Go to List

Europe's energy crisis intensifies: Things to watch out for

EU coal demand to see exponential rise Mills across EU cut production, scrap prices fall Import window opens but inflation to reduce apparent steel consumption Morning Br...

Crude steel
By
1789 Reads
10 Sep 2022, 09:30 IST
Europe's energy crisis intensifies: Things to watch out for

  • EU coal demand to see exponential rise

  • Mills across EU cut production, scrap prices fall

  • Import window opens but inflation to reduce apparent steel consumption

Morning Brief: The European Union's (EU's) energy crisis has reached "life-threatening" proportions and its steel makers have called upon policy makers to take "emergency measures."

Conventional trade and energy policy measures are clearly insufficient and would seriously put at risk survival sectors which are the backbone of the EU's value chains, an Eurofer press release said on 9 September.

"The current gas and electricity prices threaten the viability of steelmaking in Europe, while third country producers not subject to such constraints or whose governments do not take similar action against the Russian aggression take advantage of the situation by exporting massively to the EU at distorted prices," the release further said.

Meanwhile, Gazprom's failure to resume natural gas supply from its Nord Stream-1 pipeline has put the European Union's (EU's) already heated-up gas prices on fire and turned the spotlight on coal like never before.

Russia accounted for 45% of European pipeline gas imports in 2021 and the energy crisis is having far-reaching ramifications. SteelMint goes behind the scene:

Higher demand for thermal coal
One key fallout is the EU's return to coal. The Continent has stepped up its procurement of coal from South Africa (SA) and Indonesia. From 0.76 mnt in 2020, volumes shot up to 2.48 mnt in 2021 and 3.51 mnt till June in 2022. Supply from Indonesia had dropped from 0.52 mnt in 2020 to around 0.4 mnt in 2021 but swung up to 1.05 mnt over January-June, 2022.

SA is the preferred sourcing destination because of the lesser logistic distance and delivery time.

In 2021, EU's consumption of hard coal was estimated at around 160 mnt, 27% lower than in previous three years. But it is likely to see its thermal coal demand escalate by 66 mnt by 2023.

Coal miners globally, sensing big money in Europe's energy crisis, are increasing production to capitalize on the expected price hikes.

Inflation deflates purchasing power
Rising energy prices have fuelled a war-powered inflation across Europe. On 5 September, prices of natural gas in the European natural gas market rose to euro 72.4 to euro 281/mWh, a sharp 35% increase from 2 September. Banks are raising interest rates to tame the price rise. The European Central Bank (ECB) raised interest rates by 75 basis points. It said it "expects to raise interest rates further because inflation remains far too high and is likely to stay above target for an extended period." It revised up its inflation forecasts to an average 8.1% in 2022, 5.5% in 2023 and 2.3% in 2024.

Currently, downstream sectors are over-stocked thanks to the previous panic-buying and inflation is denting flats demand which forced mills to drop their June price levels.

European mills cut production
High energy prices are threatening the business feasibility of both blast and electric arc furnaces, forcing several to shut down temporarily. Europe's largest steel-maker, ArcelorMittal, will cut production across countries. Its steelworks in Dunkirk, France, Asturias in Spain, Bremen and Eisenhuttenstadt in Germany will each shut down one blast furnace. The Warsaw plant's EAF will be suspended.

UK-based Liberty Steel will shut down one of two BFs at its Ostrava steelworks in the Czech Republic. US Steel's Slovakian operation, USS Kosice, and the Smederevo steel plant, operated by China Hesteel Group in Serbia, will also suspend one BF each. Nationalized Italian Steel (formerly Ilva) will shut down at least one BF at Taranto. Salzgitter, Germany's second-largest steelmaker, has postponed restart of a repaired BF blast furnace. ThyssenKrupp, Germany's largest steelmaker, has been capping production as a fall in River Rhine's water level is hindering raw materials transportation.
Europe's energy crisis intensifies: Things to watch out for

Billets, longs imports pick up
Energy costs and the Black Sea blockade are supporting production cuts. Thus, mills are turning to South East Asia for sourcing semis and longs. Semi-finished products are not subjected to import duties or quotas in the EU, while longs from Southeast Asia are seen replacing Turkey-origin products, whose costs are increasing amid high energy prices. On the other hand, Asia has become a cheaper market for sourcing steel since it is not directly reliant on supplies of Russian gas and is thus insulated from the crisis. Semi-finished and long steel sales from Southeast Asia to Europe over the past few weeks have touched more than 100,000 tonnes.
Europe's energy crisis intensifies: Things to watch out for

Scrap prices fall on lower demand
Almost 80% of Europe's steel-making is via the EAF route where scrap is the primary feed. The widespread production cuts are ensuring a drop in scrap consumption and prices. In the last one-month, global benchmark scrap prices have corrected by $15/t CFR Turkey, the largest buyer of EU and US scrap.
Europe's energy crisis intensifies: Things to watch out for

Outlook
The current scenario is here to stay till the mid-term at least. Many feel it may not ease till March next year. As per an Eurofer report, steel demand remains uncertain and will "continue and further deteriorate into 2022" amid supply chain issues.

 

10 Sep 2022, 09:30 IST

 

 

You have 1 complimentary insights remaining! Stay informed with BigMint
Related Insights
No related insights found
;