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Ferrous metals - 11 January 2013

Ferrous metal merchants in the UK will not be looking back to 1 January as the start of a bright New Year. Instead, 2013 arrives as nothing more than an extension of a time in which they are plagued by raw material shortages and ever-diminishing economies of scale. Supplies of new production scrap ex factories remain scarce, supplies of heavy demolition type scrap are also scarce and many shredders will lie idle for up to half the month due to a shortage of mixed and lighter grades. The only hope of salvation lies with an upturn in UK manufacturing and, although the sector is now stabilising; depressed domestic demand and weak demand from key overseas markets in Europe keep prospects bleak.

Most firms say that the shortage of raw materials and an associated downturn in processing activity and stocks is their main problem. The fact that Spain and Italy are virtually out of the market, whilst Turkey and the Far East blow hot and cold is a secondary difficulty partly offset by a home market that seems to look toward a brighter future. In Spain, the financial crisis affecting banks and the credit ratings of steel mills seems set to continue; and with anti-pollution laws posing a serious threat to production at ILVA, Italy’s largest mill, prospects for this section of the market remain poor. At present, news from mills in China, India and Pakistan is mixed and, although some Turkish mills have increased prices for HMS No.1 ex the USA by up to £6 per tonne, prices for finished products are only staying level at best, and the £6 per tonne increase may be short lived.

At home, 890 job cuts at Tata Steel UK last month - 585 in S. Wales; 155 in Yorkshire; 120 in the West Midlands and 30 in Teeside - is a devastating blow for those directly affected, but within this disaster lie, several levels of structured planning that indicate a much brighter future. Tata Steel still employ 19,000 people in the UK and about 81,000 on five continents; and news that the rebuilt No. 4 blast furnace and £250 million energy gas recycling plant at Port Talbot in S. Wales will be on stream in the first quarter of 2013 partly offsets the bad news about job losses. This, in turn, will lead to the building of a new heavy gauge decoiling facility, the restarting of the company’s hot strip mill and 120 new jobs at its Llanwern plant in Newport S. Wales.

Looking further into the future, Tata Steel’s hefty long term investment in green technologies and renewable energy seems certain to pay dividends; and bode well for future steel scrap intakes in the UK. Its Rotherham plant has already won a big contract to manufacture wind towers for Siemens and the expertise gained puts it well ahead of any rivals in an area set for huge expansion. Due to its dedicated wind tower hub Tata is able to supply Siemens and others with up to 200,000 tonnes per annum of steel plate made at its mills in Scunthorpe, and Dalzell in Scotland. Only 25,000 tonnes so far, but all expectations in this sector of the market indicate much more to come; and Tata Steel is in a commanding position.

Sahaviriya Steel Industries, (SSI UK Ltd.) continues sourcing scrap to feed its Redcar blast furnace producing steel slabs for its parent company in Thailand. Production of the slab has increased to about 90,000 tonnes per month since the first shipment of 48,000 tonnes left Teesport in September last year; and output should soon be increased by further investment in a new $57 million pulverised coal injection plant. Siemens Metal Technologies, the main contractor on the project say that it is on time and due for completion early this year when it will replace some of the coking coal used with more cost effective non-coking coal. The plant will grind the coal into a powder like consistency before transportation and injection into the blast furnace via pipe. Siemens say that during operation the blast furnace consumes about 500kg of coke for every ton of iron that it produces. The coal is a cheaper fuel than coke and if you can inject approximately 200kg of coal for every ton of hot metal, the process will save up to 200kg of coke; and make considerable savings in costs and energy use.

Steel and iron production and its associated scrap usage is normal at the UK’s other plants, Celsa Steel in Cardiff and Sheffield Forge Masters. Celsa may be winning orders for its finished products due to production cutbacks and the banking crisis affecting its parent company in Spain; whilst Sheffield Forgemasters is well on the way to completion of the first part of a multi-million pound contract to supply crucial components to North Sea oil platforms. Neither company expects any decline in scrap requirements during the next month or so.

Of the problems in foreign markets, and the one most likely to affect other mills, the pollution caused by steelmaking at ILVA is probably the most dangerous example of what can happen. One of the largest steel mills in Europe producing more than 30% of Italy’s raw steel, ILVA is at the heart of a clash over the future of Italian industry. Found to be discharging high levels of carcinogenic particles — including dioxins and PCBs in the air and soil, a Taranto court ordered sections of the plant to be closed last month. The court also impounded steel from the plant and 30 ships have spent weeks at anchor outside the port waiting to load ILVA’s impounded steel; and on top of this it has ordered the arrests of seven managers, including owner Emilio Riva and his son Fabio, on charges relating to an environmental disaster.

Dr. Patrizio Mazza, head of the haematology department at Taranto Hospital, has long been voicing his concern about the town’s high cancer rates; he says, ‘Data shows that the increase in men is about 40%. The increase in women is about 20% and it is the same in the children. We also have a double incidence of leukaemia in children.’ Other data, confirmed by the Italian Health Ministry last month, shows that the rates of some types of cancers in Taranto are as much as 190% above the national average. Despite this, the Italian Government has reversed the court’s decision in an unprecedented move to save 20,000 jobs at a time of rising unemployment. They say ILVA has a strategic status; and that its closure would have a ripple effect on other steel mills and cost the country more than $10 billion a year. The judges, do not believe that the company will comply with the Government’s demands for a $4 billion clean up; and they openly accuse ILVA of using job blackmail to avoid a shutdown and will now challenge the decision to keep ILVA operational. The effect ILVA’s closure could have on UK scrap exports and production at UK and other European mills is not clear; but experts predict a favourable outcome for rival mills and their regular suppliers of raw materials. E.g., Extra sales won by Turkish mills would almost certainly mean greater export demand for scrap ex UK suppliers; and taking out ILVA’s huge tonnage would have an enormous impact on world markets.

Ends.

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