment and a continued revival in scrap costs should exert upward pressure on steel selling values. However, MEPS predicts that it is unlikely that this will lead to a prolonged recovery. US steel prices are forecast to peak in the spring. It is widely acknowledged that the US steel sector remains fundamentally oversupplied, given the current level of activity.

Domestic capacity utilisation, in the US, remains slightly above 80 percent, year to date. The World Steel Association predicts that growth, in US steel demand, will be just 0.4 percent, in 2020 – following on from an anticipated 1 percent expansion, this year. With little demand improvement projected, any pricing revival, in the near future, is likely to prove to be a false dawn for US steel manufacturers.

Source: MEPS International Ltd.MEPS International Steel Review

Weak Demand Prompts Further Capacity Cuts As Producers Seek To Recover Costs

Excess production capacity persists within the Nordic and Western European flat steel products markets. Idling of blast furnaces and ArcelorMittal’s withdrawal from its takeover of the Ilva facility may go some way to addressing this issue. Monthly contract or spot prices continued to fall during November. However, supply chain participants believe that the bottom of the current price cycle is close.

Hot rolled coil sales volumes are fair, in Denmark, but end-users, in the wider region, report falling order tonnages. Inventories, within the supply chain, are high, in Sweden and Norway. Local demand is mediocre, in Finland and the Netherlands. Austrian selling figures are on a downward trend, affected by poor sales and recent drops in scrap costs.

Transaction values for hot rolled plate, in Denmark and Finland, fell again, in November. Subdued end-user demand is exacerbated by buyers’ caution, due to future price trend uncertainty. Swedish consumption remains disappointing. Shipbuilding activity is satisfactory, in the Netherlands, but demand from agricultural equipment manufacturers is poor. The Austrian market remains muted. In Norway, demand from the offshore oil and gas sector is strong but a slowdown is foreseen, in 2020.

Producers of cold rolled coil are expected to seek price increases soon, although they may not achieve these until February or March 2020. Danish prices slipped again, in November. In Sweden, sales of commercial grades are satisfactory. Consumption is moderate, but reducing, in Finland. Distributors, in the Netherlands, are minimising their stock levels ahead of the calendar year-end. Austrian suppliers report a lack of orders for first quarter 2020 delivery. In Norway, delivery lead times, from regional mills, are very short.

Depressed activity in the auto supply chain continues to inhibit demand for coated sheet and coil in Sweden, Denmark and the Netherlands. In Finland, offers from Russian suppliers are very aggressive but delivery promises are known to be unreliable. In Austria, sales to building-related applications are healthy. Lacklustre consumption contributed to a small price cut, in Norway.

Drawing quality wire rod sales volumes remain reasonable, in Sweden. A “year-end effect” is being experienced in Finland, as customers consume their inventories rather than placing new orders. Transaction values were unchanged, in local currency terms, in all the other countries surveyed, in November.

Regional mills report satisfactory order loads for medium sections and beams, although it remains possible to book some December rollings. Stiff competition, amongst supply chain participants, continues to push beam prices downward, in Sweden and Denmark. Construction activity is cooling, in Finland and the Netherlands, but remains quite busy, in Austria. Demand is fair, in Norway.

The seasonal slowdown in the reinforcing bar sector has begun but Scandinavian demand remains better than that in the rest of Europe. Reasonable consumption continues, in Finland, with projects in wind power, mining and the manufacturing sector. Producers may seek increased prices soon, in the Netherlands, following the recent rebound in scrap costs. Selling values softened, this month, in Austria, due to low raw material outlay and weak demand. Activity is fair, in Norway,

Domestic demand for merchant bars is steady, at a low level, in Denmark. In Sweden, sales to automotive and other manufacturers are weak. Local purchase volumes are fair, in Finland, but exports to Germany have decreased. In the Netherlands, regional mills are beginning to propose price increases. Weak demand and depressed raw material costs prevail, in Austria. Manufacturing activity is subdued, in Norway.

Source: MEPS International Ltd.MEPS European Steel Review Supplement

European Steel Prices Approaching Bottom of The Current Cycle

Procurement activity, resale values and sentiment remain weak, in the European strip mill products market, in November. Slow economic growth, global trade conflicts and political difficulties have added to the air of pessimism. A lack of orders, from the auto sector, in particular, continues to have a significant negative effect on overall demand. European steel prices are under downward pressure. Domestic delivery lead times are short, allowing customers either to postpone buying decisions, or to purchase only small quantities.

On a brighter note, price offers from third country suppliers began to rise. For the moment, Ilva is not accepting new orders, because of the withdrawal of ArcelorMittal from the deal with the Italian government to take over the company. If this situation persists, it should help to tighten supply throughout Europe, adding to the capacity cuts already in place at other steelmakers. Moreover, a number of buyers believe that prices are reaching the bottom for this cycle. Consequently, a degree of inventory replenishment may get underway, following a prolonged destocking phase.

German Strip Mill Market is Quiet

The German market for strip mill products is quiet. Business levels are low. Basis prices continue to fall. Steelmakers are lacking orders due to the significantly reduced activity in the auto industry. Machinery manufacture is also under pressure. Producers continue to offer discounts in order to try to generate sales and compete against imports. Service centre inventories are gradually declining but remain in excess, compared with today’s low demand.

In France, customers can obtain good discounts

End-user activity has, generally, remained quite good, in France, with the exception of the slowdown now taking place in the auto sector. Demand from the rest of industry is reasonable. However, customers are aware that they can obtain good discounts, with quick deliveries. Prices continued to decrease, in November, but some stabilisation is now noted. Despite production cuts, several steelmakers are still struggling to fill their order books. Competitive offers from overseas suppliers remain plentiful.

Italian Strip Mills attempting to lift Steel Prices

In Italy, mills are attempting to lift strip mill product prices, citing the recent ownership problem at Ilva, which is expected to lead to much tighter supply. For the moment, availability is ample. Demand remains very weak, with producers still prepared to lower their offers in order to secure orders. Delivery lead times remain relatively short. Pressure from third country imports eased recently. Indian suppliers are less active. Turkish quotations increased in price, albeit only slightly, due to a pickup in activity in their home market. Distributors report further negative pressure on their resale values.

UK Steel Prices Moving Down 

In the UK, many service centres report a lack of demand. Those supplying the auto sector are most badly hit. Credit insurers are wary due to the recent insolvencies at several large distributors. Consequently, credit limits have tightened. However, a number of stockholders report good business in September/October, in terms of volumes and margins. Nevertheless, mill prices are moving down, quite rapidly, for deliveries in January 2020. Imports are particularly attractive, since the pound sterling strengthened. Material is available from India, Brazil, South Korea and Turkey. Inventories are still being run down.

Belgian Steel Demand Remains Weak

In Belgium, steel demand remains weak. Stock levels are high. End-users only buy for their short-term needs. Steelmakers are chasing orders and cutting output. Negative price pressure persists. Market sentiment needs to improve before any revival takes place. Large service centres are also keen to make sales, in order to improve turnover and reduce inventories before the year-end. Intense competition in the distribution sector led to further discounting.

Negative Trend Persists in Spain

After October’s rapid deterioration in strip mill product prices, the negative trend persisted into November, in Spain. Customers continue to purchase only for their immediate needs, even though many buyers believe selling values have now reached the bottom for this cycle. Service centres report that sales volumes in the general market are acceptable. Construction demand is stable. Demand from the auto sector is likely to continue to fall in 2020, although the drop will be far less dramatic than in recent times. At the service centres, resale margins remain very low.

Source: MEPS International Ltd.MEPS European Steel Review

Tata Steel outlines proposals to build a stronger and more sustainable business in Europe

Tata Steel today (Monday, 18 November) outlined proposals for a transformation programme in Europe. The programme is needed to ensure the business can thrive despite severe market headwinds which have led to a sharp decline in profitability. At the same time, it aims to secure the foundation for investments required to accelerate innovation and the company’s journey towards carbon-neutral steelmaking.

Tata Steel highlighted plans to urgently improve its financial performance to make sure the European business becomes self-sustaining and cash positive, while enabling investment to safeguard its long-term future. The plans include a proposed new way of working to boost productivity and reduce bureaucracy as well as a focus on increasing sales of higher-value steel products and solutions.

Henrik Adam, CEO of Tata Steel in Europe, said: “Today we are highlighting important proposals towards building a financially strong and sustainable European business. We plan to change how we work together to enable better cooperation and faster decision-making. This will help us become self-sustaining and cash positive in the face of unprecedented severe market conditions, enabling us to lead the way towards a carbon-neutral future.”

The programme is focused on four areas to improve financial performance:

  • Increasing sales of higher-value steels by improving product mix and customer focus;
  • Efficiency gains by optimising production processes, supported by the application of big data and advanced analytics;
  • Lowering employment costs, leading to an estimated reduction in employee numbers of up to 3,000 across Tata Steel Europe’s operations, about two-thirds of which are expected to be office-based (‘white collar’) roles;
  • Reduction of procurement costs through smarter sourcing and strengthening cooperation with companies within the Tata Steel group.

Through its proposed transformation programme, Tata Steel Europe is initially targeting a positive cash flow by the end of its financial year ending March 2021. It is also aiming for an EBITDA margin of around 10% throughout the market cycle. Based on full year 2019 revenue figures, this would equate to £750 million in EBITDA. With improved earnings and cash flows, Tata Steel Europe will be a financially self-sustaining business able to invest in asset reliability and improvements while also servicing its financial obligations to its lenders and shareholders.

A transformation is needed to mitigate the current structural and cyclical headwinds and create the foundation for the company’s future success. Stagnant EU steel demand and global overcapacity have been compounded by trade conflicts which have turned the European market into a dumping ground for the world’s excess steel capacity. Together with a significant increase in the cost of emission allowances, this has created an urgent need for improvements to the company’s financial performance.

In the first six months of its current financial year (starting April 2019), Tata Steel Europe reported a drop of 90% in EBITDA to £31 million. Revenue was £3.25 billion.

Tata Steel Europe will engage with various stakeholders to develop the proposed decisions and ensure compliance with all European and national obligations.

Source:  Tata Steel