This month Italy, as the only country to raise ferrous scrap prices, seems to be at odds with the rest of Europe. Following zero activity during the long August break, Italian steelworks increased prices by as much as $13-$19 (£8-£13) per tonne at the beginning of September, and by as much as $26 per tonne compared with its end of July contracts.
Accordingly, most mills had aligned themselves to the higher prices by the end of the first week in September. But in view of a crude steel production decrease of 8.9% year on year, according to the Italian steel producers’ association Federacciai, the price increase surprised all but a few sellers.
On the other hand - and more in line with the expectations of exporters in the UK - Spanish mills have cut prices and more or less stopped buying. This is largely due to a 9.4% year-on- year drop in iron, steel and ferroalloy production in the January-July period.
Likewise, Turkish mills are also experiencing lower finished steel sales and have cut back on scrap imports.
They are, however, still buying and, in the past two or three weeks, one mill has booked a single cargo of scrap, ex-continental Europe, at an average price of $380 per tonne cost and freight (CFR). The breakdown is 25,000 tonne of HMS No. 1 scrap, 7,000 tonne of shredded scrap and 5,000 tonne of P&S scrap.
Moving to last week, US scrap exporters offered HMS No. 1 scrap to Turkey at $402-$405 per tonne CFR, a price turned down by Turkish mills unwilling or unable to pay more than $390-$395 per tonne CFR.
In this case the discrepancy between buyers and sellers is fairly small. But the problems faced by those attempting to sell out of even weaker European markets are far greater. In the UK, for example, the home steel-works’ practice of adjusting prices to the same level, or at best only marginally above export prices, hits domestic suppliers very hard.
No-one is immune in the current downturn; some of the largest and most powerful international firms now have to face possible plant and yard closures
Here, exporters cut their dockside prices by around £10 per tonne at the end of July and followed this by a further £10 cut at the end of August. Both times, UK mills mirrored these price move-ments, keeping themselves just ahead of export markets.
With stocks and yard intakes of all grades abnormally low, this strategy ensures that they have the largest share of a very limited domestic supply chain. But by making bulk purchases out of any surplus stock held on wharves and docks and then lowering other prices, they may have put medium to small merchants into an even more difficult position.
Despite this, with the prices of all grades of metal still falling, no-one is immune in the current downturn; some of the largest and most powerful international firms now have to face possible plant and yard closures.
On the plus side, and ignoring low prices, the scrap intake by UK mills is adequate to take up the limited tonnage available.
Celsa Steel in Cardiff, for example, despite its heavy reliance on reinforcing rods, which are not in great demand, is still issuing contracts for all the usual grades and managing to keep most of its regular suppliers fairly happy. Much the same applies to the Tata Steel Mills in Port Talbot and Scunthorpe. But, as is the case with all UK steel mills, everyone concerned has grave doubts as to the near future.
Celsa’s success may be due to winning orders from rival Spanish mills beset by the country’s financial crisis. Tata Steel Europe, meanwhile, with a total steel-making capacity of 18 million tonnes, posted a net loss of $800m last year. This is not a good omen when set against a net profit of $1.3bn for its Indian plants, which have a capacity of only seven million tonnes.
At Tata Steel Port Talbot, work on the new £185m blast furnace is on schedule. Although other operational problems that arose early in 2012 have been largely resolved, output is still falling and no commissioning date for the new furnace has been set.
Further north, Scunthorpe has just won an order for 22,000 tonnes of premium heated rail for Vietnam, and has put in place cost savings that avoid any risk of compulsory redundancies.
SSI at Redcar, the UK’s most recent mill, also appears to be doing well as its slab output continues to increase and meet monthly targets.
Sheffield Forgemasters has also made news this month, winning a contract to supply pressure vessel components to a large US-based chemicals manufacturer. Valued at more than $3m, the contract will see Forgemasters produce forged shells, liners and heads for large pressure vessels, designed to operate under highly stressed conditions.
The deal builds on the UK steel mill’s many years of experience in the large, complex petrochemical pressure vessel business and opens the way into the vast US pressure vessels market.
Martin Brear, sales director at Forgemasters, said: “Although the details of the pressure vessels contract are commercially sensitive, we are able to announce that Forgemasters has won a significant first order for highly specialised forged components, which will form large-scale pressure vessels for the chemicals production industry.
“As a new US market stream, it has considerable potential. We will initially deliver three forgings to Texas, which will weigh approximately 170 tonnes.”
Ferrous metal markets in the Far East, also important to UK exports, are now showing the same symptoms as those in Europe. In the past week, steel scrap and finished steel export prices in China have decreased sharply and this is having a knock-on effect on European markets, which are reacting nervously.
In these circumstances, many European mills are more or less suspending scrap purchases as they wait to see where the markets go.
Markets in India are also declining. Tata Steel India, which stayed in the black last year and came to the rescue of its loss-making European, Thailand and South Africa operations, is unlikely to do the same this year. This view is validated by international ratings agencies Moody’s and Fitch, which have put a negative outlook on the company and brought down the rating of Tata Steel Europe from a B2 to a B3.
In the UK, the troika of weak markets, lower selling prices and higher costs of production will probably persist well into 2013.