German steel market readies for gas shortage

The German steel market is readying for reduced gas supply in September after Nord Stream 1 throughput was reduced to just 20pc of installed capacity.

After the recent slowdown in Russian gas supply, the German government has said it would prioritise supply to private citizens at the expense of industrial users, if required.

Large steel buyer BMW said it could further reduce gas consumption for a limited time under certain conditions, without "jeopardising supply reliability at its German locations". Any gas shortage would also affect its supplier network, including service centres and tier suppliers. One cold roller has recently implemented an energy surcharge to try to pass on rising costs, and is asking €27/t ($27/t) for cold-rolled material and €65/t for annealed re-rolled material. They are trying to implement the surcharge in a very low demand environment, however.

Mercedez-Benz said it has substituted gas with green electricity and oil where possible, including at its heat and power plants in Germany. It is also trying to move from gas to light heating oil where viable, and is evaluating whether its paintshop can find alternative power away from natural gas in the future.

Germany's largest steelmaker, ThyssenKrupp, said it cannot convert its production processes from natural gas to crude oil or coal, and could face shutdowns and technical damage in the event of a gas shortage. It did say it can cope with restricted production "to a certain extent". Mills have more gas self-sufficiency than downstream users, as they can capture gas created during the steel and ironmaking process and re-use it.

The actual impact of higher gas prices on the market remains limited at present. However, conversion costs for turning slab into hot-rolled coil have soared because of higher energy costs. As a result, some mills have prioritised slab rolling and sales over coils, to avoid paying such costly gas prices. HRC producers surveyed by Argus say conversion costs are now €150-170/t, with gas and electricity accounting for around half of this — typically energy is 25-30pc of the conversion costs, two producers said.

By Colin Richardson