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Ferrous: Russian invasion adds to volatility

Sector’s positive sentiment rattled by higher energy costs and other consequences of military action in Ukraine.

Political uncertainty over Ukraine gave way to cold reality in late February when Russian tanks crossed into disputed Ukrainian territory. This will undoubtedly have wider consequences for trade but, at the time of writing, it was impossible to know how profound they would be, particularly in terms of energy costs.

Ukraine was 14th biggest producer of crude steel in 2021. The World Steel Assocation logged output at 21.4 million tonnes, up 3.6% on 2020 when the country was 12th biggest producer. It has several significant steelworks, some of which are within or close to the disputed territories, including Metallurgical Combine Azovstal, with six furnaces, and the Illich works which employs tens of thousands of people.

Turkish steel mills, meanwhile, were reported to be very quiet and, as a result, little deep-sea imports were being sought. Stock levels were said to be sufficient while demand for long steel products in export markets was weak. However, according to Argus Media, ‘this dampened Turkish sentiment… only temporarily clouded the strong fundamentals already displayed in China and other Asian steel markets.’

The view was reinforced during BIR’s regular online Challenge event in mid-February, when panellist Marl Sellier, president of Global Metals Network, said China remained key to global trade in secondary materials, particularly with its policy of switching to electric arc furnaces which use ferrous scrap. ‘All eyes are on China, it’s the biggest market,’ said Sellier. ‘Let’s see in March what their targets are because we know they can achieve them.’

Strong, stable outlook

In its latest short-range outlook, the International Rebar Exporters and Producers Association (Irepas), says: ‘Steel consumption is still excellent around the world while the ferrous scrap market has strengthened since the New Year. Input costs for both integrated and EAF-based mills have increased in a similar fashion.’ It describes the current status of the market as very stable and strong.

Irepas also notes a plateau in Chinese steel production with Beijing looking to produce 100-150 million tonnes less steel in 2022 than in 2021. The outlook considers that if China does not produce as much as it did last year, and if exports do not increase, then all other suppliers will have the chance to export to southeast Asian and Far Eastern markets as well. If less steel is produced, it could create a mini-boom in Chinese import demand.

EU steel concern

The European Steel Association (Eurofer) is warning the sector’s economic recovery will continue at only a moderate rate until at least the middle of the year as the industry deals with uncertainty including high energy costs. In the third quarter of 2021, EU apparent steel consumption increased for the fourth consecutive quarter although it eased to 36 million tonnes in Q3 from 40 million tonnes in Q2.

‘The positive trend in steel-using industries and in steel demand observed since the end of 2020 continues but the outlook is becoming gloomier,’ says Axel Eggert, Eurofer director general before the Ukraine situation escalated. ‘Ongoing supply chain disruptions, skyrocketing energy and carbon prices as well as persisting inflation are putting the recovery of the steel sector at risk. Combined with the current EU climate and energy policies, these are the ingredients of a dangerous cocktail that may drive Europe into a structural crisis and industry out of Europe.’

Steel consumption, after a 13.8% rebound in 2021, is expected to grow by a more moderate 3.2% in 2022 and 1.7% in 2023. Domestic deliveries in the EU in Q3 continued positively but at a slower pace (up 6.6%) than the exceptional growth in volumes recorded in the second quarter (+40%). This follows declines of 9.6% in 2020 and 4.2% in 2019.

However, EU steel imports continue to surge, up 47.7% in the third quarter after a 45% growth in the second. The 2020 figure at the height of the pandemic was a decline of 17.1%.

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