EU steel troubles weigh on bulk alloys

Bulk alloy prices have fallen in recent weeks on reduced purchasing from European steel mills that are facing economic pressure and foreign imports.

Prices for ferro-chrome, ferro-manganese, silico-manganese and ferro-silicon were all down in April-May. High carbon ferro-chrome prices fell to 94-98c/lb on 16 May from $0.98-1.05/lb on 1 April and low carbon ferro-chrome prices fell to $1.85-1.98/lb, down from $1.95-2/lb on 1 April.

High carbon ferro-manganese prices fell by €60/t to €990-1,040/t ($1,104-1,160/t) on 16 May, from €1,050-1,100/t on 1 April. Ferro-silicon prices fell most sharply by €125/t to €950-1,000/t on 16 May from €1,070-1,130/t on 1 April on low demand and oversupply.

Traders and producers reported unusually low activity for the second quarter, citing low demand from steel industry consumers. European steel producers are under pressure from a combination of foreign steel imports, an automotive market downturn, global trade conflicts and increasing electricity costs.

China/US trade war hits EU markets

The increase in steel imports into the EU accelerated in 2018 despite preliminary EU safeguarding measures. EU steel consumption rose by 3.3pc in 2018, according to figures released by the European Steel Association (Eurofer). In the same period, EU domestic steel deliveries increased by just 1.7pc.

Imports rose sharply by 12.6pc, taking market share from EU producers. Imported steel rose to a 24pc share of the EU market in 2018, up from 22pc in 2017. That figure rose to 25pc in the fourth quarter of 2018 and is expected to rise because of increased sanctions imposed by the US administration on Chinese goods.

Section 232 tariffs, introduced by the US administration to curb steel imports, have diverted steel from Asia-Pacific available at lower prices away from the US into Europe, along with other materials. Prices for northwest European hot rolled coil (HRC) have fallen to €470.50/t from €519.50/t at the start of the year.

Turkey targets EU buyers

A fall in the value of the Turkish lira and other economic problems in Turkey have affected the country's steel market. Turkish domestic steel demand was down by around 50pc in the first few months of 2019, according to Eurofer estimates, with minimal cuts to production. Producers instead looked to Europe to divert material away from the oversupplied steel market.

Turkish steel accounted for 28pc of the EU's total finished steel imports in the first quarter of 2019, up from an average of 21pc in 2018. Imports of steel from Turkey rose by 35pc in the first quarter of 2019 alone and 65pc overall in 2018. Turkish customs data show a 71pc rise in exports of finished steel to the EU and only a 3pc rise in exports to other countries. At the same time, EU exports of steel to Turkey fell by 26pc on average from January 2018 to February 2019.

Safeguarding measures introduced in February have not had the desired effect. Large exporters — more than 3pc of total EU imports — are subject to 25pc tariffs on steel sold above a quota equal to 105pc of their average 2015-17 exports. There is a 5pc relaxation of the quota due in July. But Turkish producers are offering discounts, rendering the measures ineffective, and Eurofer is calling on the commission to revise them.

Emission costs weigh on producers

Another strain on steel producers is the rising cost of energy and carbon emissions in the EU. EU steel producers are subject to the Emissions Trading System (ETS), where companies must buy permits to cover their carbon emissions. The price of carbon has increased by 230pc since the start of 2018, according to the EU's largest steel producer Arcelor Mittal.

The company recently closed a steel plant in Krakow, one of the largest consumers of ferro-alloys in Poland. The closure led to an immediate reduction in reported offer prices for ferro-manganese and silico-manganese in eastern Europe. The company pointed to a combination of higher imports into the EU and an increase in energy costs because of emissions. Arcelor Mittal also plans to reduce production at a plant in Spain's Asturias and slow down a planned increase in shipments from its plant in Italy.

British Steel was suspended from the ETS on 1 January because of the UK's impending exit from the EU. The EU allocates free carbon emissions permits every year, and British Steel, which was in deficit for emissions last year, was counting on the UK's allocation under the ETS to trade permits to cover its deficit. The failure of the UK government to pass a negotiated withdrawal agreement led to the suspension. The company, Britain's second largest steelmaker, is now at risk of going into administration.

Automotive downturn threatens downstream consumers

A downturn in industry and in particular the automotive sector is also weighing on downstream demand for steel.

Phasing out conventional fossil-fuelled vehicles will reduce demand for steel and ferro-alloys such as ferro-chrome and ferro-manganese, used in engines and exhaust systems. Steel companies are relying on electric vehicles (EVs) requiring steel for bodies and components to drive demand from the sector, but car companies are reporting lower sales figures as EV uptake has not been as fast as some companies expected.

Passenger car registrations in the EU fell by 2.6pc in the first four months of 2019 and grew by only 0.1pc in 2018, according to the European Automobile Manufacturers Association (ACEA). Ford recently announced widespread cuts to its European workforce. There is also a threat of US tariffs on imports of European vehicles.

Germany, Europe's largest steel producer and consumer, has been hit by an economic downturn. Its manufacturing purchasing managers index, an indicator of industrial activity, fell to an 80-month low of 44.1 in March. In April it was slightly up at 44.4, but a score below 50 indicates a contraction in the sector.

The slowdown in German manufacturing and the automotive sector and a rise in imports into the EU is expected to continue into the third quarter.