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According to a report by the US-based Institute for Energy Economics & Financial Analysis (IEEFA) published on Thursday November 16, while steelmakers in the MENA region currently account for 3% of global steel production, about 46% of their output is DRI-based.

So, being in a position to use its solar energy resources to produce green hydrogen for DRI-based steelmaking, means the MENA region is perfectly placed to supply the key steel growth market of India and service the green steel demands of countries in Europe, IEEFA said.

And, according to IEEFA and the Boston Consulting Group, the region may have invested $1 trillion in renewable energy sources by the end of 2023.

There is a strong focus on hydrogen – which is the ideal green fuel for DRI modules – in the region and MENA is expected to produce 18.15 million tonnes of hydrogen by 2030 and 28 million tonnes by 2040.

Hydrogen-compatible steel plants are being built in Egypt, the UAE, Saudi Arabia, Oman and Algeria. And while those facilities will initially run on gas, they will eventually switch to running on hydrogen.

“Rather than trying to find a viable way to export green hydrogen, which looks inefficient and expensive to transport, the region should prioritize its domestic use, such as in its DRI plants,” IEEFA’s lead steel analyst Simon Nicholas said in the report.

Steelmakers around the world are already transitioning from blast furnace-based production towards DRI technology that can run on green hydrogen,” he said.

“MENA has an advantage given that its steel sector is already based on DRI, with established access to both direct reduction-grade (DR-grade) iron ore and the renewable energy resources that will allow it to produce cheap green hydrogen in the near future.”

Delivering to Europe

A low-carbon local steel industry would also give MENA a big advantage over other regions when Europe’s Carbon Border Adjustment Mechanism (CBAM) comes into force.

The Euorpean Union’s CBAM entered the transition phase of its implementation on October 1 and the duties are scheduled to be applied from January 1, 2026.

Once CBAM is fully phased in, MENA-based steelmakers will have an opportunity to crowd out more carbon-intensive Asian steel producers in the European steel imports market.

In 2022, total carbon steel imports to the EU amounted to 27.07 million tonnes according to European steel association, Eurofer.

The main suppliers were Turkey (15.4%), South Korea (10.3%), India (9.13%) Taiwan (6.6%), Vietnam (5.4%) and Japan (5.33%), with Egypt (2.9%) the top performer from MENA.

But in 2023, Turkish deliveries to the EU have fallen because mills there have been unable to compete with Asian suppliers due to having higher production costs and being hit be anti-dumping duties. Total steel export volumes from Turkey to the EU in the first three quarters of the year amounted to just 1.50 million tonnes.

And Asian suppliers boosted their steel deliveries to the EU over the same period, with Vietnam supplying 1.50 million tonnes of carbon steel to the bloc, up from 1.46 million tonnes for the whole of 2022.

But market participants expect the implementation of CBAM to seriously limit interest in carbon-intensive steel from Asia.

And while steelmakers in South Korea and Japan are already planning to import hot-briquetted iron (HBI) from places such as the Middle East and are also planning projects that would initially use fossil gas before switching to green hydrogen as it gets cheaper, MENA steelmakers are already several steps ahead because they do not need to make substantial investments to replace their base technology, according to IEEAF.

Emphasizing the region’s focus on green initiatives, on Tuesday, Turkey’s Energy Market Regulatory Authority (EMRA) published a draft consultation on how the carbon market will operate in the country.

Iron ore, HBI exports

The MENA region’s access to high-grade iron ore is already set to increase and the leading producer of DR-grade iron ore, Vale, is planning to set up green iron “mega hubs” in the Middle East to supply iron ore pellets to co-located DRI plants to produce HBI for local consumption and export.

Imported, green HBI will be crucial to the EU’s decarbonization drive, with a number of DRI modules expected to come online as early as 2026 and MENA is ideally placed geographically to supply those needs.

Along with global decarbonization efforts, iron-ore production is expected to dislocate from steel production and shift closer to renewable energy sources.

“More iron ore will be processed in places with excellent renewable energy resources that can produce cheap green hydrogen, with the resultant iron shipped to centers of steel demand. MENA can be a global leader in the emerging green iron trade, but it faces strong competition from Australia, Brazil and Canada,” IEEFA steel analyst Soroush Basirat said.

The post MENA region has potential to become leading ‘green steel’ hub appeared first on Fastmarkets.

As LME Week nears, Fastmarkets looks at the impact of four currencies and their interactions over recent months.

Rand movements hit chromium, manganese markets

Manganese and chrome markets both have exposure to the volatile South African rand because South Africa is a key production hub for these materials.

In theory, when a commodity producer’s home currency weakens against the dollar, they earn more in their home currency when they sell in dollar-denominated markets. But there are exceptions, such as when input costs are paid in dollars.

In the non-metallurgical chromite market, sources said in September that rising input costs had been exacerbated by the weakness of the rand against the dollar, with increases in costs in rand terms outpacing increases in sales prices in dollar terms.

But in the metallurgical market, where consistently high prices allow greater margins, the effect of diesel and trucking costs is less pronounced, a chrome ore trader told Fastmarkets, meaning fluctuations in the rand also have less of an effect.

Rand movements also have an influence on trucking, with weakness potentially exacerbating rising diesel prices, since the oil price is denominated in dollars.

“If the market [for manganese ore] was at [higher prices] and the rand was at 19 to the US dollar, then yes, producers would be able to move more by road and still be profitable compared to the current [lower prices] and the same exchange rate,” a manganese producer told Fastmarkets.

On the other hand, when the rand was stronger during July this year, it reduced the margin between trucking costs and product prices when the sales price was already low.

While manganese is more commonly moved by less expensive rail transport on pre-agreed contracts, rand fluctuations and their impact on margins can be a factor in whether miners opt to use road transport, and such decisions affect overall export volumes.

In a market like ferro-chrome where material is often moved by truck and profit margins are also small amid lower product prices, rand fluctuations can have even more impact.

“There’s so much cost pressure that 19 [rand to the dollar] is now the new normal. It’s not giving producers respite; it’s not allowing them to increase their profit. It’s a safety net, but just a tiny bit,” a ferro-chrome trader told Fastmarkets.

“If [chrome ore is at high prices], alloys are not making money, even with the rand at 19.20. We’re waiting for more improvement on the alloy price.”

Tied into this is the ongoing issue of loadshedding – controlled power outages – in South Africa, leading to producers increasing reliance on diesel-powered backup generators, which become less economical to run when the diesel price rises, and if the rand weakens.

“A weaker rand is beneficial for producers, but on the other hand, it results in higher costs [such as diesel]. Coupled with loadshedding, it makes production more costly and complicated,” a chrome ore trader said.

The rand has been so volatile recently that it has been difficult to make longer-term decisions, sources told Fastmarkets.

“Diesel prices went up drastically [in September and October]. Exchange rate movements [could] have alleviated some of the increase,” the manganese ore producer said.

“However, our long-term forecast on the USD/ZAR exchange rate [had] not yet been revised given the constant changes, so the weakening would assist producers, but I don’t think many producers would have implemented too many changes in only one week of rand weakness.”

According to currency exchange website Oanda.com, there were 18.78 rand to the dollar as of September 1, weakening to 19.21 as of September 7, before strengthening to 18.75 as of September 24. As of October 6, the value was 19.45 rand to the dollar.

Yuan movements create buyer caution

Fluctuations in the yuan against the dollar have also affected both manganese and chrome markets, since large volumes of these materials are sold into China.

Seaborne manganese ore and chrome ore buyers in China, for example, would typically benefit from a stronger yuan, since this would decrease import costs in terms of the conversion value, while a weaker yuan would drive their costs up.

The chrome ore market is particularly exposed to the yuan today, sources pointed out, saying buyers face risk and uncertainty because their costs are unknown until they fix their exchange rate conversions.

“In periods where there’s a lot of volatility in the yuan, particularly when it’s weakening, it creates an exchange rate risk for buyers. Let’s say you buy material at [a given price in dollars] but you haven’t fixed your foreign exchange conversion to yuan – until you fix that exchange rate, you have an unknown cost in the domestic Chinese currency,” the chrome ore trader said.

Alongside this, in China’s portside spot market, where port traders sell in yuan, if the chrome ore price stays flat in dollars but the yuan weakens, they will increase their offer price in yuan to compensate, and vice versa.

“Right now, we’re in a situation where there’s so little port stock that everyone has to buy from the forward market anyway and that’s what’s keeping the [chrome ore] price so high. As a result of that, everyone is focused on the exchange rate,” the first chrome ore trader said.

In the manganese market, during September, the depreciation of the yuan also had a direct effect on seaborne prices, pulling them down amid buyside concern over increased import costs.

A Chinese manganese ore trader said at the time that the exchange rate movements had led to dwindling profit margins following purchases of Gabonese ore.

Fastmarkets’ weekly calculation of its chrome ore South Africa UG2/MG concentrates index, cif China was at $303 per tonne on Tuesday October 3, close to the $305 per tonne high for the year to date, set in May.

As of Friday October 6, Fastmarkets’ weekly calculation of its manganese ore index, 37% Mn, cif Tianjin, was at $3.60 per dry metric ton unit, versus a high for 2023 so far of $4.59 per dmtu set in February, and the weekly calculation of its manganese ore index, 44% Mn, cif Tianjin was at $4.29 per dmtu, compared with a year-to-date high of $6.14 per dmtu in February.

According to Oanda.com, there were 7.20 yuan to the dollar as of October 6, compared with 7.34 yuan to the dollar on September 6.

Lira fluctuations affect Turkish flat steel prices

The lira has steadily weakened since gaining some strength against the dollar in the immediate aftermath of the announcement of a major rate hike in August from the country’s central bank.

The lira strengthened to 26.31 lira to the dollar on August 26, versus 27.20 lira to the dollar on August 23, the day before the rate hike announcement.

As of October 6, there were 27.56 lira to the dollar, compared with 18.68 lira at the start of 2023.

In July and August, the weakness of the Turkish currency had a dampening effect on demand for domestic flat steel in the country, Fastmarkets reported.

Because flat steel is traded in dollars in Turkey, buyers could not forecast how much they would pay when they received the product about two months after placing an order, a steel service center source said.

“[If] you order about 10,000 tonnes of steel, you need to pay about 200 million lira [and] most companies do not have such [a big] credit limit. In addition, the risk of steel prices decreasing significantly, or the Turkish lira losing value [again, are] always there. As a result, we have reduced the tonnages we order to reduce the risk,” the service center source said at the time.

Also in August, there were rises for domestic rebar and wire rod prices as a result of the weakness of the lira against the dollar.

Turkish mills mostly buy raw materials in US dollars before selling finished steel products to the domestic market in the local currency, meaning a weaker lira may prompt an increase in product prices.

Fastmarkets’ weekly price assessment for steel reinforcing bar (rebar) domestic, exw Turkey was 19,200-19,700 lira per tonne on August 24, but has since come down slightly, standing at 18,900-19,650 lira per tonne on October 5.

Egypt faces weak pound, lack of foreign currency

Protracted weakness in the Egyptian pound has loomed over the country’s steel industry throughout 2023, causing producers to increase prices for products, including rebar, while they shoulder rising costs for raw materials priced in dollars.

The Egyptian pound was trading at E£30.77 to the dollar on October 6, according to Oanda.com, compared with E£27.67 to the dollar in January and E£24.69 to the dollar in late December 2022.

In the imported billet market in particular, deals have been scarce in Egypt in recent days since buyers have also been constrained by a lack of foreign currency, which Egyptian steelmakers need to pay for raw materials imports.

Egypt had record rebar consumption for 2023 so far in August, but demand for both rebar and billet products has been comparatively low year on year, with buyers choosing local billet over imports because of the struggle to obtain the foreign currencies needed to pay for overseas billet.

Since international trade sanctions were introduced following Russia’s invasion of Ukraine in February 2022, Egypt remains one of the few countries without restrictions on Russian steel billet imports, but deals have been scarce because of Egypt’s shortage of foreign currencies.

In addition, after announcing plans to impose export duties on steel from October 1, Russian mills moved to raise offer prices, but the Egyptian market would not accept the higher levels because of the shortage.

As a result, Fastmarkets’ weekly price assessment for steel billet import, cfr main port Egypt was $515-520 per tonne on September 28, down 2.36% from $520-540 per tonne on September 21, although the price had widened slightly as of the most recent assessment on October 5, to $510-530 per tonne.

The post Currency volatility looms large over alloys, steel markets: LME Week appeared first on Fastmarkets.

The Central Bank of Turkey halted the decline in the Turkish lira by raising the interest rate to 25% from 17.5% from August 24. And on Tuesday, $1 was equivalent to 26.7369 lira, according to Oanda.com, compared with $1 to 19.441 lira on May 1.

“[If] you order about 10,000 tonnes of steel, you need to pay about 200 million lira [and] most companies do not have such [a big] credit limit. In addition, the risk of steel prices decreasing significantly or the Turkish lira losing value [again, are] always there. As a result, we have reduced the tonnages we order to reduce the risk,” the service center source said.

However, the main reason for lower-tonnage orders is that demand has been negatively affected, with the current lack of demand worse in the domestic market than for exports.

Turkey is not alone in suffering from a lack of dollars, however, with Egypt also recently suffering from currency issues. The shortage of foreign currency in the country has been inhibiting steelmakers from increasing their exports to have sufficient funds to import raw materials and semi-finished products.

“The regulations in Egypt require companies to have [sufficient] foreign currency to open letters of credit. Reduced imports and reduced foreign currency collection naturally results in [lower supplies of] raw materials and semi-finished products,” according to Ugur Dalbeler, chief executive of Turkish steelmaker Colakoglu and vice president of the Turkish Steel Exporters Union (ÇIB).

“The main problem for Turkey, however, is the negative [impact on] demand because of increased local prices after the loss of value for the Turkish lira, resulting in a big decline in export tonnages. [But low-priced] imports from China, Malaysia and South Korea have [recently increased] significantly – [although] imports from China might fall if the Chinese government decides to reduce steel production,” Dalbeler said early in August.

The main problem for the flat steel sector in Turkey is the lack of end-user demand caused by economic uncertainty, market participants told Fastmarkets.

“The Turkish Central Bank’s decision to raise interest rates did not result in [a rebound in the value of the] Turkish lira and, despite the lira being weak, exports are still limited,” a trader told Fastmarkets. “As a result, steel buyers are waiting for demand in both the local or export markets to improve before placing big orders.”

Another market participant said: “We expect September to be stronger in terms of steel market activity, but we still do not expect a very strong market because buyers are hesitant to book big quantities. It is not only about the weak lira; it is about demand from end users.”

Turkey imported 4,762,131 tonnes of flat steel in January-June 2023, 13.60% more than the 4,192,011 tonnes imported in January-June 2022, according to the Turkish Statistical Institute (TUIK).

The country exported 1,468,183 tonnes of flat steel in January-June 2023, 40.34% down on the 2,460,802 tonnes exported in the same period of 2022, according to TUIK data.

Turkey produced 15.9 million tonnes of crude steel in January-June 2023, a 16.3% year-on-year decline, according to the Turkish Steel Producers Association (TÇÜD).

The post Weak lira, low-priced imports reduce demand for domestic flat steel in Turkey appeared first on Fastmarkets.

Fastmarkets has received recommendations to tighten the proposed specifications.

The specifications which were initially proposed were as follows:

Steel reinforcing bar (rebar), domestic, delivered Saudi Arabia, riyals per tonne
Quality: Diameter 8-40mm, length 6,000-12,000mm
Quantity: minimum 1,000 tonnes
Location: Delivered within Saudi Arabia
Timing: Within 30 days after order
Unit: Saudi Arabian riyals per tonne
Payment terms: LC, bank credit, payment on delivery or within 30 days
Publication: Weekly. Wednesday 2-3 pm London time.

Fastmarkets proposes to change the specifications to those shown below (amendments in italics):

Steel reinforcing bar (rebar), domestic, delivered Saudi Arabia, riyals per tonne
Quality: Diameter 12-40mm, length 12,000mm
Quantity: minimum 1,000 tonnes
Location: Delivered within Saudi Arabia
Timing: Within 30 days after order
Unit: Saudi Arabian riyals per tonne
Payment terms: LC, bank credit, payment on delivery or within 30 days
Publication: Weekly. Monday 2-3 pm London time.

The extended consultation period for this proposed launch starts on August 9 and will end on Friday September 8. Fastmarkets will publish a new pricing notice to update the market on this proposal during the week of September 11.

To provide feedback on this proposal, or if you would like to provide price information by becoming a data submitter to this assessment, please contact Serife Durmus by email at: pricing@fastmarkets.com. Please add the subject heading: “FAO Serife Durmus re: proposal to launch Saudi Arabia domestic rebar price.”

To see all Fastmarkets’ pricing methodology and specification documents, go to: https://www.fastmarkets.com/about-us/methodology.

The post Extension of consultation period on launch of Saudi Arabia domestic rebar price appeared first on Fastmarkets.

The amendment was made after the countries announced the official dates for Eid al-Adha.

To see the Fastmarkets pricing holidays calendar, go to https://www.fastmarkets.com/methodology/metals-price-reporting-schedules.

To provide feedback on this pricing notice, please contact Andrews Wells/Janie Davies by email at: pricing@fastmarkets.com. Please add the subject heading “FAO: Andrew Wells/Janie Davis, re: amendment to pricing holidays for Eid al-Adha.”

To see all of Fastmarkets’ pricing methodology and specification documents, go to: https://www.fastmarkets.com/methodology.

The post Amendment to pricing holidays for Eid al-Adha appeared first on Fastmarkets.

The proposed price specifications are as follows:

Steel reinforcing bar (rebar) domestic, delivered Saudi Arabia, riyals/tonne
Quality: Diameter 8-40mm, length 6,000- 12,000mm
Quantity: minimum 1,000 tonnes
Location: Delivered within Saudi Arabia
Timing: Within 30 days after order
Unit: Saudi Arabian riyals/tonne
Payment terms: LC, bank credit, payment on delivery or within 30 days
Publication: Weekly. Wednesday 2-3 pm London time.

The consultation period for this proposed launch starts on Tuesday June 13, and will end on July 11. The launch will take place, subject to market feedback, on August 9.

To provide feedback on this consultation, or if you would like to provide price information by becoming a data submitter to this market, please contact Serife Durmus by email at pricing@fastmarkets.com. Please add the subject heading “FAO Serife Durmus re: proposal to launch Saudi Arabia domestic rebar prices.”

To see all of Fastmarkets’ pricing methodology and specification documents, go to https://www.fastmarkets.com/methodology.

The post Proposal to launch Saudi Arabia domestic rebar price appeared first on Fastmarkets.

Ravi Singh, chief executive officer of steelmaker SULB Bahrain & Kingdom of Saudi Arabia, told delegates the wide range of projects across the region clearly indicates that unlike Europe and the United States there is no threat of recession in the region.

He said those projects will have a huge positive influence on the economies in the region and especially in Saudi Arabia, where the “Vision 2030” project aims to transform the kingdom into a modern economy.

And Hassan Salim Shashaa, chief strategy & transformation officer at Emirates Steel Arkan told delegates that “the next 15 years will represent a “golden age of steel” in the arab world.

“I believe steel in the GCC is in perfect position and the best is yet to come’” Shashaa said.

One of Saudi Arabia’s key Vision 2030 aims is to make the country the epicenter of the global minerals and mining sector.

Saudi Arabia announced three new steel production projects in 2021 and 2022.

Marwan Almojil, executive commercial general manager at Saudi Basic Industries Corp (Sabic) told delegates that, thanks to high oil prices, the Ministry of Finance was able to announce a 102 billion riyals ($27 billion) fiscal surplus for 2022 – which equates to about 2.6% of Saudi Arabia`s gross domestic product (GDP).

But all GCC governments will be focusing on reducing their dependency on oil by diversifying their economic activity and Almojil said that, while he expects Saudi Arabia to have surplus in 2023 as well, this will be partly due to non-oil revenues.

He said, non-oil revenues have been growing rapidly and accounted for more than 30% of Saudi Arabia`s fiscal budget for 2022, having been less than 10% before 2013, so the the impact of oil prices on the region`s economies will be reduced due to the new projects and diversification.

Vision 2030 also aims to increase in the private sector’s share of the country’s economy to 65% from 40%.

Decarbonization targets

Steel production in the GCC nations is mainly produced through the direct-reduced iron (DRI) route, with the region benefiting from plentiful gas resources and having an advantage in terms of the potential for solar power due to its geographical location.

Saudi Arabia expects to reach zero carbon emissions by 2060, and Sabic has a carbon neutrality target of 2050, according to Almojil.

Pelletising and DRI production capacities are expected to increase in the GCC for green steel production targets and the new capacities already announced in the region are all integrated mills, Shashaa said.

The most recent green steel plant investment was announced by Jindal Shadeed, a long steel producer in Oman.

Emirates Steel Arkan recently stressed the importance of decarbonization of the steel sector in an interview with Fastmarkets, having already announced its intention to start hot-rolled coil production back in 2021.

Emirates Steel Arkan also had talks with Japanese entities Itochu and JFE Steel, a subsidiary of JFE Holdings, about the potential for a ferrous raw materials production facility in Abu Dhabi.

Some GCC steelmakers already have plans to use hydrogen for steel production.

And in November, Brazilian iron ore miner Vale announced plans to build green briquette mega hubs in the Middle East, promoting the use of hydrogen.

But at the moment, steel producers in the GCC region use either iron ore or scrap for steel production, Singh said, with both having an advantage in terms of raw materials availability. And he said that using hydrogen for steelmaking would actually increase costs, so its use for steelmaking will only increase when buyers are ready to pay extra.

Shashaa agreed and said the use of hydrogen for steelmaking will only happen when it becomes commercially viable because it increases the cost of steel production by $150-200 per tonne at the moment.

“Personally, I do not think hydrogen will become common in steel production in the next five years. When costs fall, it may become more common. I expect a gradual transition to hydrogen,” he said.

Challenges

Despite the positive expectations for the region, the panelists accepted there are challenges for the steel sector.

The GCC is a net exporter of long steel by 2022, but, “to continue exporting, you need to focus on cost efficiency and differentiating products,” Almojil said.

“Other than traditional [products], value-added products need to be produced. That is the challenge we need to focus on,” he added.

Another challenge, Shashaa said, was that the economies in the GCC region are going through some fundamental changes.

“[The GCC] is no longer dependent mainly on government expenditure [and] we see a more active role for the private sector. The biggest threat to this is anything that could steal the confidence,” he said.

The post Gulf states entering ‘golden age of steel’ – MEIS 2022 appeared first on Fastmarkets.

The plant will use renewable hydrogen-powered energy for steel production and will target the wind turbine, auto and consumer goods sectors across Europe, Japan and other countries.

Jindal Shadeed Group has also signed a memorandum of understanding (MoU) with centralized utility provider Marafiq to provide the utilities to operate the new mill.

“Jindal Shadeed Group is investing more than $3 billion to develop this mega steel project in Duqm, and we have already obtained the necessary approvals to secure the land for our Green Hydrogen ready steel project,” Harssha Shetty, chief executive officer of Jindal Shadeed Group, said in a statement.

“Our goal is to produce 5 million [tpy] of green steel that will create over $800 million [per year] in country value-addition. The plant will supply high-quality steel products to automobile, wind energy and consumer durables sector amongst others,” Shetty added.

The plant will be the biggest green steel investment in the Gulf Co-operation Council (GCC) countries.

Jindal Shadeed originally announced its plans to invest in a green hydrogen plant in April this year.

Jindal Shadeed operates a direct-reduced iron-electric-arc furnace steel complex in Oman. This includes a 1.8-million-tpy gas-based DRI plant that produces both hot DRI and hot briquetted iron, and a 2.4-million-tpy steel meltshop and a 1.4-million-tpy rebar rolling mill.

Earlier this month, the company also announced investment in a pelletizing plant.

The post Oman’s Jindal Shadeed will invest over $3 bln in green steel plant appeared first on Fastmarkets.

Ukraine

The loss of control over two large mills based in Mariupol (Azovstal and Illych Steel, which belonged to major Ukrainian steelmaker Metinvest) as well as logistical and procurement problems resulted in a massive drop in Ukraine’s steel output.

According to the World Steel Association (Worldsteel), the country produced 4.82 million tonnes of crude steel in January-July 2022, down by 62.14% from 12.73 million tonnes produced over the same period last year.

At the same time, Ukrainian steelmakers have faced port blockades and seizures by Russian forces.

According to a map published by the UK ministry of defense on August 22, all major ports on the Sea of Azov, as well as the port of Kherson, which has a river connection with the Black Sea, are controlled by Russia. Meanwhile, the major Black Sea ports remain blocked for all vessels except those shipping grains and associated products and fertilizers, including ammonia, in accordance with a recent deal made with the Russian government.

There have been discussions in political circles that steel products may be included in the grain deal, too, in exchange for the easing of western sanctions against Russian steel, which could help enliven steel export shipments. Nothing official has been announced yet, however.

As a result of the port blockages, Ukrainian steelmakers have had to use alternative options for transporting their products, but those are not sufficient to maintain decent export activity. Some alternative routes include the delivery of goods to Europe by truck and rail, as well as shipments from Black Sea ports in Romania and Bulgaria and from Baltic Sea ports in Poland.

“Before the war, Ukrainian business exported 80% of ferrous metals and 70% of iron ore through the ports of Odessa and Mykolaiv,” Volodymyr Tkachenko, the head of Kiev branch of ArcelorMittal Kryvyi Rih, was quoted as saying in media reports.

“The available railway crossings are able to let through not more than 1,900 cars per day, while the country’s export capacities need a minimum 3,400 cars per day,” Olexandr Kalenkov, the president of national steelmakers’ union Ukrmetallurgprom, said in the same publication.

Russia

Steel output in Russia also decreased during the reviewed period.

Over the first seven months of the current year, Russia produced 41.43 million tonnes of steel, down by 6.96% in a year-on-year comparison, according to Worldsteel.

In August, though, an official from Russia said that “there is also a significant decline in domestic consumption. As a result, the steel industry’s capacity utilization has dropped to 80% from an average of 93%.” He added that the capacity utilization rates for Magnitogorsk Iron & Steel Works and for Severstal stood at 62% at 72% respectively.

The drop was mainly driven by the effects of western sanctions imposed against the country for its invasion of Ukraine.

The European Union only seven packages of sanctions against Russia, including general sanctions that hit banking, insurance and shipping services as well as those which hit the steel industry and some of its main participants directly.

For example, sanctions against Severstal’s owner Alexey Mordashov — combined with a ban on finished steel shipments from Russia to the EU — pushed Severstal, which was Russia’s main flat steel supplier to Europe, out of this market and forced the steelmaker to concentrate on the domestic market or look for support in alternative outlets. Before the war, the company was mainly concentrated on lucrative finished steel sales in Europe, but recently it had been heard offering slab in Turkey and Asia at comparatively low prices.

The western sanctions significantly reduced the number of buyers willing and able to touch products made in Russia.

Turkey, Mexico, China and Taiwan became the main outlets for Russian exports. And while the number of potential buyers decreased, prices also started to fall, creating significant pressure on the global market.

Russia used to export 40% of its steel production.

“It is clear that part of the export market is closed for us,” Vladimir Lisin, the main shareholder in the country’s Novolipetsk Iron & Steel Works (NLMK), said.

Neither NLMK, nor its shareholders, have yet been hit by direct sanctions.

“There is also a decrease in activity in the Russian market, [and] a surplus of 40% has been created [which traditionally used to be exported], out of which [only] 10-15% can still find the outlet,” he said. “Where does the rest go? The domestic market has never consumed so much.”

In the first half of 2022, NLMK reported a 1-million-tonne fall in sales from the level predicted. According to the company’s forecasts, the entire Russian metallurgy industry will lose 30-50% of its budgeted sales because of the country’s war on Ukraine.

Mounting pressure on prices

As the initial shock from the war — and an accompanying surge in steel product prices — has waned, Russian prices started to fall as suppliers tried to attract customers despite the sanctions.

This stimulated competition globally, particularly in semi-finished steel segment (billet and slab account for the largest portion of Russian steel exports), which in its turn had a negative effect on the finished steel market.

For example, as of August 24, Fastmarkets’ steel billet index export, fob Black Sea, CIS averaged $521.33 per tonne in the month to date, down by 22.44% from an average of $672.20 per tonne in February.

“Sanctions against Russian products created a new market for them, which depreciated Turkish long steel prices,” one Turkish source said.

Fastmarkets’ price assessment for steel reinforcing bar (rebar), export, fob main port Turkey averaged $641.60 per tonne in the month to date, down by 14.02% from an average of $746.25 per tonne in February.

A United Arab Emirates-based producing source said that cheap Russian billet pressured Iranian billet prices, which in its turn prompted domestic buyers to reduce asking prices for rebar.Fastmarkets’ weekly price assessment for steel billet, export, fob ports Iran averaged $448.88 per tonne to date in August, down by 23.38% from $585.88 per tonne in February.

“Russia is offering very low prices, some say even dumping to markets where they were not sanctioned yet, like in the Far East, Turkey, the Middle East and Africa,” one trader from Turkey said.

By volume, the most-exported final steel product from Russia has been hot-rolled coil.Fastmarkets’ price assessment for steel HRC, export, fob Black Sea, CIS averaged $540 per tonne fob in the month to date, a drop of 39.66% compared with the February average of $895 per tonne.

The price assessment for steel HRC, import, cfr main port Turkey — the key typical destination for flat steel exports from Russia — averaged $591.67 per tonne in the month to date August, falling by 35.47% compared with $916.88 per tonne in February.

Meanwhile, in Europe, Russian war against Ukraine caused a wave of a panic-buying during February-March, with prices for flat and long steel surging dramatically, reaching the new historic peaks and breaking the records set in summer 2021.

For example, Fastmarkets’ calculation of its daily steel hot-rolled coil index, domestic, exw Northern Europe averaged €1,278.50 per tonne in March 2022, up by €326.49 per tonne from €952.01 per tonne in February and up by €489.60 per tonne from €788.90 per tonne in March 2021.

Market sentiment, however, has soured recently, mainly due to slowing end-user demand and overstocking that resulted from the earlier panic-buying.

Notably, automotive output in Europe has declined due to acute component shortages that are not expected to be resolved until the end of 2022, sources said.

As a result, Fastmarkets’ most recent calculation of its daily steel hot-rolled coil index, domestic, exw Northern Europe was at €720 per tonne on August 24, down by €247.14 per tonne from €967.14 per tonne on February 24.

Trade flow changes

The disruption of trade flows was another major effect of the war on the global steel market.

In particular, the disappearance of Ukraine from the export market has opened opportunities for European and Asian suppliers.

In 2021, Italy imported 2.39 million tonnes of slab; Ukraine was its top supplier, accounting for 73.6% of that total, followed by Russia.

Once Ukraine stopped exporting slab to the country, buyers turned to suppliers from Asia — namely, India, China and Indonesia — to fill the gap.

A similar situation has been noted in the plate market.

“Our regular buyers of plate in Europe, and in the Middle East and North Africa region, I suggest were impacted the most because we had a large market share,” one supplier from Ukraine said, adding that these volumes have since been replaced with material from Asian and European suppliers.

Fastmarkets discontinued its price assessment for steel heavy plate, 8-50mm, export, fob Black Sea, CIS (MB-STE-0013), due to a substantial reduction in market activity.

“The pig iron market in the United States was impacted a lot as well, because Ukraine and Russia covered around two-thirds of its import pig iron supply,” the Ukrainian supplier said. “Buyers there refused Russian pig iron completely, while we [Ukrainian suppliers] still can ship rather limited tonnages.”

Pig iron buyers in the US have been forced to cut their pig iron consumption and increase their hot-briquetted iron (HBI) consumption. At the same time, US pig iron bookings from Brazil intensified in March.

“Every single tonne of pig iron which could be produced in Brazil was produced, even those producers who normally focused on billet supply have been selling pig iron,” one supplier of pig iron from Brazil said.

And while the western world was looking for substitutes for Ukrainian and Russian volumes, Russian suppliers found support in Asian customers.

Low prices and comparatively few problems with handling payments at banks turned Taiwan into a regular importer of semi-finished steel and HRC from Russia’s Far East in April and May.

Shipments of semi-finished steel products to Taiwan from Russia jumped to 162,699 tonnes in May, according to Taiwanese customs figures, up by 57.4% year on year from 103,363 tonnes in May 2021. Russian semi-finished steel products accounted for 59.3% of all arrivals in May, up from 35.3% a year earlier.

Russian exports to Taiwan have mostly been concluded by traders based in either China or the UAE and have taken place despite Taiwan’s strong ties with the United States, according to sources.

China — which remains a very close ally with Russia despite the war — also has imported significant volumes of Russian semi-finished steel.

China imported 239,496 tonnes of steel slab in June, up 917% year on year. Some 122,423 tonnes of that total were purchases from Russia, according to Chinese customs statistics.

On the other hand, the war has led to a reduction in trade between Russia and another US ally, the Philippines. The main difference between the situation with Taiwan and that with the Philippines is that most Filipino banks still refuse to handle Russian cargo, making payment very difficult, according to market sources.

The Philippines imported zero tonnes of semi-finished steel from Russia in May, down from 23,930 tonnes in May 2021, according to customs stats. April semi-finished steel import volumes were 68,469 tonnes, down from 134,962 tonnes in April 2021.

Growing production costs in EuropeThe price uptrend in the European energy market that started in autumn 2021 has continued into 2022, with the situation getting even worse after February 24.

For example, in July 2021 average electricity prices in Italy were around €400 per MWh, up from about €271 per MWh in June 2022 and sharply up from €103 per MWh in July 2021, according to local energy service company Gestore dei Mercati Energetici (GME). During the week ended August 21, average electricity prices in Italy surpassed €500 per MWh.

On August 5, the European Commission approved a plan encouraging EU member countries to voluntarily reduce gas consumption by at least 15% between August 2022 and March 2023.

While there is no evidence that countries will self-impose energy restrictions, if this did happen, energy prices would keep going through the roof. This in turn would force steel mills to increase prices, Fastmarkets has heard.

But European steel market fundamentals have been too weak recently to support a price rise, sources said.

Notably, overstocking — coupled with contracting end-user demand — has been pushing flat steel prices in Europe down in recent months. As a result, European mills might be faced with the need to cut output further or even stop operations completely.

“In theory, the gas rationing suggested by the European Commission [may] result in even more capacity being put offline,” a trading source told Fastmarkets.

Starting in June 2021, an increasing number of European flat steelmakers have been reducing output in order to balance demand and supply and spare flat steel prices from a sharp downtrend.

Still, despite those efforts, the downtrend in Europe’s hot-rolled coil market resumed in August, with prices continuing to sink.

Effects on Middle East markets

The Egyptian steel market has been affected by the war between Russia and Ukraine in several aspects, according to sources.

The war resulted in “lower availability of billet even with low prices, combined with scarcity of foreign currency to pay for procured material,” according to an Egyptian trader.

Egypt has been suffering from a shortage of foreign currency recently, Fastmarkets understands.

“Sanctions [on Russian steel] added difficulties on payments, and freight rates skyrocketed backed by fuel high prices,” the trader said.

Furthermore, the war resulted in “lower export tonnages from Egypt to the European Union, due to lower demand backed by higher energy costs. The war affected the energy costs, and this affected the local production, especially lower raw materials stocks. As a result, local production in Egypt is hand to mouth only now — prices not reflecting the actual costs,” the trader said.

Turkey’s steel sector has also been directly affected because of low-priced imports from Russia, Turkish sources told Fastmarkets.

“The crisis has been affecting Turkey deeper every day. Turkey’s crude steel output decreased by 13% in June and 20% in July. Turkish exports decreased by 6.5% in the first six months of 2022, and decreased by about 8.5% by the end of August,” Ugur Dalbeler, chief executive officer of Turkish steelmaker Çolakoglu and vice president of the Turkish Steel Exporters Union (ÇIB), told Fastmarkets.

“The upcoming period seems to be even worse. Many companies stopped importing raw materials and intermediate products from Russia because these companies have relations with the EU and the US. They have to buy from other sources at a higher cost. On the other hand, Russian producers cannot export their products to many countries because of sanctions, so they export to Turkey at prices with about 50% discount. This results in big losses for Turkish producers and the outlook for the fourth quarter seems much worse,” Dalbeler said.

“Another danger is that Turkish products may be subject to investigations on circumventing sanctions, and new sanctions may be imposed on Turkish steel. The only way to avoid this is to impose sanctions on Russian steel like the sanctions imposed by the EU and the US,” Dalbeler added.

Notably, a Turkish trader claimed that the European Commission imposed anti-dumping duties on Turkish hot-dipped galvanized coil because the substrate used for some HDG produced in Turkey is of Russian origin.

Elina Virchenko in Dubai contributed to this report.

The post Six months of war: How has it changed the global steel market? appeared first on Fastmarkets.

“Very importantly, we will prohibit the import of key goods in the iron and steel sector from the Russian Federation,” an official release said. “This will hit a central sector of Russia’s system, deprive it of billions [in] export revenues, and ensure that our citizens [in the EU] are not subsidizing [Russian president Vladimir] Putin’s war.”

Details of which specific iron and steel products would be banned were not announced before the story was published.

“I am not touching Russian steel,” one trader in Europe told Fastmarkets on March 14. “Russia is actively looking for somebody to buy its steel but with zero results.”

Russia normally exports pig iron, steel slab and long steel products to European countries.

The country exported 753,958 tonnes of pig iron to EU countries in 2020, according to data from the International Steel Statistics Bureau (ISSB). It also said that slab exports out of Russia to the EU countries reached 1,391,816 tonnes in 2020.

“With these sanctions, we will continue going after [Russia’s] oligarchs, the regime-affiliated elites, their families and prominent business people, which are involved in economic sectors providing a substantial source of revenue to the regime,” EC President Ursula von der Leyen said.

“They are active in the steel industry, they provide military products and technology or they provide financial and investment services,” she continued. “This is another major blow to the economic and logistic base upon which the Kremlin is building the invasion and taking the resources to finance it.”

Europe has imposed several sanctions on Russian entities and individuals since the start of the Ukraine-Russia war on February 24.

To keep up with steel price trends throughout 2022, visit our steel and steel raw materials page.

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