Between the anvil and hammer: Italian re-roller margins squeezed

The European steel industry has recently been trying to increase the price of flat products, but this might not be enough to ease the pressure on Italian plate producers.

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Italy has just one integrated plant producing plates, which is Ilva’s troubled 11.2 milion-tpy plant in Taranto, but its production of plate is minimal. 

Most steel plate in Italy is produced by re-rollers in the north, mainly based in Genova, Verona and San Giorgio di Nogaro, on the outskirts of Udine.

These re-rollers are heavily dependent on imported slab, mainly from Ukraine.

And with 40-50% of all semi-finished products used for plate production in Italy coming from Ukraine, this has recently put Italian re-rollers in a challenging situation, one source in the Italian market said.

Ukraine's biggest steel producer, Metinvest, which supplies slab to Italian re-rollers Trametal and Ferriera Valsider, has suspended foreign orders for October delivery after military action in the east of the country created several production and logistical problems. 

As a consequence, a slab shortage in the market means that export prices from the CIS are on the rise.

The export price for slab from CIS countries went up from $470-480 per tonne fob Black Sea on August 11 to $485-490 on August 18, then to $485-495 on September 8, and then $490-495 on September 15. 

The effect of this increase has been amplified by a euro/dollar exchange rate that is unfavourable to imports.

And despite a slight upturn in the past seven days, the euro has been weakening against the dollar throughout the summer. On September 16, €1 was worth $1.2944.

In these conditions, a second source said, Italian re-rollers are unable to produce plate with profitable margins.

At an average freight cost of €25 ($32), the price of slab imported from Ukraine or Russia will range between €400-410 ($518-531) per tonne cfr port of Ravenna or Trieste.

Additional costs for transport and transformation amount to roughly €90-100 ($116-129) per tonne, including freight costs from Ravenna or Trieste to Verona or San Giorgio di Nogaro, which brings the final cost of making the plate is €490-510 ($634-660) per tonne.

Such production costs are unsustainable for all Italian players in the current market as, despite the €20 increase reported over the past three weeks, the price for commodity-grade heavy plate in Southern Europe is still €490-500 ($634-647) per tonne ex-works. 

And it is still unclear if the recent increase will be accepted, with the Italian market still plagued by challenging economic conditions and persistent weak demand.

At the same time, Italian producers cannot have access to the German market, as freight costs are high – about €50 [$65) per tonne – and the spread between prices in the north and south of Europe is not enough to compensate.

So the outlook is gloomy. And the Italian plate industry will need to find a new supplier of semi-finished products.

“Everybody is on the move to try to obtain slab,” the second source said. “They are trying to purchase downgraded slab, because they cannot afford the premium slab from Brazil or Northern Europe.”

Brazil saw its exports increase by 15.5% year-on-year in August, but there has been no evidence of material being shipped to Europe.

Although falling steadily over the past six months, from an average price $520 per tonne fob on March 14, the export price of slab from Brazil was still $485 on September 12 – still too high to compensate for Italy's lost supplies from Ukraine.

However, given the performance of the Brazilian economy, the second source said, they may start to find it profitable to start supplying slab to Italy.

Otherwise, Italian re-rollers will soon find themselves between a rock and a hard place. Or, as the Italians say, between the anvil and the hammer.

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