Central and eastern European steelmakers are cutting output because of reduced raw material supply from Ukraine and Russia, and soaring energy costs.
One mill in the Visegrad group of countries that buys high-volatile coking coal from the Kuzbass basin in Siberia said it is receiving no material and has had to lower utilisation to 60pc from 70pc — it had intended to ramp up to 85pc this month. It is struggling to replace the material, particularly given the sharp price rises of recent days. The mill has secured high-volatile A coal from the US in two separate transactions in the last two weeks.
Spot levels for coking coal have surged in the last two weeks on an acute shortage of Russian high-volatile coal and pulverised coal injection (PCI) in Europe. Prices for high-volatile A coals traded on a spot basis had risen from $400/t fob US east coast on 27 February to $450/t fob in the following fixed-price transaction on 4 March, with further rises anticipated. Demand has also driven PCI prices to record highs and premiums to Australian low-volatile coal. BHP sold a 40,000t cargo of South Walker PCI to a European mill at $645/t fob Australia on 4 March, well above the $582.50/t fob assessed by Argus for premium low-volatile Australia coal on the next trading day.
While US coking coal production rose in 2021 on demand from Chinese, which was restricting imports of Australian coal, prompt availability has also fallen as a result rail delivery problems for CSX and Norfolk Southern on the east coast. More than one offer for US coal was withdrawn in the last two weeks because of the lack of rail capacity for deliveries to port, and producers say lengthy vessel loading times have been the norm.
Mills in central and eastern Europe could be important swing slab suppliers for rerollers in Europe, especially those contending with slack automotive demand for finished products — the rise in energy costs is more pronounced for products further downstream, so some firms might choose to sell more merchant slab.
Mills in southern Europe, primarily on the longs side but also with some flat output, have already amended working hours in response to soaring energy costs. They are still producing, but at off-peak times.
Alongside rising energy costs, the premium low-volatile fob Australia coking coal price alone has risen by over $190/t this month, equating to a production cost increase of over $114/t, assuming 600kg is used to make 1t of crude steel. And coal freight rates have risen by over 30pc this month, reaching $20.25/t for Capesize voyages from Haypoint to Rotterdam. Scrap prices into Turkey have jumped, which could see German monthly settlements rise by as much as €100/t, depending on grade.
In response to soaring costs for blast furnace-based production, most European flat steelmakers, including market leader ArcelorMittal, have exited the market and are likely to return with offers at around €1,300/t for hot-rolled coil. This would be a record high, surpassing peaks of just over €1,200/t in northwest Europe when demand snapped back from Covid-19 lockdowns.
By Colin Richardson and Siew Hua Seah
Source: Argus