Geopolitics, energy costs, shifting trade flows put Italian slab, flat steel imports in focus

Global geopolitics and economic sanctions have European steel rerollers looking for alternative sources of slab, forcing a persistent and long-term adjustment to trade flows that has decoupled the region from its traditional dependence on CIS area supply.

To capture the result of the transformation in steel slab supply chains, S&P Global Commodity Insights launched a new steel slab CIF Italy assessment, effective Sept. 2.

Russia's invasion of Ukraine in February and resultant EU economic sanctions against Moscow have almost entirely stopped slab exports from the Black Sea. While semi-finished products from Russia are not subject to sanctions, traditional suppliers to Europe have been affected by sanctions against companies and individuals.

Of all the Russian slab exporters only Novolipetsk Steel or NLMK – unimpeded by sanctions – has continued to deliver slab to the EU, using exclusively non-Russian owned vessels. The producer has focused on shipments to affiliated rolling mills in Northern Europe and to some buyers in Central Europe, limiting its presence in the spot market.

Ukraine's Metinvest has limited ability to export material, with military actions in the country disrupting production and blocking access to ports. The producer has only delivered small volumes of steel by rail to Central Europe with a subsequent portion routed through Baltic Sea ports. Metinvest's Italian assets responsible for rerolling plate and coil have relied on the spot market for slab supply, predominantly from Asia.

Heavy plate production in Italy is represented by Marcegaglia, Metinvest Valsider and Trametal, NLMK Verona and Officine Tecnosider. These producers do not have steelmaking capacities in Europe, and they had to urgently switch to semi-finished supply from India, China, Indonesia and Brazil, among other spot suppliers, following the disruption of supply from Russia and Ukraine.

As the international supply from Black Sea ports within steelmaking groups has almost entirely stopped, the majority of slab in Italy now trades on a spot basis. Trade patterns are largely unchanged and rerollers continue to book bigger slab volumes twice a month.

Russian mills have been focused on slab trade to Turkey as access to other more traditional destinations have been blocked by sanctions.

Due to these factors and volatile freight rates, export slab prices from the Black Sea are no longer viewed as a benchmark by rerollers in Europe. In addition, skyrocketing energy prices have increased rerolling importers' needs for a clearer import benchmark for semi-finished products to clarify the composition of production costs.

Italian rerollers have had to pay substantially higher prices for Asian slab in March to April to fill the supply gap. The lead times for Asian material, however, have been significantly higher in comparison to traditional slab origins. The combination of these two factors has resulted in production cuts in the second quarter and consequently contributed to the sharp rise in heavy plate prices.

Prices for domestic heavy plate in Italy peaked at Eur1,810/mt ex-works April 1.

European heavy plate prices have since declined – reaching Eur925/mt ex-works on Aug. 26 due to supply recovery and demand drop after distributors stockpiled on concerns about future availability and end-consumption slowdown.

At the start of September, Italian rerollers have pushed official offers up to Eur1,050-Eur1,100/mt ex-works, indicating a degree of price recovery.

Hot-rolled coil imports

Despite changes in the European market caused by sanctions against Russian finished steel products and the significant reduction of supply from Ukraine, as well as the introduction of export duties for steel in India, South European buyers continue to rely on imported hot-rolled coil.

The number of buyers in South Europe not affiliated with steelmakers has traditionally been higher and this situation has not changed despite the toughening of EU trade measures over the past few years. Location also makes delivery by sea easier in comparison to Northern Europe, where importers have to pay higher transportation costs.

Imported volumes into the South European market are typically higher.

A mill in southern Italy has been operating at significantly reduced capacities in the past couple of years. Relevant portfolios and volumes have as such been limited. Due to its location the mill traditionally competes with overseas suppliers with its volumes now largely substituted by foreign imports.

Although Russian and Ukrainian coil has disappeared from the South European market, import material has filled the gap – including of Japanese, Indian, South Korean, Taiwanese and Turkish origins. Anti-dumping and safeguard measures have not significantly affected trade flows, and sanctions are unlikely to impact the supply preferences of South European buyers.

Italian pipemakers have also traditionally been more able to alternate between domestic and import supply due to their required specifications of hot-rolled coil.

European steelmakers, including Italian mills, have increased HRC offers to Eur800-Eur850/mt for ex-works, motivated by rising energy costs.

Buyers have not accepted the increase yet, but competitive imports are cited among the key factors that might prevent Italian and Spanish price recovery. In Northern Europe, located farther from main ports, the pressure of import HRC prices is weaker due to a higher number of domestic producers.

In August, Italian steelmaker Arvedi stopped all operations at its Cremona plant for about five weeks. Acciaierie d'Italia was reported to have halted production at two of its three blast furnaces. The country's rerollers have also taken longer summer maintenance breaks. As a result, the number of HRC offers and transactions from the mills dropped to close to zero last month.

Meanwhile, overseas suppliers remained active in the Southern European market, adjusting HRC offers and making deals in settling another benchmark.

To address this, S&P Global has increased the frequency of its Italian HRC import assessment to daily from monthly, effective Sept. 1.