Downturn in EU Manufacturing Sector Suppresses Steel Demand

Activity in the EU strip mill product market was muted during the summer holidays. Numerous supply chain participants remarked that conditions were quieter than usual for the time of year. In early/mid-September, the market remained subdued. Procurement by distributors is still weak, due to concerns about their own tight resale margins. Overall demand indicates little, or no, improvement in the short term. Global trade tensions and political uncertainty continue to create a great amount of caution. Steelmakers, whose profit margins are being squeezed, continued to attempt to raise basis prices but their proposals were rejected by buyers. Purchasing executives, across Europe, were able to negotiate rollover values, or even small discounts in some instances, with regional steel producers. Despite cutbacks in production by the major mills, customers perceive no significant supply tightness, although delivery lead times have extended.

Germany

The lack of activity in the auto industry continues to have a negative impact on Germany’s economy. Machinery manufacture is also under pressure, after many years of growth. The steel market is very quiet amidst such a pessimistic outlook. A number of service centres are selling aggressively, in order to offload stock that is surplus to requirements. Supplying mills are lacking orders, thus negating any opportunities for the implementation of price increases.

France

Activity on the French flat products market was slow to pick up at the beginning of September. Buyers confirm a significant slowdown in a number of industries. They believe that this will affect the rest of the year. Prices are suffering as a result. Several mills are reported to be struggling to sell material they have in stock.

Italy

The downturn in the Italian manufacturing sector continued, in August, as companies recorded the thirteenth consecutive monthly decline in both output and new orders. Steel market participants comment that, under the new government, policies may change, bringing some form of new investment to the country. For the moment, the steel industry is depressed, with little sign of any demand recovery in the post-holiday period. Producers are attempting to maintain, or even increase, current prices. However, their ambitions were undermined, during the summer, by poor market sentiment, at home and abroad, whilst iron ore costs also softened.

United Kingdom

In August, output volumes in the UK manufacturing sector fell, as the intake of new orders contracted, at the fastest rate for over seven years. In the steel sector, a number of service centres were quite busy in July/August, against the traditional seasonal pattern. Margins on low-cost inventories were reasonable. In direct contrast, other distributors, often those allied to the auto industry, report very poor business conditions. Buyers comment that the recent steelmaking capacity cuts were insufficient, leaving the market oversupplied.

Belgium

Tepid demand and high service centre stocks prevented implementation of the proposed rises for strip mill products, in Belgium. In reality, prices came under renewed downward pressure. Sentiment is poor. Very few deals were booked over the summer, despite steelmakers’ keenness to secure business, in an effort to plug holes in their order books. Distributors comment that credit insurance companies are warning that payment problems may develop with a number of end-users.

Spain

Spain’s manufacturing sector continued to contract during August, undermined by the sharpest fall in output since May 2013 and a further decline in new orders. Steelmakers’ order books are quite weak. Buyers have halted their purchasing as they evaluate import offers which, with the recent drop in raw material costs, have become much more competitive, although lead times are long. August proved to be a dire month for Spanish service centres. Market participants were reluctant to replenish stock in a context of decreasing prices. In the meantime, real activity remains mediocre. Resale values are very low as distributors fight for the few orders available.

 

Source: MEPS International Ltd.MEPS European Steel Review

Primetals Technologies receives FAC for automation upgrades at Gerdau Ouro Branco and conducts Industry 4.0 study

In late March, Primetals Technologies received the Final Acceptance Certificates (FACs) for automation upgrades conducted on a third-party 6-strand billet caster and two blast furnaces of Gerdau Ouro Branco in Minas Gerais, Brazil. The caster project included the upgrade of outdated level 1 and level 2 systems, resulting in quality improvements, reduced maintenance requirements and operating cost savings. Blast furnaces #1 and #2 were outfitted with a new level 2 process optimization system with a short payback period of several months. On the one hand the solution saves fuel and reducing agents, and on the other hand it improves the hot metal quality. In addition, Gerdau contracted Primetals Technologies to assess two of their facilities regarding their digital maturity level within the scope of an Industry 4.0 study, and to provide a roadmap towards a smart steel production.

The level 2 system installed at a 6-strand billet caster encompass basic functionalities like material tracking, heat pacing, cutting schedule and process set-point generation as well as the implementation of the Equipment Expert, which is a preventive maintenance tool for the caster equipment. Advanced process models for the caster include the DynaSpeed secondary cooling model, Quality Expert Express Edition used for product quality rating, a billet cut-length optimization and the Intermix model for calculation of the heat volume concentration and incompatible strand portions along the strand.

In the course of upgrading the billet caster´s level 1 system, Primetals Technologies undertook the migration of an obsolete third-party platform to the latest state-of-the-art controllers, using a special migration kit in order to reduce risk and consequently shortening the shutdown period. Existing frequency converters were replaced by new components. A new HMI(Human Machine Interface) system, using a virtual server concept was also supplied. In addition, the existing low performance field networks were replaced by Ethernet IP, and the operation desks and panels were modernized.

The level 2 systems for the two blast furnaces #1 and #2 enables all optimization functions to work within a virtualized server concept, allowing for high-availability hardware redundancy. The system offers data recording, data visualization and long term data archiving functionality. Control of blast furnace raw material supply and material distribution within the shaft is model based, as is the optimized control of the hot stoves system. Also, expert systems for automatic operation of blast furnace in closed-loop mode, and for preparing the blast furnaces for intermediate maintenance shut-downs were introduced. Finally, a recently developed slag optimization model was included in the level 2 system.

The Industry 4.0 Study conducted by Primetals Technologies consisted of the assessment of an integrated process route from blast furnace to continuous casting and the assessment of an EAF route from scrap handling to long rolled products. The assessments were performed in a holistic manner, including an investigation of metallurgical models and tools for better and more repeatable process execution, automation and system requirements, production planning and digital assistance systems, all with regards to product quality, traceability and consistency. Based on the results of this assessment a roadmap was provided by Primetals Technologies, which will assist Gerdau to further transform its production site in Ouro Branco to meet their goal of becoming a smart steel production. 

Gerdau S.A., headquartered in São Paulo,  is the largest Brazilian steel producer and one of the major suppliers of long steel in the Americas and of special steel in the world and possesses an installed capacity of 21.7 million tons of steel per year. The company is present in 10 countries in the Americas. Gerdau Ouro Branco, located in the Brazilian state of Minas Gerais, is Gerdau’s largest steel mill. Its product mix includes billets, slabs, blooms, beam-blanks, wire-rod, carbochemicals, hot coils and plates. The installed capacity of the Ouro Branco plant is 4.5 million metric tons per year.

The new level 1 and level 2 systems from Primetals Technologies for the billet caster of Gerdau Ouro Branco in Brazil improve the quality, reduce maintenance efforts and operating costs.

Source: Primetals Technologies

Indonesia to Lose European Commission Safeguard Exemption

The European Commission recently completed its review of the safeguard measures, which were introduced to prevent the redirection of material previously destined for the United States. The Commission has recommended changes, to the list of products from developing nations, that are currently excluded from the quota system. It has made the proposed amendments based on the latest full year’s import statistics, instead of the ones used in the previous definitive measures.

Brazil and India were removed from the list for stainless steel hot rolled sheets and strip. These countries will become exempt from the quotas for this product. Turkey has obtained an exemption from the safeguard measures for stainless steel hot rolled quarto plates. This could result in increased imports, into the EU, from these countries.

In the proposal, Indonesia will lose its developing nation exclusion for both stainless steel hot and cold rolled sheets and strip. Imports, in these categories, will be subject to the quota and tariff system. Tonnages, from this country, have been arriving in the EU at a growing rate, since mid-2018.

Hot rolled stainless steel, from Indonesia, increased to over 25 percent of the total imports into the EU, in the first quarter of 2019. China still accounts for more than half of the foreign sales into Europe. The safeguard measures have done little to stop the rise in stainless steel imports, from all countries, since they were introduced in July 2018.

The volume of Indonesian cold rolled stainless steel, arriving into the EU, increased to approximately 8 percent of total imports, in the first three months of this year. However, production of cold rolled material, in the country, is limited. Taiwan remains the largest supplier, of cold rolled sheets and strip, to Europe.

Crucially, imports of hot and cold rolled sheets and strip, from Indonesia in 2018, exceeded the World Trade Organisation’s 3 percent threshold, at which developing nation exemption is lost. This is the year that was used in the recent review by the European Commission.

Prior to the announcement of the proposed changes to the safeguard measures, Eurofer submitted an antidumping complaint to the European Commission. This covered hot rolled stainless steel sheet and coil from China, Indonesia and Taiwan. This investigation, combined with the application of quotas for Indonesia, is expected to result in a reduction in imports of hot rolled stainless steel products, in the remainder of 2019.

The proposed changes, if agreed by the member states, will come into effect on October 1, 2019.

Raw Materials

Nickel prices have increased significantly, since early July. The threat of bringing forward a ban on ore exports from Indonesia, before the originally planned 2022 date, is the main cause of this dramatic rise. Further price advances could be recorded, if the date of the ban is confirmed. However, the current prices suggest that the market have already factored in a large part of the impact that this would have. Consequently, any additional price gains are likely to be modest and short-lived.

Inventories, held in LME warehouses, moved back above 150,000 tonnes. Cancelled warrants have also fallen, of late. This could signal that traders are getting nervous about the level that nickel prices have reached. Consequently, a downward correction in nickel values is predicted, later in the year.

Spot chromium prices moved upwards, in August. A modest increase is expected to contract prices in the fourth quarter, in the EU and US. Molybdenum costs moved upwards, this month. Values are likely to soften, in the near term, due to weak demand in the global market.

Stainless Steel Price Forecast

Rising raw material costs are expected to push global stainless steel transaction values upwards, in September and October. Ongoing trade disputes and antidumping measures, being implemented in nations on all continents, may restrict the availability of foreign material in many countries. This could encourage more customers to purchase from their domestic suppliers, in the coming months. Consequently, the traditional price downturn, usually observed in the final quarter, is expected to be muted, this year.

Source: MEPS International Ltd.MEPS Stainless Steel Review

US Steel Prices Rebound in August

US flat product steelmakers are bucking the seasonal price trend, by pressing for a rise in local values, despite the summer lull in activity. Domestic suppliers, in an attempt to stave off the threat of further losses, introduced a series of list price hikes, during the July/August period. Local mills had little option but to implement such measures, as they aimed to recoup rising input costs.

Initially, buyers resisted the mills’ price hike initiatives. However, the US steel producers’ proposals helped to prevent further price deterioration. Subsequently, selling figures started to move up, despite US steel demand remaining steady, yet unspectacular. Automotive and construction activity is below last year’s numbers. The pipe and tube sector is healthy – although this product is exposed to high import penetration. Energy-related consumption is growing, albeit from low levels.

Domestic capacity utilisation, in the US, is approximately 81 percent, year-to-date. Mill delivery lead times remain relatively short, despite the impact of the summer outages for scheduled maintenance. Finished steel import volumes rose markedly, in July, partly due to the removal of Section 232 tariffs on neighbouring Canada and Mexico.

Consequently, many US buyers speculate that the recent pricing revival is likely to be short-lived. It is widely acknowledged that few market fundamentals, support a prolonged reversal of fortunes.

Source: MEPS International Ltd.MEPS International Steel Review

European Commission Announces Proposed Changes to Safeguard Measures

Import share, as a proportion of apparent finished steel consumption, in the EU, has been on an upward trend for several years. However, this largely remained below 20 percent, prior to 2018. The US government’s application of Section 232 tariffs, from March 2018, disrupted international trade flows. This caused concern amongst many steelmakers, in the EU, who feared that material would be diverted into the European market. Consequently, the European Commission introduced safeguard measures, from July 2018.

The safeguard measures may have been, at least partially, successful. Nevertheless, since the implementation of the quotas, imports into the EU have continued to rise, despite weakening demand in the region. Import share, of consumption, has since moved above 20 percent. Many domestic steelmakers have reported significant financial losses, in the second quarter of 2019. Consequently, a joint letter was submitted, via Eurofer, to the European Commission, expressing concerns regarding the state of the EU steel industry and the role that imports play in the market.

One of the biggest issues raised, was the way that imports of hot rolled coil were controlled. Under the current system, there is a single quota for hot rolled coil entering the region, from any country included in the safeguard measures. The annual quota tonnage is divided into quarterly amounts. This has drawn criticism from many steel industry participants. They feel that this has been abused by traders from some countries, who have been undermining European mill prices by taking a large share of this quota, to the detriment of others.

The European Commission is suggesting that the hot rolled flat products category be adapted, capping the volume that any one country can import, in each period, to 30 percent. This will be designed to better protect historical trade flows and prevent one country from utilising most, or all, of the quota, in any one quarter. The global, non-country specific, quotas will remain for this category.

Metallic coated materials were another contentious category – listed under sections 4a and 4b of the definitive safeguard measures. Steel consumers had previously complained about a lack of availability, with the Chinese quota being fully utilised very soon after the opening of the new period, for category 4b – which is for the automotive qualities. No new imports can now enter Europe, tariff free, from China, until the final period, in the second quarter of 2020 – when they gain access to the “All Other” quota.

The preliminary safeguard measures (prior to February 2, 2019) had not made the distinction between the different metallic coated grades. Splitting this product has created issues with imports in the 4b category as some imports arriving within this quota may not have been destined for the automotive industry. Consequently, the European Commission would like to restrict imports under the 4b section only to those who can prove that they will be used in the automotive sector. India will receive a country specific quota, only under the 4a category.

Under the current system, where the relevant quota is exhausted for one specific country, imports from that country can be made under the remaining part of the “All Other” category. However, that provision only applies during the last quarter of each year of application of the definitive measures. The period from April 1, 2020 to June 30, 2020 is classed as the final quarter of this year’s application. 

This had led to criticism that smaller traders have found it difficult to import tonnages, in the final period. This has been particularly true for rebar and wire rod. In the case of these two products, the European Commission is proposing a cap of 30 percent, on each supplying country, when accessing the all “All Other” category, in the final period of each year. However, there is no clarification on how buyers will know if this limit has been reached and if they are still able to bring tonnages into the EU.

The original safeguard measures had a built-in mechanism to increase quota volumes by 5 percent, each year. However, this is to be reduced to 3 percent, for the current and succeeding years. Reductions in annual tonnages will be made to the quarterly volumes to ensure the annual tonnages are in line with the quotas set.

World Trade Organisation members will be asked to comment on the proposed amendments before being submitted for approval by the EU member states. This process is scheduled to be completed no later than September 30, 2019. Any changes will come into effect on October 1, 2019.

If these proposals are adopted, this could restrict availability of steel in the EU market, in the fourth quarter of 2019. Sentiment may improve and local mills will attempt to push through price rises, in the autumn of 2019. However, weak demand and high stock levels may delay any increases in steel selling values until the beginning of 2020.

Source: MEPS International Ltd.MEPS European Steel Review

Holiday slowdown and continuing trade uncertainties curtail demand in Nordic markets

Business activity, in August, is generally subdued in the Nordic markets, as participants return from annual holidays. The US-China trade war continues to have a negative effect on sentiment. Reduced automotive production, principally in Germany, is starting to disturb other market sectors. Uncertainty surrounding Brexit is having a disruptive impact on trade flows. These factors caused some weakening of prices, countering producers’ efforts to increase levels, in the face of higher raw material costs.

Hot Rolled Coil

Activity is slow, in Denmark, with prices, for hot rolled coil, under downward pressure. Contract deals are unchanged, in Sweden, in local currency. Supply is mainly from local producers. Subcontractors, in Finland, are being negatively affected by the drop in German automotive production. In the Netherlands, the malaise in automotive demand is now affecting other product areas. Steel mills, however, have order books full until October. Sales volumes, in Austria, are better than anticipated, but margins are severely reduced. In Norway, lead times have reduced to 4 to 6 weeks.

Hot Rolled Plate

In Denmark, the holiday period is heavily influencing demand for hot rolled plate. Activity is low and customers are reluctant to buy. Volumes remain unchanged, in the Swedish market. The engineering sector continues to perform satisfactorily, in Finland, but mills’ delivery times are reducing, as they are in Norway. In the Netherlands, demand remains solid, at a low level. The drop in machine building, in Austria, could hit distributors’ turnover, which is already at reduced levels. 

Cold Rolled Coil

Imports of cold rolled coil remain unattractive, in Denmark, amidst low activity levels. Reduced demand, from Germany, is pulling down volumes, in Sweden. The market situation remains unchanged in Finland. Selling values, in the Netherlands, softened, in August. Demand, in Austria, is typical for the post-holiday period. Stock levels, although still relatively high, are reducing. In Norway, the decrease in the car industry is starting to have an impact in other areas. 

Coated Coil

Market participants, in Denmark, expressed disappointment that existing safeguard measures for coated sheet and coil had not been changed. Truck manufacturing, in Sweden, is slowing down. The market remains stable, in Finland and in Norway. In the Netherlands, there is evidence of improvement, in subcontractor activity, leading to limited restocking. In Austria, delayed implementation of projects and last-minute purchasing create nervousness.

Wire Rod

Independent suppliers of drawn wire, to Denmark, are experiencing difficulties obtaining wire rod, due to EC safeguards. Order intake, in Sweden, is very good. In Finland, reduced downstream activity, in fencing and wire manufacture, results in shorter order books. Purchasers, in the Netherlands, negotiated reductions, for the third quarter. Further falls are expected for the fourth trimester. The market, in Austria, is weakening but, in Norway, it remains static.

Medium Sections and Beams

Transaction prices for medium sections and beams, in Denmark, fell back to previous levels, in August. In Sweden, mills are pressing buyers to place new orders. New construction starts are slightly down, in Finland. In the Netherlands, delivery times are extending, as a result of mills’ capacity cuts. Construction activity, in Norway, was reduced to essential maintenance, in the holiday period.

Rebar

The building sector, in Denmark, is reasonably strong and sentiment is positive for reinforcing bars. Values in Sweden registered a minimal drop. The market in Finland is experiencing some weakness. Volumes from Russia decreased because of quota restrictions. In the Netherlands, demand is stable, but at a lower level than was seen in 2018. Spot prices, in Austria and in Norway, weakened slightly.

Merchant Bar

Basis prices, for merchant bars, dropped, in Denmark, this month. The gap, between northern and southern producers’ offers, is inconsistent. Activity, in Sweden, was very low. In Finland, delivery lead times are very short and, in Norway, they are decreasing. In the Netherlands, there is sufficient stock available, to frustrate mills’ proposed increases. Austria remained largely unchanged. 

Source: MEPS – European Steel Review Supplement – August 2019 Issue