Spanish auto producer Seat, part of the Volkswagen Group, has cut its car output in Spain because of supply chain disruptions triggered by flooding in Slovenia, in a further blow to Europe's steel coil producers.
The company could lose around 20,00 units between now and the end of the year, participants in the Spanish steel market suggest.
"Due to the Slovenia flooding an engine component supplier to Volkswagen Group, including Seat and Cupra, is only able to supply limited quantities. This situation has forced the shutdown of some production shifts at the Martorell plant", a company spokesperson told Argus.
The wider Volkswagen Group, including Skoda, has also had to reduce output in the past month because of the disruption and has put some staff on short-time working.
Slovenian gear rings manufacturer KLS Ljubno, which supplies more than 80pc of Europe's auto manufacturers, was affected by flooding in the country in August.
"Volkswagen Group is working hard to minimise the impact of this situation and is collaborating with the affected company in order to completely resume production", the spokesperson added.
The disruption comes at a bad time for Europe's steel coil producers. Apparent demand is low, with service centres buying smaller volumes only when needed. Real demand is also reduced, with rising interest rates affecting consumer spending and steel-intensive projects, particularly in construction and related segments. Real demand is likely stronger than service centre requirements would suggest, steel participants said, but all service centres report volumes being down around 10-30pc depending on the sector.
Steel mills cannot export into many markets at profitable prices given their higher costs. Spreads between northwest EU hot-rolled coil (HRC) and key blast furnace raw materials reached a low of $197/t on 27 September, driven by falling steel prices, rising coal costs and the weakness of the euro. Raw material purchases are predominantly US dollar denominated. The last time spreads were at such a low level was August 2020, just before demand snapped back from the Covid-19 pandemic that disrupted industrial output and steel demand.
October dropped to €600/t earlier this week on the CME Group's north European HRC contract, at a discount to the spot market. Argus' benchmark north European HRC index was €610.25/t on 27 September, down from €638.50/t at the start of the month.
