Europe HRC spread contracts 19% in June on sharply lower steel prices

The spread between European hot-rolled coil steel and raw materials prices in June contracted sharply to start to test steelmakers’ profitability, narrowing 19% from May as spot steel prices and demand weakened further.

HRC prices continued to decline in June, at a faster pace, in their second consecutive monthly decline, according to a July 3 analysis by S&P Global Commodity Insights.

The Northwest Europe HRC steel to raw materials spot spread narrowed to average Eur396/mt ($428/mt) in June, from Eur490/mt in May, according to S&P Global estimates.

The euro weakened to average $1.08 in June, affecting overall higher costs in dollar-denominated raw material imports.

The Northwest Europe HRC spread averaged Eur470/mt in the second quarter, up from Eur421/mt in the first quarter. However, the spread was weaker than the Eur520/mt average of 2022 and Eur636/mt level in 2021, during which several strong periods of steel pricing and demand coincided with tighter market production and availability with orders. The Northwest European HRC spread remained well below a peak of Eur858/mt seen in April 2022.

The EU steel industry’s pig iron production in May was 10.9% lower year on year, affected by planned and unforeseen stoppages at blast furnaces in Western Europe, according to analysis using World Steel Association data. ArcelorMittal had blast furnace units at Dunkirk, France, and Gijon, Spain, offline unexpectedly for checks through into June.

Lower iron and steel output in the region contributed to limiting spot steel availability in various grades, even with a weakening in downstream demand and restocking.

Turkey’s pig iron output in May recovered strongly from April, to be little changed year on year, as blast furnaces returned to stronger operating rates following earthquake interruptions and checks in southeast Turkey.

S&P Global tracked inputs using major steel feedstock cost references, including a basket of iron ores with high-grade fines, lump and pellets typically consumed by regional blast furnaces in Germany, France and other regional EU markets.

HRC prices

In Europe, Platts, part of S&P Global, assessed HRC prices at an average of Eur688.86/mt ex-works Ruhr in June, down 11.2% from May, and at Eur680/mt ex-works Ruhr on June 30.

Iron ore import prices in China — used in global contracts — in June rose to average $112.57/dry mt CFR China for benchmark Platts IODEX 62% Fe fines, up 7.1% from May.

Spreads between 62% Fe and 65% Fe fines contracted further in June to $11.28/dmt.

Spot lump ore premiums in China fell further in June, assessed at 10.79 cents/dmtu on average. The lump premium was equivalent to about $6.74/dmt for 62.5% Fe grade, down 25% from May.

Platts assessed the Atlantic blast furnace contract pellet premium in June at $47/dmt, up $1 from May, based on premiums applied to 62% Fe fines index terms. The assessed premium tracked market data, with a range of settlements and offers, and delayed second-quarter contract premium settlements in some cases due to negotiations, according to S&P Global.

Coking coal prices on a delivered net forward basis into Rotterdam in June were little changed after declines in global seaborne pricing earlier in the year.

Premium Low Vol HCC prices in June held at $243.54/mt CFR Rotterdam, marginally lower than May’s average. EU steelmakers were restricted from buying Russian pulverized coal injection and coking coal, as well as met coke, which contributed to stronger demand for Australia and North American coals as stocks of Russian materials built up in 2022 are worked down.

The majority of HRC produced in Europe is from integrated mills using iron ore and blast furnace production, rather than typically lower emissions-intensive electric arc furnaces. Italy’s Arvedi and ArcelorMittal’s Sestao plant in Spain produces flat steel via EAFs.

Interest in lower emissions steelmaking and marketing has led to some regional mills more focusing on adapting raw materials in some cases to produce steel using more ferrous scrap, metallic iron products, pellets, switching fuel mixes and maximizing energy transfers through the works.

A raw materials buyer noted a preference to maximize pellets even with higher premiums, considering EU carbon prices and plant configurations compared with options, such as greater sinter output and usage with the effect on met coal consumption.

Regional northern European shredded scrap prices fell to Eur350/mt on a delivered basis in June, down 4.8% from May. The decline followed weaker steel prices in June, along with persistently low scrap export price indications for Turkey and other markets compared with earlier in the year.

S&P Global’s Europe HRC-to-raw-materials price spreads are indicative operating margins that do not account for inland logistical costs, power, natural gas or other blast furnace and steelmaking inputs, such as ferroalloys, anodes and refractories. Costs to operate sintering and coke plants are not included.

Typical operating breakeven levels at regional blast furnace mills may come under further pressure from higher energy, carbon permit and logistical costs.

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