Smaller European HRC producers turn to slab sales

Elevated gas costs and lethargic coil demand have pushed some smaller European blast furnace-based producers to sell slab into the merchant market.

Conversion costs for smaller mills are as high as €150/t ($153/t), meaning they are close to making losses on HRC sales in the low €800s/t. "With these conversion costs you better shut down the [HRC] mill and sell slab at €700/t ex-works plus," one steelmaking executive said.

Rising natural gas prices are a big driver of the jump in conversion costs. Front-month TTF prices were €161.93/MWh yesterday, up over 98pc from €81/MWh on 13 June. Natural gas prices currently account for almost half of the slab-to-HRC conversion cost for mills, especially those struggling to secure enough coal for their coke batteries; gas from this process is typically captured and re-used in the steelmaking process.

Mills in central and eastern Europe relied on Russian coke for a portion of their coal needs prior to the war in Ukraine, and some have struggled to finance alternative sources.

European slab demand is fairly strong compared with HRC. Margins remain stronger for plate-makers, although volumes have reduced, and at least one integrated mill is stockpiling ahead of a furnace reline. Brazilian material has been sold into north Europe at $750/t cfr in the last week or so, although lower is likely possible today.

One European producer said it would be targeting around €750/t delivered today for slab. Given slightly lower Brazilian prices and much cheaper Russian alternatives, buyers said the mill would have to reduce prices slightly.

The European operations of NLMK are still taking Russian slab, but are thought to be investigating other supply options given concern among some buyers of taking Russian substrate — UK producers' lobby UK Steel is pushing for a melt and pour clause to prevent the importation of any steel containing Russian substrate.

By Colin Richardson