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Salzgitter restarting BF, sees HRC prices 'sideways at high levels' through 2021

Highlights

Blast furnace to restart November on strong demand

Trading division reported windfall profits as prices rose

Semiconductor shortage expected to ease

German steelmaker Salzgitter expects European hot-rolled coil prices to continue "sideways at a high level" of around Eur1100/mt ($1,293/mt) for the rest of this year and into Q1 2022 with some fluctuations in coming months, on a continuing shortage of material in the market, company executives said Aug. 11. The company will restart blast furnace C amid strong demand, it said.

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The company is confident it will be able to place volumes in the market from its 600,000 mt/year capacity blast furnace C, which will restart in November, Gunnar Groebler, CEO since July 1, told analysts on a call to discuss the company's H1 results, described as the best since 2008. He noted that volumes lost in early June during a lightning strike will be recouped during the year, with market prospects for the rest of the year looking excellent.

Salzgitter's main Flachstahl site typically produces almost 5 million mt/year of crude steel and around 3.5 million mt/year of rolled steel.

"We see a strong Q3," Salzgitter CFO Burkhard Becker told analysts on the call. While in Q4 some seasonal impact is foreseen, during holiday seasons, the executive indicated that there could be an improvement as regards the semiconductor shortage issue. "We don't see a significant negative impact," in this area, he said. "We see the Eur1100/mt level continuing quite normal," he said.

Around 65% of Salzgitter's sales are typically to the automotive sector, where production has been impacted this year due to a shortage of semiconductor computer chips.

Results rebound

Salzgitter reported a "significant" on-year improvement in H1 earnings before tax of Eur305.7 million, compared to a pre-tax loss of Eur127.8 million in the same 2020 period, when COVID-19-related factors had led to a "tremendous" slump in end-markets including the German automotive sector in April 2020, Becker noted. The steelmaker's participation in German copper products producer Aurubis contributed Eur91 million to the positive result.

For the whole of 2021, the company foresees a pre-tax profit of between Eur400 million and Eur600 million, and a return on capital employed "tangibly above" the previous year's level, Becker said.

H1 sales of Eur4.43 billion outstripped the Eur3.63 billion of H1 2020 and are seen increasing to more than Eur9 billion for the whole year.

Guidance seen 'conservative'

The company's results were better than expected in Q2 in a "robust pricing environment," said Alan Spence, analyst at Jefferies International. The analyst believes "group guidance looks conservative," as Salzgitter "highlighted positive market conditions with a lack of material forcing customers to continue to buy material at current prevailing prices. SZG noted the current supply shortage will continue to persist well into the end of the year, with prices slated to remain 'around' the Eur1100/mt mark."

S&P Global Platts assessed Northwest European hot-rolled coil stable at Eur1150/mt Aug. 11 ($1,349.76/mt) ex-works Ruhr, around multi-year highs. Sources said there was no significant spot availability left in the Ruhr region for the fourth quarter.

Becker noted the company's H1 earnings had been driven by its Trading division which had been able to buy at lower prices and from inventories and then resell at higher prices due to the dynamic increase in prices throughout the period. Now that prices have stabilized "we don't expect the Q2 profit level to be repeated," he said.

With hot strip prices having reached record levels towards the end of H1, the flat steel business segment will contribute much more to H2 earnings than Trading, although steel plate prices haven't yet shown such a significant improvement, he said.

The Mannesmann tubes division reported "an improved business situation [in H1] at the precision tubes group, with medium diameter line pipes and stainless steel tubes also registering an increase in bookings," Becker said.

Blast furnace

Blast furnace C, to be restarted in November, has been off stream since around autumn 2019, originally due to maintenance but then the halt was prolonged due to low demand, a Salzgitter spokesman said.

"In the meantime slabs were supplied by our JV Huettenwerke KruppMannesmann (HKM) due to their surplus of slabs caused by very low large diameter pipeline tube demand. In normal times the related plate production consumes a significant volume of slabs from HKM," the spokesman said.