Published weekly by Steel Business Briefing, the steel industry’s quality news service 21 December (Issue 50-11) 2011
The EU has released its consultation document on compensation for industry, including EAF steelmakers, for higher electricity prices caused by measures to combat climate change. One clause in particular raises some interesting questions. The document says industries are at risk of carbon leakage if its “non‐EU competitors do not face similar CO2 costs in their electricity prices.” Recognition of this issue has been a key request of European industry since the start of the Emissions Trading System (ETS). With international climate change negotiations showing slow progress, in spite of developments at Durban, a binding international carbon pricing scheme remains a remote possibility. However, other countries and regions are pursuing forms of carbon pricing on their own, including emissions trading. How Europe deals with
Australia will be an important test case for the new ETS compensation. If another region does price carbon what happens when its exports reach the EU? Is compensation for EU steelmakers still valid? Presumably so if they compete with other regions. But then imports from Australia should be compensated. Who pays, Australia or the EU? If nothing is done, the EU could be challenged at the World Trade Organisation. Luckily the threat of imports of Australian steel is remote. But what happens when China and Korea begin carbon trading a few years down the line? What about India’s Perform, Achieve and Trade? How will regional schemes be aligned fairly? Tomas Gutierrez World Steel Review [email protected]
EU steelmaker’s compensation points to key climate change questions
Top News
New Turkish rebar export offers were made last week at $680‐685/t fob, with sales to Lebanon at $680/t fob (see page 6). One mill export manager was dismissing bids of $670/t fob last week as too low. “In the Middle East and North Africa, producers are almost certainly going to announce January increases in the coming days of anywhere between $15‐30/t,” he says. However, traders believe mills are unlikely to achieve
such increases in January. One problem for Turkish exporters is the weak euro, which is making south European rebar exports more competitive at around €515‐520/t ($669‐676/t) fob. Turkish domestic buying was also pushing up export prices to close to $700/t ex‐works, limiting volumes for export. However, domestic buying could ease as weather conditions and a seasonal lull in activity weight on the market, traders say.
US coil prices gain momentum Global crude steel output falls 1%
Global crude steel production fell 1% month‐on‐month in November to 115.5m tonnes. January‐November production was up 7.4% year‐on‐year to almost 1.4bn t. Asian output was up 8.7% to 879.3m t over the same period compared to a 3.1% increase in EU27 output to 165m t. Other Europe, which includes Turkey saw the fastest growth: 17.1% y‐o‐y to 33.8m t. Only Africa and Oceania saw declines in production thanks to political, economic and technical issues.
Severstal NA increased its coil prices by $40/s.t last week, while spot prices were up to around $680‐700/s.t ($750‐772/t) and rising. "Order flow since early November has pushed lead times out with many mills booked for January," says Steel Reality chief analyst Josh Spoores. "Increased steel demand also supports steel prices," he adds. However, increasing domestic prices too fast could provoke more imports especially if domestic lead times are extended, one buyer warns.
Turkish rebar exports see prices rise
Jan 2000 = 100
21 Dec 11 = 243
SBB Steel Price Trackers
21 Dec 7 day change
World 243pts* ‐
HRC world $674/t +1
Rebar world $698/t ‐3
*yr 2000=100
Late News
CIS billet exports reach $600/t fob
Three companies plan $4bn investment in Brazilian iron ore venture
Italian coil producers hike offers €15‐30/t
SBB World Steel Price Tracker
Source: SBB Price Trackers
Contents
Global Industry News ..................................
India’s Essar Steel plans to complete the expansion of crude steel capacity at its Hazira steelworks in the western state of Gujurat from 4.6m t/y to 10m t/y by the end of 2011.
Belorussian Steel Works plans to upgrade its billet caster No. 2 to produce 1.2m t/y of 125mm and 140mm billets, and also to install a new vacuum degasser, increasing its secondary metallurgy capacity to 1.5m t/y.
Venezuela’s Sidor has resumed slab production after a roof collapse halted production for almost a month.
An explosion has halted production at privately‐owned 200,000 t/y Iranian billet maker, Ghadir Steel. Ten people were killed and nine injured.
Slovakian steelworks, US Steel Kosice, is moving to a four day week in January.
Brazil’s Gerdau has contracted Turkey’s CVS Technology to revamp its 150,000 t/y EAF in the northeastern state of Ceará.
Flats
Kosovan 120,000 t/y HDG mill, Llamkos GalvaSteel, has resumed production. The mill is a subsidiary of the UAE’s Coresteel.
Eastern China’s Shagang hopes to commission a 2.6m t/y CRC plant in two phases, one in March 2013 and one by September.
Longs
Kazakhstan’s ArcelorMittal Termitau has signed a MoU with Kazakhstan Railways to set up a 400,000 t/y rolling joint venture for rails by the end of 2013.
Kuwait’s KWT Steel plans to increase its rebar capacity to 800,000 t/y in Q1 2012 and 1.2m t/y in 2013.
Stainless & Special Steels
Spain’s Acerinox has begun production at its 182,000 t/y stainless CRC mill in Johor Bahru in Malaysia. It plans to increase capacity to 400,000 t/y in Q1 2013.
Tubes & Pipes
US tubemaker, Lakeside Steel, has begun commercial production at its new 192,000 s.t/y (174,000 t/y) welded pipe plant in the southern state of Alabama.
Europipe has halted production at its 200,000 t/y large diameter pipe plant in Dunkirk in northeast France.
Raw Materials
Ukraine’s Interpipe plans to start up two new scrap processing plants at its Dnepropetrovsk Vtormet scrap subsidiary, lifting scrap processing capacity to 1m t/y.
Brazil’s Pará state has approved a new mineral extraction tax which will be levied at R$6.45 (US$3.50) per tonne of iron ore.
Turkish ferrous scrap imports were up 13.9% y‐
o‐y in January‐October to 17.4m t.
EU steel import licence applications fell to a 23‐
SBB Interviews MMK Matalurgy SBB interviews MMK Metalurgy’s Andrey Parchomchuk 19 December 2011 More videos >>
Downstream
Dutch steel fabricator, Van Merksteijn, plans to begin production at its new wire mesh plant in the central French Auvergne region in January 2012.
End users
Brazilian tubemaker, Tenaris Confab, is in talks on a possible R$657m (US$355m) supply contract with Brazilian oil company, Petrobras.
Finance & Management
Japan’s Nippon Steel and Sumitomo metal industries have had their merger approved by Japan’s anti‐monopoly authorities. The merger is planned for October 2012.
Korea’s Dongkuk plans to invest KRW 825.6bn ($730m) in the 3m t/y Companhia Siderúrgica do Pecém slabmaking joint venture with Vale and Posco in Brazil.
Eastern China’s Baosteel plans to sell its stainless steel division to parent company, Baosteel Group.
Russia’s Evraz has delayed plans to sell its 40% stake in coking coal supplier, Raspadskaya, until 2012‐2013.
US service centre chain, Ryerson, has acquired Pennsylvanian SBQ distributors, Turret Steel Industries and Sunbelt‐Turret Steel.
Russia’s Severstal has bought out the remaining 38.5% stake in Liberia’s Putu iron ore mining project from Affero Mining.
Russia’s MMK has appointed Sergei Sulimov as acting general director of its Turkish flats subsidiary, MMK Metalurji.
US‐based hedgefund, Apollo, is considering making a bid for Scandinavian special steelmaker, Ovako.
Italy‐based metallurgical plant maker, Tenova, has bought South Africa‐based equipment supplier and mining engineer, Bateman Engineering.
Korean steelmaker, Posco, has denied reports that it is considering building a steelworks in Cameroon.
UK mini‐mill, Thamesteel, could face liquidation if a buyer is not found by the end of January.
Wolfgang Schmitz, chief executive of Norwegian steel trader, Nordic Intertrade, has been sentenced to six years in jail for embezzlement.
Austrian steelmaker, Voestalpine plans to merge its Profilform (tubular and roll‐formed sections) and Automotive divisions.
Russia’s Mechel is negotiating an extension of the payment period for its acquisition of Ukrainian steel mill, DEMZ.
A South African court has affirmed the right of Kumba Iron Ore to own 100% of its Sishen iron ore mine.
A number of steel producers, particularly in the flats sector were last week holding back on offers to tighten the market and stimulate higher prices; in longs (including billet) in contrast, the sudden spurt in scrap prices has helped producers raise prices. In both sectors, the mills were also being helped by low stocks, the expectation of renewed buying in January and February and production cutbacks (except in Italy). China is currently an exception to this slowly improving global situation. CISA’s latest monthly report suggests further price declines in the coming weeks, as a result of continuing sluggish demand prior to Chinese New Year at end‐January. For the manufacturing sector, whilst the HSBC November Purchasing Managers’ Index (PMI) dropped to a 32‐month low of 47.7, its preliminary PMI for December rose to 49.0, suggesting that the rate of decline in manufacturing demand is slowing. But in addition, well over half of the country’s cities saw housing prices fall m‐o‐m in November. The rest of Asia also saw little sign of firming prices. Reflecting this softness, last week’s 62% Fe iron ore price fell 5% week on week to $132.10/dmt cfr north China, according to The Steel Index. Fluctuations between $130‐140/t are anticipated in the near future, mirroring steady Chinese demand for long products, as well as the weaker coil and plate markets. However scrap has firmed substantially mainly as a result of Turkish buying, rising $16/t during the course of last week to $448/t cfr Turkey. In turn, this has impacted long product prices globally. But in the USA, scrap has helped push up hot sheet product prices towards $700/s.t ($772/t). The price rises may stall in the new year, but could then increase again if buying sentiment remains steady. The main threat to this remains overproduction. European HRC prices remain stagnant with the euro’s troubles continuing to hinder forward thinking. However, mill price increases could be partially successful in the new year in spite of some resistance from buyers. The weak euro could also reduce the risk of imports and allow some producers to increase exports.
Other forecasts
Goldman Sachs has increased its medium term average price forecasts for Australian 62% Fe fines. For 2012 the average price was raised from $140/t to $150/t cfr China; in 2013 from $120/t to $165/t; in 2014 from $100/t to $150/t and in 2015 from $75/t to $120/t. It now believes a hard landing for the Chinese economy will be avoided as the latest inflation data from there is improving.
South Korean automotive production could grow 3% next year to an all time high of 4.7m units, according to the Korea Automobile Manufacturers Association. Auto exports could grow 4% to 3.2m units, it suggests.
Ukrainian semi‐finished product prices could fall $28/t in 2012 because of lower input costs, according to Kyiv‐based analyst, UkrPromZonvnishEkspertyza. Scrap prices could grow by 2‐5% next year but iron ore and coking coal prices could fall 8% and 20% respectively, it predicts.
Italy could invest some $5bn in the Mexican steel sector up to 2016, suggests Roberto Spinelli, Italian ambassador to Mexico. Ternium is currently investing around $1bn in two projects in Monterrey and Italian car manufacturers could also be eyeing up investments, he notes.
US industrial production fell 0.2% m‐o‐m in November, after seeing a 0.7% increase in October. Production of motor vehicles and parts fell 3.2% m‐o‐m in November. Meanwhile, Goldman Sachs economists have warned that the European debt crisis could cut US economic growth by 1% to 1.5% in 2012 if European banks reduce their lending to the USA by around 25%.
Industrial production fell 0.1% m‐o‐m in the Eurozone and 0.2% in the EU27 in October. Production of capital goods increased by 1.2% in the Eurozone and 0.9% in the EU27. However, production of energy and intermediate goods fell in both regions. Year‐on‐year industrial production was up 1.3% in both the Eurozone and EU27.
Indian industrial production fell 5.1% y‐o‐y in October, the worst performance since March 2009. Manufacturing output was down 6% y‐o‐y, while mining output was down 7.2% y‐o‐y. Production of capital goods fell 25.5% y‐o‐y.
South Korea’s Ministry of Strategy and Finance has cut its GDP growth forecasts to 3.8% this year and 3.7% in 2012, down from an earlier forecast of 4.5% in both years.
Ratings agency, Fitch, has cut its forecast for Brazilian GDP growth in 2011 from 3.5% to 2.8%. GDP growth could increase to 3.2% in 2012, it says. However, low industrial production could continue to hamper growth, it warns.
Latest economic & business news Steel Market Analysis
Billet: CIS billet export prices picked up last week to around $595/t fob Black Sea. Stocks remain low and prices could pick up further, traders believe. Turkish billet exports also strengthened on higher scrap prices to around $625/t fob. Meanwhile Korean producers were offering billet at $630‐635/t fob last week, up from transactions of around $620/t fob a week earlier.
Rebar & rod: Turkish rebar export offers increased last week to around $680‐685/t fob on the back of sales to Lebanon at $680/t fob. However, latest sales to Egypt remained at around $665/t fob. European rebar export offers were firm last week at around €510‐515/t ($663‐670/t) fob. CIS wire rod export prices were also stable last week with offers at around $665/t fob Black Sea and deals heard at $640‐660/t fob. Korea’s Hyundai Steel plans to increase its rebar export prices by $40‐50/t to $680‐690/t fob for January‐February shipments.
Sections: Korea’s Hyundai Steel aims to export H‐beams at $790‐800/t fob, up $40‐50/t from December contract prices.
Flats
Coil: Korean HRC exporters have achieved $640‐650/t fob for January shipments, up from $630‐640/t for November/December shipments, and were seeking at least a similar price for February. Ukrainian coil export prices were steady last week at around $540‐570/t fob Black Sea for HRC and $600‐630/t fob for CRC. Demand was said to be improving and stockists expected some slight increase in prices for January. In Canada, ArcelorMittal Dofasco followed the lead of US mills last week and raised its coil prices to C$755/s.t ($727/t) for HRC, C$865/s.t for CRC and C$870‐880/s.t for galvanised products.
Plate: ArcelorMittal and SSAB have said they will push up their US plate prices by $50/s.t for January rollings. However, Nucor has not yet followed the move. Spot prices were at around $920/s.t ($1,014/t) before the increases.
Raw Materials
Iron ore: Indian iron ore export prices resumed their downward trend early last week, falling to around $148‐149/dmt cfr China for 63/63.5% Fe fines. Meanwhile, The Steel Index’s reference price for 62% Fe fines finished last week at $132.1/dmt cfr China, down from $139.5/dmt a week earlier.
Scrap: Turkish mills booked scrap last week at prices some $10‐15/t higher than previous bookings. EU origin HMS 1&2 80:20 and bonus scrap was sold at $445/t cfr Turkey and $475/t cfr respectively, while a US‐origin shipment of 15,000 t of HMS 1&2 80:20, 20,000 t of shredded and 5,000 t of P&S was booked at an average price of $462/t cfr. New offer prices for HMS 1&2 80:20 were made at $450/t cfr from the EU and $458/t cfr from the USA. The Steel Index’s reference price for HMS 1&2 80:20 was up $16/t last week to $448/t cfr Turkey. In Japan, Tokyo Steel raised its H2 scrap purchasing price last week by ¥500‐1,000/t to ¥32,500‐34,000/t ($417‐436/t) depending on the mill.
“Rarely has the world economic outlook been more uncertain for industrial producers in Europe,” Marcel Genet of French consultancy, Laplace Conseil, warned delegates at SBB’s Steel Lunch in Paris. However, the picture is not entirely gloomy.
Major EU steelmaking countries could fare relatively well
The 2008‐2009 financial crisis, and the recent Eurozone debt crisis, has hit industry, and in particular steelmaking, hard. However, in some of the more steel intensive countries, the recovery in the last few years has been quicker than elsewhere. Countries with strong construction industries, such as those in eastern Europe, and those with strong industry, such as Germany, have seen industrial production recover faster than others such as the UK and France. Italy has also seen a stronger recovery in industrial production and steel output has not fallen far in spite of its role in the debt crisis, SBB notes.
ArcelorMittal leading in capacity control
Although a number of steelmakers have idled blast furnaces temporarily, ArcelorMittal has been by far the most active in cutting capacity to meet demand. At least one blast furnace has been idled or restarted in every quarter since early 2009, Genet’s presentation showed. There is close to 20m t/y of idled steelmaking capacity in the EU, more than half of it belonging to ArcelorMittal, SBB has shown. Some of this, such as the hot end at Liège, is now permanent and more temporary closures could become permanent, unions fear. ArcelorMittal’s share price has declined by 50% since 2006. However, idling capacity allows the company to “retain market share at a competitive cost,” the company says.
China’s economy adding to uncertainty
The situation of Europe’s steelmakers has been heavily affected by the growth of China, Genet points out. Global growth in both steel production and demand since 2000 has been primarily driven by China’s economic boom. However, China’s monthly crude steel production has fallen some 20% since May this year, according to World Steel Association data. This has also affected global iron ore prices, which have fallen significantly in recent months on weak demand from China and concerns that the Chinese economy could see a sharp slowdown. A recent publication by miner, BHP Billiton, highlights the uncertainty in China’s steel demand going forward. The difference in its highest and lowest forecasts for 2025 imply a difference in iron ore consumption of around 1bn tonnes. However, China’s steel consumption per capita, already high compared to developed countries, could grow further. There is a strong correlation between GDP per capita and steel consumption per capita, implying that steel consumption per capita could grow as China’s GDP continues to increase.
China’s uncertainty could also affect who profits most from steel
Cumulative EBITDA across raw materials, steelmaking and distribution have increased (for a typical leading steelmaker) from around $80/t to $379/t, driven by China’s growth. However, this has disproportionately benefited raw materials suppliers. The mining share of EBITDA per tonne of steel has grown 8.8 times for them compared to just 1.6 times for the steelmaker. Low cost mines have profited from high margins as the iron ore price is decided by marginal producers. If iron ore enters oversupply then miners could be the most heavily affected, seeing their margins cut.
EU steel intensive countries could recover faster than others
Source: Laplace Conseil
Source: Laplace Conseil
Growth in miner’s EBITDA far outpaces steelmakers
Global outlook ‘rarely more uncertain’ for EU industry
Source: CISA, World Steel Associa on, Global Insight,
JBS, BHP Billiton
China’s industrial development and steel demand (kg per capita)
What is the company? Mechel is a Russian miner, steelmaker and power producer with production sites in Russia, Romania, Lithuania, Bulgaria, Kazakhstan, Ukraine and the USA. In addition, the group has a close relationship with a number of other steel firms through the complicated shareholdings of Mechel’s controlling shareholder, Igor Zyuzin. Headquartered in Moscow, the company is listed on the Russian (RTD:MTLURG) and New York (NYSE:MTL) stock exchanges. What does Mechel produce? In January–September 2011 Mechel’s mining wing produced some 7m t of coking coal concentrate, 1.2m t of PCI, 2m t of iron ore concentrate and 865,000 t of coke in addition to what it supplied to the group’s own steelmaking segment. The company’s main steelmaking operations are at the 3.6m t/y Chelyabinsk steelworks in southern Russia and the 600,000 t/y Izhstal EAF plant in western Russia. These mainly produce carbon and special steel long products although the Chelyabinsk site has a growing flats capacity. The company also has carbon and special steel longs plants in Romania. In January‐September 2011 Mechel produced 4.5m t of steel and 2.7m t of pig iron. In the same period it sold 3.1m t of longs, 1.7m t of billets and 536,100 t of flat products. What is the company’s financial position? In the first nine months of 2011 Mechel reported an operating income of just under $1.5bn on revenues of $9.6bn, up 40.3% and 37.9% year‐on‐year respectively. The steel segment supplied most of the group’s revenues, $5.6bn, in January‐September 2011. However, the mining segment provided the greatest operating income: $1.2bn compared to under $278m for steel. Why is the company interesting? High raw materials prices this year have prompted Mechel to cut its 2011 Capex from
$2.3bn to $1.8bn and its 2012 Capex to $1.1bn. The company is focussing on its ongoing projects and plans to delay starting new projects beyond 2011. Its ongoing projects include the reconstruction of two BOFs at Chelyabinsk, increasing the plant’s crude steel capacity to 4.6m t/y; a 300,000 t/y light sections and wire rod mill at Izhstal; a 1m t/y universal rail and sections mill—Russia’s first—at Chelyabinsk and the development of the Elga coal deposit, which could produce up to 27m t/y of high quality coking coal.
Mechel is in the process of acquiring Ukrainian 1m t/y carbon and special steel longs producer, DEMZ. DEMZ hopes to increase its capacity to 1.5m t/y by 2015. However, Mechel has been forced to renegotiate the period of payment because of the recent financial climate. Mechel had aimed to complete the acquisition in Q1 2014 but is now seeking to delay the final payment. As of 30 September 2011 Mechel held a net debt of $9bn, in part because of investments in the Elga deposit. Zyuzin is reported to have secured financing for the acquisition of DEMZ by using his personally owned shares in other companies. The financial crisis has also delayed a 2.5m t/y Brazilian slab making joint venture between Zyuzin‐owned Mechel affiliate, Mir Steel, and Brazil’s Cosipar.
Mechel’s trading arm has been credited by analysts with helping the company through the financial crisis by eliminating the middle man in sales and increasing margins. Mechel Trading also has a close relationship with assets which were formerly part of the CIS‐based Estar group and are now linked to Zyuzin.
www.mechel.com
2011 ‐ Mechel Mining announces plans for an IPO
2010 ‐ Mechel agrees to buy a controlling stake and form a strategic partnership with Ukrainian steelmaker, DEMZ
2009 ‐ Mechel buys US coal miner, Bluestone Coal
2008 ‐ The group buys Romania’s Ductil Steel and German distributor, HBL Processing
2006 ‐ Mechel acquires the Moscow Coke and Gas Plant
2004 ‐ The company takes a controlling stake in Russian special steelmaker, Izhstal 2003 ‐ Mechel OAO is formed
A Brief History
Mechel OAO’s various mines, steelworks and processing sites
Source: Mechel
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