Steel Alloys: European steel cutbacks cast gloom over ferroalloy markets

Roskill View: A mood of gloom has descended over the European steel industry over the past two months. The primary cause appears to be the state of the automotive sector in Europe, which has been under severe strain for at least a year now. However, the long length of the automotive value chain has ensured that steel producers have not been significantly impacted until now.

The most prominent consequence so far has been the announcement by ArcelorMittal a few weeks ago that it is cutting its European crude steel output by 3Mt in the second half of 2019. The cuts will take place at its plants in Poland, Spain and Italy. It is probable that at least some of the reduction will be permanent, accounting for more than 3Mtpy on an annualised basis, though ArcelorMittal has not confirmed this. The EU-28 produced 167Mt of crude steel in 2018, so ArcelorMittal’s announced curtailment (even on a half-year basis) by itself represents a cutback of almost 2%.

There are many other steel companies across Europe also cutting back their output at the present time; this includes stainless and alloy steel producers as well as those producing carbon steel. In many cases this will involve a longer-than-normal holiday shutdown in August on top of low capacity utilisation before and after the shutdown. Recent research suggests that 13 individual steelmakers across the EU-28 are currently producing less than normal; of these only the situations at ArcelorMittal and British Steel have been widely publicised.

British Steel is one of only two integrated steelmakers left in the UK, and the only one producing long products. It went into insolvency on 22nd May. If a satisfactory new buyer cannot be found, its steelmaking plant in Scunthorpe (UK) and rolling mills in Teesside (UK) and Hayange (France) will likely close. Scunthorpe produces in excess of 2Mtpy of crude steel (so just over 1% of total EU-28 output).

EU crude steel output had already been falling since mid-2018 but the rate of decline has thus far been only modest; in the first four months of 2019 it dropped by just over 2% year-on-year. The cutbacks now taking place will likely lead to a much more significant reduction in EU steel output through the second half of 2019, perhaps severe enough to register a double digit percentage decline.

The impact on already-depressed and oversupplied ferroalloy markets in Europe has been acute, especially in the case of ferrosilicon. European ferrosilicon spot prices dipped below EUR1,000/t this month, having peaked at over EUR1,700/t just over a year ago. The Polish ferrosilicon producer Huta Laziska idled a significant proportion of its plant on 1st June, partly because of the ArcelorMittal cutback in Poland. Meanwhile the impact on the already very low level of manganese alloy prices in Europe has also been negative.

Roskill’s new report, Tin: Outlook to 2029, 11th Edition is available for pre-order. The report is due to be published in September 2019