European steel market to face increasing pressure: S&P Global analyst webinar

The European steel market is facing increasing pressure from weak demand, market protectionism and persistently high iron ore and coking coal prices, analysts from S&P Global said in a webinar this week.

While steel capacity curtailment is under way, with a 4.2 million mt/year production cut announced by ArcelorMittal, this may be insufficient to accommodate more gloomy scenarios, and more players can be expected to reduce production, said Elad Jelasko, director, credit analyst (commodities) at S&P Global Ratings on the webinar.

“The question is will this be sufficient to accommodate current softness? …Our view is it won’t be enough to compensate” the market weakness,Jelasko said.

Liberty Steel and US Steel have also announced production curtailments at some European steelmaking facilities in recent weeks.

Recovery of the European economy is slowing down, the automotive industry is set to contract in 2019, and there is a potential relocation of car lines to Japan, said Jelasko, adding that friction is present in current trade negotiations between the US and Europe, particularly in the area of automotive trade. Steel demand in Europe is to increase by only 0.3% this year, with “a fragile recovery of up to 1.2% in 2020,” he said.

In addition, “there is no evidence” that the European Commission’s import safeguard measures are contributing to the European market, while thehike in Co2 certificate prices is also proving problematic for steelmakers, Jelasko said.

European steel market prices have suffered downwards pressure for months amid global steel overcapacity and growing import levels, which have recently grown to account for nearly one quarter of market consumption.

“ArcelorMittal has only limited headroom to accommodate the softer scenario prices,” Jelasko said. “However, a BBB-/Stable rating on ArcelorMittal has been maintained on its commitment to debt reduction.”

PROTECTIONISM SEEN DISRUPTING GLOBAL SUPPLY CHAINS Jelasko, together with S&P Global Market Intelligence senior metals and mining research analyst Max Court and MI Pangiva Supply Chain research analyst Chris Rogers all noted protectionism in steel markets has complicated market scenarios globally.

“There is increasing evidence of disruption to markets caused by increased protectionism,” said Court.

Widespread protectionism in steel markets triggered by the US’ introduction of Section 232 steel import tariffs in March 2018 “is affecting in general iron and steel supply chains,” according to Rogers. “Global supply chains are being disrupted by trade war.”

Source: S&P Platts