European energy woes unlikely to significantly boost US steel exports

Rising energy costs and shrinking steel production in the European Union have some steel producers in the United States considering the possibility of increased exports to the EU this winter

“There’s no way of knowing what may happen in Europe if [Russian president Vladmir] Putin shuts off the gas flow,” a US producer source said. “Steel production over there would definitely be affected. Maybe they turn to us to fill in some holes.”

While it’s an opportunity that looks good on paper and sounds reasonable in a Monday morning steel meeting, most analysts agree it’s unlikely a significant uptick in US exports will transpire.

Even if EU steel mills are forced to dramatically cut back on production due to a decrease in Russian gas imports, it’s the demand part of the economic equation tossing up a roadblock for US steel to factor into EU plans.

“There is plenty of spare capacity globally, and Asian countries would be a more cost-competitive option than the US for steel imports,” Fastmarkets’ European analyst Paolo Frediani said. “Besides, high energy prices in Europe will affect steel-consuming sectors as well as the steel industry, to the point that we expect European domestic HRC [hot-rolled coil] prices to remain lower than US domestic HRC prices this coming winter despite record-high energy costs.”

European steel buyers have already started turning more of their import focus to Southeast Asia with Indonesia committing to send steel material to Germany and Poland — as well as to Turkey.

Fastmarkets calculated its daily steel hot-rolled coil index domestic, exw Northern Europe at €770.00 ($764.46) per tonne on Wednesday September 7, up by €6.67 per tonne compared with €763.33 per tonne on August 31, but down by €55.83 per tonne from €825.83 per tonne on August 7.

In the US, Fastmarkets’ daily steel hot-rolled coil index, fob mill US was calculated at $39.78 per cwt ($795.60 per short ton) on Wednesday September 7. US HRC pricing has been rangebound between $785-830 per ton since July 28.

Production reductions

European steelmakers continue to announce planned outages this fall and have begun to significantly reduce steel output due to those high energy costs and raw material prices amid a weak steel consumption environment.

ArcelorMittal, the largest steelmaker in the world outside of China, announced on Friday, September 2 it was shutting down operations at blast furnaces in Germany and France.

“In a deteriorating macroeconomic context, ArcelorMittal is affected by the sharp slowdown in demand on the steel markets,” the company said. “In addition, the rise in energy and CO2 costs is degrading our competitiveness in the face of imports from outside Europe, as well as exports.”

Production had already shown significant declines in the EU, as well as in the UK and Turkey, in July. It’s expected that downtrend continued in August and could accelerate September-December.

July steel output in the EU was down 6.7% year on year to 11.7 million tonnes according to the latest figures from the World Steel Association. In the “Europe, other” category, which includes the UK and Turkey, production of 3.5 million tonnes in July was down 16.5% year on year.

US producers experiencing similar high-energy costs, albeit on a smaller scale, have noticed those EU production declines and have considered exports as a possibility, sources said.

Unfortunately, it appears the EU could be headed for an economic recession, transitioning into much more of a steel demand problem rather than a supply issue.

“Maybe I’m crazy, but I’m starting to get a bad feeling that this could turn into the worst global slowdown we’ve seen in a long, long time,” the US steel producer said. “I just can’t see a reason for any of this to be good for steelmaking. Some at my company do, but I can’t find it.”

Exports by the numbers

People considering export options are obviously trying to find those diamond-in-the-rough opportunities — and some may eventually present themselves — but the US has never been a massive steel exporter.

US steel exports have ranged over the course of the past 10 years, from 13.1 million tonnes in 2012 to 6.4 million tonnes in 2020.

Canada and Mexico, for obvious geographical reasons, have been the only two countries where annual US steel exports can be tabulated in millions of tonnes instead of thousands of tonnes.

The US exported 3.71 million tonnes of steel to Canada in 2021 and 3.69 million tonnes to Mexico. China (43,431 tonnes), Brazil (36,239 tonnes) and South Korea (31,895 tonnes) were the next three most significant US steel destinations.

In Europe, the United Kingdom (17,426 tonnes), Italy (17,203 tonnes) and Germany (12,564 tonnes) received the most shipments of US steel in 2021.

I would say that while there may be a chance for US exports to Europe, I doubt it will be substantial due to the difference in price between the US and rest of the world
Fastmarkets’ US analyst Kim Leppold

“I would say that while there may be a chance for US exports to Europe, I doubt it will be substantial due to the difference in price between the US and rest of the world,” Fastmarkets’ US analyst Kim Leppold said. “US steel prices, compared with global competitors like Turkey, South Korea, Asia or Latin America, remain high and less likely to compete for sales.”

Julia Bolotova contributed to this story.

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