Steelmakers quietly reducing production

Steel producers in Turkey and Europe have quietly started cutting production, as sluggish demand is squeezing hard on margins and even pushing prices below breakeven for some.

For prices to recover, producers need to be as vocal as they can about output reductions and make it clear to end-users that supply availability after the summer may not be as high, market participants at an industry event in Dusseldorf this week said.

Many expect that after months of no purchasing activity, buyers will need to return to the market in September, and there could be a change to the mood. But prices in July-August will likely continue to slide, unless there is a big improvement in sentiment in Asia, a major development in the conflict in Ukraine or a an unforeseen improvement in activity in steel-consuming sectors.

Many buyers in Europe and Turkey stocked up in the weeks following Russia's invasion of Ukraine, overestimating the impact it would have on supply. While the conflict undoubtedly cut availability out of the Black Sea, after ports in Ukraine closed and sanctions were applied on Russia, the uncertainty weighed on consumption too. As a result, buyers have been sitting on a lot of high-priced stock, struggling to move material downstream, which is now priced below their raw material inventories.

High inventories at buyers, slow consumption and decreasing prices mean that all re-rollers in Turkey and at least one in Europe will be stopping or reducing production, market participants said. Re-rolling companies in Turkey will halt output for one week in July during public holidays and some will likely extend this or restart at slower rates, with only some of their galvanising lines operating as normal. Turkish re-rollers point to the anti-dumping and safeguard duties in Europe, as well as very sluggish automotive demand, as the main reasons apart from pricing. Turkey will now have to compete with Vietnam under the EU's hot-dipped galvanised safeguard quota, so there is concern about crowding out, despite some European buyers not even considering Vietnam as a viable option.

The quotas are not really able to "safeguard" EU industry, as the problem lies with demand levels — so galvanising lines in the bloc will also be reducing output for the next couple of months.

At the same time, Turkish mills will be undergoing extended maintenance this summer, reducing hot rolled coil output as buyers in the domestic market such as re-rollers will be offline for some period. And export demand is traditionally very sluggish during August, and even more so this year. Three major producers are understood to be slowing output, or completely stopping production, as they pull forward or extend maintenance periods.

Many expect that EU mills will have to cut production and have likely already done so, but none have publicly confirmed this. Having made sufficient profits in 2021 and the first quarter of this year, EU producers could be waiting out the fall in prices before they decide to reduce output, in the hope that the market will pick up in autumn.

By Lora Stoyanova