FEATURE: EU long steel prices to jump on supply concerns, conflict

European long steel prices are expected to rise sharply in the short term as domestic steel mills adjust for rising production costs due to supply concerns, market sources said.

Most long steel producers were yet to return to the market with fresh offers as they assess their costs amid sharp hikes in raw materials and semi-finished steel prices, after supply from Black Sea exporters was disrupted due to the Russian invasion of Ukraine.

The region's largest steelmaker ArcelorMittal sharply raised its offer prices on flat steel products, with its hot-rolled coil offer up Eur180/mt to Eur1,150/mt on March 1. It followed this by returning to long steel customers with an offer at Eur1,190/mt delivered for (category 1, S235 JR) medium sections on March 2, market sources said.

S&P Global Commodity Insights assessed the Platts European medium sections price (category 1, S235 JR) at Eur1,105/mt delivered March 2, up Eur25/mt on the week.

"The market is easily above Eur1,100/mt delivered for category 1 sections but we won't quote as even with this price, it's hard to say if it's a good deal or not -- it could look terrible in two weeks," another European mill source said.

Steel distributors also noted the tense pause in market activity, pulling offers from end-users.

"All mills are out of the market, no one is giving prices," a Benelux-based distributor said. "Existing orders will be supplied but the validity of new offers will be very short as prices are escalating everyday -- we're expecting anything from Eur30-100/mt up from the last deals."

Rebar prices are also expected to jump sharply, with one producer source expecting Eur900-950/mt delivered to be workable in the near term. A second distributor source said close to Eur900/mt delivered was possible, but offers remained scarce.

S&P Global assessed Platts TSI Northwest Europe rebar at Eur850/mt ex-works March 2, up Eur27.50/mt on the week.

European steelmakers are expected to shun Russian material in the near term amid concerns about financial sanctions and a lack of trade financing from European banks, sources said.

"All this talk that Russian factories will somehow be able to export is wishful thinking. Russian trucks will not go to the EU, and many trucks are leased from Western banks and the Russians are afraid that they will not be released. From the EU, definitely no one will go to Russia," an EU long steel mill source said.

Raw materials supply tightness

"The big worry is the supply impact from raw materials, as around 40% of the coking coal and iron ore used in the EU is from the CIS," a third EU steel mill source estimated. "In the coming days and weeks, there will be a significant supply shortage of raw materials for the integrated steelmaking route -- billet and slab flow from the Black Sea to the EU has also completely stopped and lots of rerollers rely on that supply."

Russia supplied 2.845 million mt of coking coal to the EU in the first 11 months of 2021, up 27% from a year earlier, according to Eurostat trade data. Russia made up 8.1% of the overall coking coal supply into the EU, with Australia and the US accounting for the highest volumes.

Russia also supplied 10.4 million mt of coal other than coking, thermal and anthracite grades to the EU in the first 11 months of 2021, which may largely account for pulverized coal injection use.

The EU steel mill source added that this lack of semi-finished products will in turn drive a sharp increase in ferrous scrap demand, which has already been seen in Turkey, the largest ferrous scrap import market, and is also expected to hit EU mill margins.

S&P Global assessed the Platts Turkish imports of premium heavy melting scrap 1/2 (80:20) March 2 at $550/mt CFR, up $43/mt on the week from $507/mt CFR on Feb. 23.

Energy costs affect production

The Russia-Ukraine conflict is also likely to keep energy costs high into 2022, with some mills heard to temporarily stop production to assess their costs.

The electric-arc furnace-based Italian longs steelmaker Pittini had stopped crude steel production Feb. 25 before restarting March 1, with its rolling mill restarting March. 2, sources said. Other long steel mills in Northern Italy also had paused production, but this was not officially confirmed.

Most EAF mills across Europe have adjusted their production schedules to run when energy costs are likely to be lower, while blast furnace-based producers have looked to optimize their capacity utilization amid the same cost pressures.