Hit by soaring energy bills, European steel mills are now passing on these costs to their customers via higher product prices, multiple market sources told S&P Global Platts Oct. 8.
Confirmed surcharges so far are between GBP25/mt($37/mt) and Eur50/mt ($58/mt), while unconfirmed price increases stretch up to Eur80/mt.
Major steelmaker ArcelorMittal confirmed Oct. 8 it had sent a letter to customers advising of a Eur50/mt electricity surcharge on new orders for European long products prices, while another long products producer active in various European nations has boosted prices by Eur80/mt, according to informed sources. British Steel confirmed a temporary energy surcharge of GBP25/mt and a temporary transport surcharge of GBP5/mt.
"European long steel mills' production costs could be Eur70-80/mt higher, but most are not really offering material right now as all are focusing on the cost of production," a UK trader said. "I expect semi- and finished steel products to be higher price-wise for sure, but I'm not sure about ferrous scrap as yards may not have the luxury of increasing prices as much when mills hiking prices more on energy costs. Of course, demand for higher yield scrap will be more but for HMS-only cargoes, I don't expect so much."
One market source in the Benelux region told Platts: "Mills are under a lot of pressure from high transportation and energy costs, and it is severely hurting their production. From what I hear, currently, transportation and energy costs are translating into a total increase of around Eur50/mt in prices for steel products. But I don't know if mills are going to incorporate this increase in one go or in steps," he said.
The source noted that producers Celsa and Beltrame are also indicating that long steel products' prices might increase soon, but that the surcharges haven't yet been imposed "because customers are being very careful. They think prices are too high and expect them to come down in the near term." The source expects long steel product prices to gain next week.
Celsa and Liberty Steel Group had no immediate response to Platts' queries on potential surcharges Oct. 8.
British Steel stated: "Energy and transport prices have significantly increased throughout the year and continue to do so, reaching levels we can no longer absorb alone. Due to these exceptional circumstances, and to cover a small part of these extra costs, we've been left with no option but to introduce temporary energy and transport surcharges on all new orders from 1 October 2021. The charges will be reviewed on a regular basis.
"We'll keep lobbying the UK Government for action on these critical matters and remain focused on maintaining normal production and delivering the products our customers want when they want them," the company said.
Northwest European domestic rebar prices fell in the week to Oct. 6 as mills continued to struggle with high energy costs and customers restricted their purchases to the minimum necessary.
Platts assessed TSI Northwest Europe Rebar at Eur772.50/mt ex-works Oct. 6, down Eur17.50/mt week on week.
"We'll definitely account for the energy inflation in our pricing but right now on the fragile market it's very difficult to move prices by new surcharges considering that demand is very poor," an Italy-based mill source said. "The trend is definitely there but it should not have a strong influence during the downtrend."
The source added that once the market reaches the bottom in prices, carbon surcharges will become imperative to the new mill cost structures.
AM: 'no option but to recoup costs'
ArcelorMittal said in its letter to customers, dated Oct. 6, that considering the magnitude of recent energy price increases, "it is no longer possible for ArcelorMittal to continue to absorb these costs alone.
"Under these circumstances, we are left with no option but to recoup at least a part of these costs via a surcharge of Eur50/t, to be applied to all new price agreements," AM said. "This will be withdrawn as soon as energy prices come back to the normal levels."
A company source noted that the surcharge is applicable to its European Long Products business as the electric arc furnace route is more exposed to energy price rises than the blast furnace route.
Amit Sengupta, chief marketing officer, ArcelorMittal Europe Long Products, explained to his customers in the letter that energy prices, both gas and electricity, have increased exponentially to reach record levels all over Europe.
"During the whole of September, electricity and natural gas prices remained at record levels. Currently electricity prices are in the range of Eur160 to Eur200/MWH compared to a normal rate of Eur55," he said. "Natural gas prices are more than Eur100/MWH compared to a normal price of around Eur20/MWH.
"Electricity and natural gas are increasing the cost by more than Eur120/mt of steel," he said. "What is worse is that the futures in gthese commodities indicate that prices will go up even further."
Another market source told Platts that he considered the ArcelorMittal increase is based on energy prices of Eur160 -200/MWH but that "the real price is over Eur300/MWH".
In addition to the direct cost increases, ArcelorMittal said that it is receiving demands for surcharges from suppliers of ferroalloys, an energy-intensive industry, and lime. In addition, carbon prices alone are now contributing Eur62/mt to costs: these have leapt from Eur33/mt at the start of the year to some Eur64/mt currently, it said.
Source: S&P Platts