Fall in Ilva’s HRC output could help raise domestic prices, sources say

Reduced steel production and delayed deliveries from Italian steelmaker Ilva will support the rise of Southern European domestic prices for hot-rolled coil (HRC), market sources have told Metal Bulletin.

Ilva has lowered its HRC output in recent months due to instances of industrial action and technical problems with its equipment, according to sources. These problems have led to tighter supplies of the flat steel product in Italy.

“At the moment, Southern Europe is lacking 2-3 million tonnes of commodity-grade coil from Ilva,” an Italian distributor said.

“The situation with Ilva has been supporting the rise of domestic prices. Although it is not the only reason [behind the price rise], if Ilva’s coil output started to recover, the price rise would not be that sharp,” he added.

“Output is very poor at the moment. They have basically lost a month [of HRC production],” one buyer said.

Ilva is expected to produce less than 5 million tonnes of crude steel in 2018, according to market participants, with the company’s overall volumes for 2017 believed to be around 5 million tonnes.

Ilva did not respond to requests for comment from Metal Bulletin about its steel output or deliveries at the time of publication.

Trade defense to aid prices
Ilva’s reduced activity will combine with the protection from imports provided by EU trade defense measures on HRC to allow other Southern European producers to achieve faster price increases, compared with other European regions, according to market sources.

Overseas sources of HRC became limited after the European Commission (EC) imposed definitive anti-dumping duties of 18.10-35.90% on HRC from China in April 2017, and set fixed charges in the range of €17.60-96.50 per tonne as a definitive trade defense measure on imports from Russia, Ukraine, Iran and Brazil in October of last year.

Metal Bulletin’s weekly price assessment for domestic HRC in Southern Europe rose by €5-10 per tonne to €530-545 ($659-677) per tonne ex-works on Wednesday January 24. The assessment reflected transactions reported in the market.

By the end of this week, Italian mills had pushed their HRC offers up to €540-550 per tonne ex-works, and this is likely to be reflected in transactions within a week, Metal Bulletin understands.

According to estimates from Metal Bulletin Research (MBR), Ilva’s share of Italian flat steel production has been recovering strongly since 2015, partly because it has been undercutting the market.

The company lost €39 of revenue per tonne of material shipped in 2016, for example. That was the year when most of its competitors were swinging back into profitability, according to Marina Maliushkina, senior analyst at MBR.

“Without Ilva and the cheaper imports with which Ilva traditionally aligned its offers, European prices are bound to rise more strongly than usual in this seasonally strong time of year,” Maliushkina said.

The absence of Ilva from the market for HRC makes possible a price rise of €25 per tonne, she added. This is more likely to be achieved because German and French suppliers - whose prices are usually higher than average, and which already have a 29% share of Italy’s import market for re-rolling HRC and a 32% share in thicker coil and plate - should take the chance to increase their market share, she said.

“This means that supply disruptions at Ilva will have implications not only for the Italian market, but also for the wider European market, with tighter supply [likely to raise] flat steel prices across the region,” she added.

Delivery delays
Ilva has experienced delays in certain coil deliveries because of technical problems in recent months, market sources told Metal Bulletin.

“Ilva has delayed shipments of material - some customers have not received HRC that was supposed to have been shipped in November,” an Italian trader said.

“Internal production planning is a big problem at Ilva. It struggles to direct flows of HRC to cold-rolling and galvanizing lines,” the Italian distributor said.

“Ilva is rather unreliable at the moment. It does not mean that it will not deliver material that is ordered, but the delays and the lack of certain quality coil is not a surprise for anyone,” a second Italian trader said.

Technical issues were being seen at Ilva plants because some machinery required maintenance but the company was not able to service the affected lines due to a lack of investment and delays in the proposed takeover by ArcelorMittal, sources said.

“There has not been enough maintenance work done at the plant for the past couple of years, so there are some production issues at the mill. Ilva is not able to produce certain qualities of coil and it trades only commodity grades,” the distributor added.

Instead of focusing on HRC, Ilva has been concentrating its sales on coil with higher added value, such as hot-dipped galvanized coil (HDG) and cold-rolled coil (CRC), sources said.

“A lot of modernizing has been postponed, regardless of the trade union issues,” the buyer said, adding that the people currently in charge of Ilva’s operation were reluctant to take decisions before progress was made in the proposed ArcelorMittal takeover.

Workers belonging to the Fiom-Cgil trade union blocked steel production activity for several days at Ilva’s Cornigliano plant in November on concerns about employment proposals set out by the ArcelorMittal-led consortium which has agreed to buy the company.

ArcelorMittal would not comment on the production problems at Ilva at the time of publication.

Ilva only managed to continue steel production in January after local politicians opted to suspend a precautionary request that the company’s plant at Taranto, in southern Italy, be closed because of their opposition to proposed environmental reforms.

Market participants believe that local authorities will halt their appeals for a production stoppage at Ilva after the political elections scheduled for March this year.

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