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

Record Global Stainless Steel Production Forecast for 2019 & 2020

MEPS forecasts that world crude stainless steel output will reach an all-time high of 52.1 million tonnes, in 2019. This would represent an increase of 3 percent, compared with the previous record figure, set last year. MEPS expects continued growth in global production, in 2020. A new peak volume of 54.2 million tonnes is predicted for next year.

China’s output continues to expand, substantially. The country’s outturn, in 2019, is forecast to grow by more than 6 percent, year-on-year, to reach 28.3 million tonnes, or over 54 percent of the global total. A further increase, of around 5 percent, is anticipated, next year.

Stainless steel production, in India, is expected to record steady annual growth, of more than 3 percent, to achieve a total of around 3.875 million tonnes, this year. A similar rate of expansion is predicted, in 2020.

While safeguarding measures have been used to prevent an increase in imports, into the European Union, local demand is weak and export opportunities are limited. Consequently, the region’s crude stainless steel output is forecast to shrink, by around 6 percent, year-on-year, in 2019, to 6.95 million tonnes. Minimal growth is expected, next year.

Domestic consumption has slowed, significantly, in the United States. This year’s crude stainless steel outturn is forecast to be around 3 percent lower than the 2018 figure, at 2.725 million tonnes. A moderate increase, of about 2 percent, is foreseen, in 2019.

Excess worldwide stainless steel production capacity, protectionist trade restrictions and mediocre home demand are contributing to reduced output in the established stainless steelmaking countries of the Far East. This year’s outturn is predicted to fall by around 4 percent, in South Korea, while Japan and Taiwan are each expected to record year-on-year cuts of around 10 percent, in 2019. Moderate recoveries are anticipated, in all these countries, next year.

Source: MEPS International Ltd.MEPS Stainless Steel Review

Low Demand and Plentiful Supply Lead to reductions in Steel Prices

North American and European steelmakers are struggling to halt the negative trend in flat product steel prices, which has developed in recent months. Low steel demand, plentiful supply and a sharp fall in raw material expenditure, notably scrap, have prompted deflation in regional steel prices.

World steel demand was negatively impacted by a decrease in construction activity, as well as a notable decline in car production. The vehicle making industry was hit by a reduction in purchasing activity and the confusion surrounding the switch to electric cars. Growth in the global construction sector is expected to slow, this year. On the supply side, domestic capacity utilisation, in the US, remains at around the 80 percent level, in the year to date. Imported volumes continue to be a negative influence on steel prices in the European market, despite EC safeguarding measures.

The consensus view of market participants, in October, is that end-users are benefiting from oversupply in the steel supply chain, to secure significant discounts. MEPS predicts that global prices are likely to soften further, in the final quarter of the year. Reduced activity, in major downstream markets, is projected to continue. Subsequently, steelmakers, worldwide, will be looking to minimise the extent of further price deterioration, in the coming months.

A price recovery is forecast in the early months of next year. Inventory replenishment and a revival in scrap costs should exert upward pressure on steel prices, at that time. Nonetheless, any prolonged recovery in global steel prices is unlikely – with no long-term demand improvement envisaged.

Source: MEPS International Ltd. – MEPS International Steel Review

Brazilian domestic steelmakers attempt to push through price increases in October

The business environment is challenging, in Brazil. Domestic steelmakers attempted to push through a price increase for October’s production campaign. Predictably, distributors and end-users are reluctant to commit to forward orders. For the moment, most purchases are for immediate needs only. Supplies from third country sources are unattractive.

Business confidence in Turkey, is deteriorating. Domestic steel producers are reluctant to offer additional discounts and more favourable payment terms, fearing such measures would be counterproductive and only fuel further price volatility. The situation is exacerbated by the instability of the Turkish lira against the US dollar, the threat of US trade sanctions and political uncertainty. Third country import offers are available, but buyers show little interest.

The trading climate, in the Russian Federation, is demanding. Distributors and downstream industries plan to avoid holding or building inventory, in the interim. The, year-end, seasonal slowdown in demand is expected to begin in late October. Moreover, overseas sales are difficult to secure, forcing producers to reduce their export quotations.

Business confidence is deteriorating in the Indian distribution network. Inventories are marginally excessive, as a result of slow sales to end-users, who are keeping their stocks as low as possible. Pressure is mounting on domestic mills to offer additional price concessions to fill their order books. Support from offshore buyers is limited.

In China, purchasing activity failed to pick up following the National Day Golden Week vacation period. Many local steel manufacturers announced unchanged list values for November deliveries. Domestically produced material is readily available, despite recent output restrictions.

Procurement activity is tepid, in Ukraine. Neither sales nor prices are showing signs of improvement, as is the norm at this time of year. Service centres are offering reduced resale prices to their customers in order to lower inventory levels. Support from external demand is limited. The local association of metal producers, Metallurgprom, reports that finished steel production, in September 2019, totalled 1.362 million tonnes – down 11.4 percent, month-on-month.

Sentiment is deteriorating in the Emirati steel market. Demand is relatively subdued, making it difficult for distributors to obtain satisfactory resale values. End-user groups plan to closely monitor the price premium charged by the local mills relative to imports, before deciding where to purchase. Availability of foreign material at the ports is plentiful. Meanwhile, the Gulf Co-operation Council (GCC) has initiated a safeguard investigation into imports of flat, long and tubular products.

Difficult trading conditions persist, in South Africa. Service centres and traders report that profit margins are being squeezed. Many have failed to recoup the full amount of recent mill hikes. Few deals are being concluded. The construction sector continues to suffer from a shortage of public and private finance.

The prognosis for the Mexican steel market is unchanged. Demand from end-users is weaker than usual for this time of year. MEPS’ research found that dealers are expecting transaction values to soften further next month. Inventories linger at undesirable low levels, despite modest reductions. Third country imports are not particularly attractive.

Source: MEPS International Ltd.MEPS Developing Markets Steel Review 

Prices Continue to Fall in Northern European Steel Market

Purchasing activity is subdued, in the northern European steel market. Supply chain participants are beginning to reduce their inventories, before the calendar year-end. Market trends are not expected to change unless consumption increases or production capacity is reduced.

Danish suppliers report poor demand for hot rolled coil. Sellers are struggling to find new markets. In Sweden, domestic end-users have plenty of work but want to control their stock levels. Prices continue to slide, in Finland, although local demand is fair. In the Netherlands, delivery lead times, from the mills, are short. Order bookings, for the fourth quarter, are sparse, in Austria. The Norwegian market is quieter, now, than it was before the summer break.

Hot rolled plate demand is weakening, in Sweden. In Finland, the shipbuilding industry is performing better than most other sectors but Russian producers are active. Sales tonnages are fair, in Austria, but purchasing activity is at a low level, in Denmark and in the Netherlands. Norwegian participants report signs of a slowdown in the offshore segment.

Decreased German vehicle-making activity is reducing exports from all markets in the region, adversely affecting sales of cold rolled coil and coated sheet and coil. No recovery is anticipated until several months into 2020. Imports are reported to be swelling supply. Hot dipped galvanised coil values remain under negative pressure and they are predicted to fall again, next month. Local mills are said to be becoming more flexible, in negotiations. In Norway, buyers are free to import from anywhere. Consequently, they are seeking low price offers.

Domestic sales volumes of wire rod were surprisingly good, in Sweden but reduced raw material costs pushed mill selling values downward. Downstream wire consumption is significantly reduced, in Finland. Wire producers, in the Netherlands, are seeking customers in other sectors. Drawing quality wire rod prices fell in Austria, in Denmark and in Norway.

Recent sales tonnages of medium sections and beams have been satisfactory, in Denmark. However, a downturn in building activity is expected. Reduced scrap costs, and the weak European steel market, dragged Swedish beam prices down. The same factors, combined with competition from Russian suppliers, applied negative pressure to selling values in Finland. Mills are willing to cut prices to secure deals in the Netherlands. Construction activity remains reasonable, in Austria, but a slowdown is foreseen. Order volumes, in Norway, are lower than in recent months.

The Swedish reinforcing bar market is shrinking, slightly, but several large infrastructure projects have recently been approved. Consumption, in Finland, is still quite good. Local demand is healthy, in Denmark. However, activity is expected to decline. Projects, in the Netherlands, are being hit by the government’s nitrogen limiting measures. Transaction values are falling, in Austria and in Norway. Buyers are waiting before placing orders.

Danish domestic demand for merchant bars is fair, but regional consumption is weak. Buyers are discouraged from placing orders. Sales volumes, in Sweden, are adversely affected by the slowdown in automotive and general manufacturing. In Finland, prices are negatively influenced by low mill input costs and cheap import offers. In the Netherlands, conversely, the majority of foreign quotations are considered to be unattractive Strong competition between numerous local suppliers is reported, in Austria. Stockists, in Norway, are prepared to source material from third countries if European producers are unwilling to cut their prices sufficiently.

Source: MEPS International Ltd.MEPS European Steel Review Supplement

European Steel Buyers Expect Further Price Cuts Before Year-End

Despite the regional steelmakers’ attempts to lift basis values, in order to restore profit margins, European strip mill product prices moved downwards, in October. Market activity deteriorated noticeably. The lack of orders from the automotive sector continues to have a negative effect on overall demand. Mill delivery lead times are short, allowing European steel buyers to either postpone purchasing decisions or to buy only small quantities.

Procurement by distributors is still weak, due to concerns about their resale margins. The year-end is approaching. As a result, businesses are reducing stocks. Mills are keen to book orders but most market participants, expecting even lower prices in the immediate future, remain very cautious. Moreover, global trade tensions, plus political and economic uncertainties, persist. Notwithstanding recent cutbacks in production by the major mills, customers perceive no significant supply tightness.

Germany

Strip mill product prices continue to fall, in the German market. The lack of activity in the auto industry creates negativity in the economy as a whole. Machinery manufacture is also under pressure, after many years of growth. The slowdown in steel demand left large gaps in mill order books. Steelmakers are offering discounts to generate sales. Nevertheless, buyers will only negotiate for their short-term requirements. Third country imports play a minor role in buyers’ decision making, at present, as customers expect domestic values to decrease further.

France

End-user activity was generally good on the French market, in October, but prices continued to fall. Apparent demand is very low. Mills struggle to fill their order books. A further slowdown is expected, in an atmosphere of continuously decreasing prices. A number of service centres report a drop in sales volumes of around 15 percent. Those dealing with the auto sector still enjoy reasonable margins. For the rest of industry, profits have contracted rapidly.

Italy

A number of issues afflict the Italian steel sector. The economic outlook is negative, with automotive, construction and mechanical engineering performing poorly. Service centres continue to destock. Resale values are very low. Supplying mills can deliver almost immediately, negating the need for buyers to order large quantities. Moreover, scrap prices have been steadily revised downwards, over the past nine months. Domestic strip mill product values came under renewed negative pressure, in October, as importers’ offers became more competitive.

UK

UK basis figures continue to decline, this month, due to very low demand. Customers refrain from concluding deals because of the downward price trend. Moreover, many service centres are already covered for their current needs. Speculative purchases are being avoided due to Brexit uncertainty. Steelmakers offered further discounts. UK and European steel buyers see no signs of any short-term recovery. Although distributors’ resale values are weakening, a number report that profit margins remain acceptable.

Belgium

In Belgium, conditions are weak, with pessimistic forecasts for 2020. Fifteen to twenty percent of Belgium’s industrial production is supplied to companies in Germany. The economic downturn in that country has a severe impact on suppliers in Belgium. End-users are only buying for their short-term needs. Mills are chasing orders and cutting output. Large service centres are also keen to sell in order to improve turnover and to reduce inventories before the year-end. Intense competition in the distribution sector led to discounting. Mill basis values came under renewed pressure, in October.

Spain

Market participants, in Spain’s steel sector, were surprised by the rapid decline in strip mill product prices, during late September/October. A lack of activity and the recent drop in scrap expenditure were catalysts for the negative price trend. The situation was aggravated by the fact that, as prices plummeted, buyers adopted a “wait and see” position, before making further purchases. Uncertainty, both political and economic, will do little to reverse the current situation, during the remainder of this year.

 

Source: MEPS International Ltd.MEPS European Steel Review | October 2019