In the history of All Steels, we have arguably just witnessed the longest sustained period of extremely weak demand and continuous falling prices. However, all cycles eventually bottom out, and, to borrow a political term, the green shoots of recovery are now becoming visible.

It appears that most market players have finally reduced their stock levels to the minimum operational requirement, just as steel mills are realising that they can no longer endure any further losses. Throughout the week, many steelmakers have hinted at intentions to raise prices, and as of Friday night, ArcelorMittal has announced a £30 per tonne price increase on sections in the UK, with immediate effect. The timing of this increase seems strategically logical as they press on towards the summer shutdown period when orders are less essential. Moreover, with many stockholders having to continually buy to replenish low stocks they are in no position to hold a standoff position. The price increase should therefore be successful, and we really can’t see any reason why other EU producers will not follow suit.

The ArcelorMittal announced increase is probably the shock the market needs as stockholders and dock stock sellers have found themselves in a rut of continually chasing prices down, but this bounce must change mindsets. The increase is sufficient not to be ignored and if on-sale participants follow the golden rule of not selling below replacement costs an immediate price hike by the trade should be evident from the start of next week especially if the other mills follow the ArcelorMittal lead. 

Steel Manufacturing Costs
ArcelorMittal reports that the impetus for change has been driven by input cost pressures. While many of the fundamental elements influencing steel manufacturing costs have been declining, what is noticeable is that the reduction in steel prices has exceeded this decline in base material costs. What is also significant in recent weeks, is that the anticipated drop in scrap prices has not materialised. However, the development that seems to have caught producers really off guard is another surge in electricity prices, especially in Spain, a key hub for Europe's production of popular sections. Besides the unexpected rise in Spanish energy prices, there are currently no other significant base cost factors driving steel price inflation. However, the short term expected decrease in scrap prices hasn’t materialised, and early indications from both Turkey and the EU are actually suggesting a price uptick. 

Trade Balance 
Historically, supply and demand have been the primary drivers of steel prices, and currently, demand is alarmingly low. Inflation and the resulting high borrowing costs have certainly stifled the economy, with the construction sector being one of the hardest hit. Anecdotal evidence also indicates that participants across the supply chain have been reducing their stock levels in response to lower demand, which has likely exaggerated the perception of weak demand. Currently, all economic indicators suggest a recovery is on the horizon. Just this week, interest rates were cut in both Europe and Canada, and in the UK, there are indications that a Bank of England base rate cut is imminent. One of the most encouraging signs for the steel industry is that the latest UK Construction Purchasing Managers’ Index (PMI), shows that construction activity increased at its fastest pace in two years during May 2024. Interestingly, the latest Steel Insight Report from MEPS forecasts promising prospects for the UK steel beam market, presenting several compelling arguments for an impending surge in demand.

We're all aware of how a shift towards positive sentiment can impact buying activity. We are also in an environment where the mills desperately need price increases, and the industry is coming from a very low stock base. Any, widespread panic buying to pre-empt anticipated price hikes, could therefore be self-fulfilling and lead to a significant surge in prices. 

Introduction of a UK Carbon Border Adjustment Mechanism (CBAM)
CBAM is scheduled to be introduced in the UK on the 1st of January 2027. However, there is some expectation that the UK will have to align with the EU’s earlier implementation date of 1st January 2026. The system aims to promote global decarbonisation by imposing a tax on imports, thereby equalizing the carbon costs borne by UK manufacturers. The mechanism for charging and implementation in the UK is currently under consultation, jointly conducted by His Majesty’s Revenue & Customs (HMRC) and His Majesty’s Treasury (HMT). Although we are still in the design and administrative phase of the charging mechanism, it is clear that CBAM will have significant implications for international trade. The varying tax rates from different countries and suppliers will substantially alter imported prices, leading to a notable upward shift. Given that we are potentially only 18 months away from implementation, inevitably, stockists in the UK and EU will soon recognize the importance of stockpiling to capitalize on the benefits created by the scheme. This will likely create an artificial environment of strong demand, and as we know, a buying rush can significantly influence mill steel prices. Consequently, it is highly possible that steel price inflation could be as aggressive as the deflation we have experienced over the past 12 months. 

Safeguard Quotas
The combination of weak demand and destocking in the long products sector has rendered Safeguards irrelevant, as large volumes of unused quotas have continually rolled over each quarter. However, starting from 1st July 2024, Safeguards will reset, and any unused quota tonnage will be reset to zero. All Steels believes that as buying activity picks up due to restocking and economic recovery, Safeguards will become a significant factor again, posing a considerable challenge for importers who will likely try to pass the risk onto stockists. It is crucial for everyone to be aware of this overlooked tax, as exhausting the quota will result in an additional 25% duty charge. In the EU, there is also a technical change affecting HRC quotas, where suppliers from developing countries (predominantly Asia) that are grouped in the ‘Other Country’ category will each be restricted to a 15% cap on total supply. It is believed that some countries already have shipments en-route for the quarter commencing the 1st July, making duties unavoidable unless any grace period is granted. The EU commission is also reportedly looking at giving some of these countries their own separate quota allocation. Due to this uncertainty, many traditional 'Other Country' suppliers have refrained from making further offers. Although All Steels does not trade in flat-rolled products, any developments in the HRC market affect the hollow section market, as HRC is the base material. This change in quota rules is likely to exert upward pressure on the prices of EU-manufactured hollow sections.

Conclusion
Given the depressed market we’ve endured for the past 12 months, it’s hard to imagine demand strengthening and prices rising. However, the facts suggest that we have reached a turning point for a potential rebound in steel prices. While many buyers are likely to remain cautious, this should help to prevent a price surge caused by panic buying but the indications of an uptrend in steel prices are undeniable and appear inevitable.

It's that time of the year again when we just love to get into the festive spirit, as soon as is respectable, by decorating and lighting up the All Steels Christmas Tree at our Thirsk Head Office!

Let's hope we have seen the end of the recent blustery weather conditions this year so that our wonderfully adorned tree stays looking its absolute best for our team and our fellow Thirsk neighbours to enjoy throughout the coming weeks! 

All Steels’ Current UK Steel Market Evaluation Update – 9 January 2023

It’s currently extremely difficult to determine whether it’s going to be a good year for the steel industry or not with so much economic gloom in the media. For all steel mills, traders and distributors, falling steel prices are always the most damaging and difficult to negotiate. However, it seems we have already reached the bottom of the current downward cycle, although there are still grounds for some caution with steel prices being approximately double the rates of two years ago.

Also, as we all know, demand has been extremely weak since mid-September 2022 as everyone became spooked by falling steelmaking raw material costs and a surprising collapse in energy prices. Skyrocketing inflation and no end of industrial strike action also added to the pessimism and steel purchasers just stopped buying. In times of depressed demand, it is always hard to distinguish between the reduction in underlying demand and reduced activity caused by destocking that can massively exaggerate the picture. However, what is certain, is that destocking has been taking place, but we still need to see more data to understand if the point has been reached where stock replenishment becomes a necessity. What we can say from current data is that virtually all steelmaking raw material costs have risen quite dramatically over the last 4-6 week period due to tight availability.

Scrap
Turkey remains the biggest world buyer of scrap and thus the best barometer for price direction. The bounce in price since 16 November 2022 is quite staggering where the increase has now accumulated to $84 per tonne. An established fact is that 1.1 tonne of scrap is required to make 1t of steel so the scrap price movement adds $92 per tonne to electric arc steelmaking costs (£77 per tonne). One explanation for the increase is that the world seems to be tightening up on controls on blocking steel re-rolled from Russian origin billets, slabs and hot rolled coil so this may be a kneejerk rection to such measures. Over the summer months it was known that many Turkish steel manufacturers had turned off their steel making capability in favour of cheap Russian semis so it seems logical for this switch to be reversed. In Q4 the USA made it compulsory for the origin of base raw material to be confirmed on all steel imports and the EU will undoubtedly be considering 2 similar action. In the UK, HMRC has just created new commodity code entities for Russian aluminium billet and slabs that clearly suggests wheels are in motion. We are sure ferrous billet and slab changes will follow. 

Coking Coal
This commodity is dominated by Australian supplies so is chosen as the best indicator of world prices. Again a big escalation in prices was seen from mid-November 2022 but the supercharging of coking coal prices is better understood as this all relates to Australia’s trading relationship with China. It is widely reported that Australia-China relations appear on the mend amid reports that Beijing will allow coal imports to resume for the first time since 2020. In 2020 China introduced massive quotas on many imported goods from Australia due to political tensions but market expectations of a patch up have been on the cards for the latter part of 2022. The immediate expectation here is that Australia will suddenly have access to supply the biggest buyer in the market which naturally gives rise to them having the opportunity to inflate prices. This will be bad news for Indian steelmakers as they have been the biggest beneficiary from China’s trade hostility to Australia. 0.7 tonne of coking coal is used to make 1 tonne of steel so the price growth since 23 November 2022 adds $48 per tonne to BOS route steelmaking costs (0.7 x $68 per tonne). A sterling impact of £39 per tonne. 

Iron Ore
Inflation in iron ore price completes the trio of raw material cost increases to steelmakers. Again, we saw commonality of the upward recovery in prices occurring in mid-November. However, with a large part of this price shift occurring over the long festive period for European countries the changes have been off radar but clearly it is now time to wake up to the reality of a corresponding likely shift in steel prices. The upsurge in iron ore prices from 1 November 2022 amounts to $37 per tonne. In BOS route steelmaking 1.7 tonne of iron ore is used to produce 1 tonne of steel so this cost increase translates to $62 per tonne. In sterling terms this represents £52 per tonne. Current record flooding in the iron ore mining region of Kimberley, Australia that is described as a once on a century event can also only add to tightening iron ore supply and price inflation. 

Energy
The energy market has become extremely complex, with costs varying from country to country, i.e., parties orchestrating variations on capped rates and durations of time that such support will last or will change. Each steel manufacturer will also be deploying different methods of buying. Some buy spot each day, others buy on fixed long term contracts and some operate blended schemes that can be a mix of spot, fixed and hedged. All that can be said is that contract prices generally trend in the same direction. Spot prices have been significantly more volatile with three massive peaks and troughs over the last four months but whichever view you take, prices are significantly higher than pre-covid times. Nevertheless, the current softening in energy prices will be helping steel manufacturers to offset some of the rising raw material costs. However, the conflict between Russia /Ukraine shows no signs of abating and with many intensive energy consuming manufacturers running at a slower pace to reflect poor economic conditions, spot energy prices are perhaps a little misleading. The warmer than normal weather in the EU will also be dampening consumption. Hence, any cold spells or upturn in industrial output would undoubtedly transform into much higher gas and electricity prices. Moreover, it is highly likely following the spring that energy support packages will recede leaving steel manufacturers far greater exposed to higher costs. 

Inflation / Bank Borrowing Rates
For the first time in over a decade higher bank charges have become an important phenomenon with ever increasing costs as we progress into 2023. These are even more punitive when combined with higher steel prices. It is a cost that can be easily overlooked given the pace of change and as a trading business, the cycle on collecting sales cash from the opening of a letter of credit at the time of raising a steel purchase order can easily be six months. Thus, with typical bank interest at 2% above BOE rates, the financing costs can easily add £25 per tonne to transaction costs. Nobody in the supply chain is immune to such an expense that simply has to be recognised. With UK inflation still at a historical elevated level the MPC are likely to push through another rate rise in February and latest market expectations are for UK base rates to peak at 4.25% by the middle of the year. Everyone in the steel industry has to recognise this cost. 

Currency
The US$ / GBP exchange rate ended 2022 nearly 11% lower, its worst year since the Brexit vote in 2016. This added considerable expense to both imported steel prices and raw material for UK steel manufacturers. Even when reflecting on the last four-week period, the GBP exchange rate has weakened against both the Euro and the US$ by a combined average of circa 2% which is adding circa £15-£18 per tonne to import supply. With such a poor economic outlook for the UK and the fact that the country is stagnating, it is difficult to have any confidence in the UK’s overall performance in the short to mid-term so there appears to be no respite from a weak GBP other than it creating better export opportunities for UK steel mills where Safeguard restraints can be avoided.

UK Safeguards
With trade flows slowing down Safeguards are expected to become less of an obstacle but there are a few anomalies here in the UK due to the loss of domestic manufacture. The biggest impact remains the loss of Liberty Merchant Bar and even though we are only in the first week of the new year the Safeguard quota on merchant bar for Turkish imports is already at the critical stage – 558 tonnes remaining available against an opening quota of 12,294 tonnes.  The problems on merchant bar are likely to persist so this is one to watch out for as a potential 25% duty trap, especially on container supply where bonding is sometimes more difficult to organise. Even in a situation where bonding is applied this still causes disruption to supply as deliveries can be delayed by up to ten weeks to allow duty free customs clearance at the opening of a new quota.

Border Force Strikes
At the end of last week, it was reported that disruption at airports could be extended to Dover and other ports within weeks. Officials at the Public and Commercial Services (PCS) union have discussed extending industrial action by Home Office workers to Britain’s major ports. With the Government refusing to meet a 10 per cent pay rise and no cuts to redundancy terms offer, negotiations have reached a stalemate. It is understood that the PCS have a six-month mandate for action, so all that needs to happen at Dover and elsewhere is that they must give the employer two weeks’ notice. The PCS leader Mark Serwotka has previously warned that December’s action was only the “opening shots” of the dispute – threatening a “huge escalation” of action during January 2023. 

General Inflationary Pressures
General overheads are increasing at a rate of knots. New plant and machinery purchases seem to far exceed general inflation but fully understandable given the escalation in all commodities that translate into component costs. Factory and warehousing costs are also increasing whether it be the impact of higher commercial mortgages or landlord higher rental expectations. The truck and trailers that are a vital part of our operational infrastructure are also at extortionate prices and availability remains tight with extremely lengthy lead times on new build. The employment pool also remains constrained, and all employers will be under pressure to deliver salary increase expectations to meet today’s cost of living. As a basket of costs these are substantial and will all have to be funded by higher steel prices throughout the supply chain. 

All Steels’ Conclusion
With demand being so subdued the environment for rapid price escalation just doesn’t look like a possibility but all the inflationary pressures can’t be ignored and with most steelmakers in a breakeven situation at best, prices have to move up by probably a measure of £50-£75 per tonne just to achieve a status quo. At All Steels we are of the belief that steel producers will not take steel prices down into loss making territory as the option of cutting capacity seems to be the new defence. Within the last six months it is estimated the EU steelmakers have taken out circa 20 million tonnes of steel capacity and if more needs to be taken out we are sure that this will be exercised. In such a volatile world, forecasts are becoming increasingly more difficult to calculate but it’s safe to say the conclusions reached here are based on the reality of the factual data reported.

13 August 2022 Update Report

It was the outbreak of war in Ukraine commencing at the end of February 2022 which catalysed huge steel price inflation.  (Ukraine’s immediate closure of its huge steel plants combined with swift, tough steel sanctions being applied on Russia by many of the world’s leading countries naturally created immediate steel shortages).

However, there were many countries that left the doors open to Russian steel supplies, and in Russia’s desperation to keep steel export volumes progressing they crashed prices to irresistibly low levels to attract buyers.  Turkey was a typical example that seized the opportunity to buy cheap Russian semis / hot roll coil and after 3 months such re-rolled product that effectively became Turkish origin supply crashed into the EU at low prices.  The turnaround in this Russian base raw material to hit the EU was surprisingly quick and EU Governments have so far failed to fathom out how to block such supplies although the natural EU and UK Safeguards are starting to prevent a huge deluge of such supplies.  With so many of the Turkish manufacturers turning off their own steel manufacturing in favour of Russian semis / hot rolled coil, the world’s largest scrap buyer (Turkey) massively switched down its purchases of scrap and this action virtually halved the price of scrap at the start of the summer months. 

The charts below clearly illustrate Turkey’s level of support for Russian purchases and the consequential downturn in scrap prices.  (Turkey is used here as an example but the same transition took place in many other countries i.e., Egypt, India, UAE, Vietnam, China, etc).

Product	Jan-Jun 2022 (tonnes)
Billet	732,147
Slab	1,057,232
Hot Rolled Coil	437,814
Scrap	407,588

All products 3,837,265 tonnes

For interest during the whole of 2021 Turkey imported 860,905 tonnes of slab from Russia so imports of this product are running at a circa 250% increase here. 



The volume of Russian imports of all steel products accelerated dramatically in June which coincides with when we saw the downward price pressure start to materialise in the UK.

As many Turkish producers switched to using Russian semis, rather than making their own steel, scrap prices tumbled basically reflecting the reduction in purchases.  (Evidenced in the chart below). 



The Changing Market
Over the course of the current month many of the dynamics that influence steel prices have changed particularly for the UK.  Hence, All Steels’ view is that steel prices will push up during September and availability issues may once again return on certain long products for the numerous reasons expressed below:

Scrap
As Russian base raw material faces more scrutiny in the EU, Turkish producers appear to be making a switch back to more domestic crude steel production and increased buying activity has lifted the price by circa $50 per tonne over the last 7 days.  This change is also starting to push up EU prices so higher raw material costs will become apparent for all EAF steel producers.

Energy
The rising cost of energy has been topical for some time, but the tightening of Russian gas supply is intensifying, and this is now occurring at a period of running into the autumn / winter months when consumption increases.  

Last week the UK natural gas futures broke above the 400 GHp/Thm mark underpinned by prospects of further supply disruption at a time of entering an increase in demand.

Constant heatwaves and consequential record droughts across Europe currently threaten to stop energy shipments along the River Rhine in Germany exacerbating concerns in what is already a tight market.  Russia’s Gazprom continues to cite issues with turbines in the Nord Stream main pipeline constraining supplies to just 20% of normal capacity.

At present the gas pipe channels linking the UK to the EU have been working to full capacity.  The UK has also been using its existing excess regasification capacity to improve more LNG and reselling this as natural gas to the EU.

As winter approaches higher gas prices are a certainty with little prospect of peace for the Russia/Ukraine conflict.  According to Trading Economics’ global macro models their analysts expect that UK Natural Gas will trade at 424.41 GHp/Thm by the end of this quarter and rise to 622.02 GHp/Thm in 12 months’ time! 

Trading Economics Graphical Forecast – UK Natural Gas


Unsurprisingly electricity prices are following the same upward trend, and this is evident from current data provided by Ofgem UK Government data as graphically shown below. 



UK Safeguards
On structural sections new quota rules came into effect from the 1st July which removed some developing nations’ exclusion rights.  Under Quota 058029 the tonnage set for the period 1st July 2022 to 30th September 2022 was 16,716 tonnes.  With Turkey, India and some other ROW suppliers now grouped together the quota on this product category turned critical at the start of August and it is already believed that tonnage bonded in UK ports awaiting clearance on the 1st October will likely result in the Q4 quota being exhausted on the first day of the new period. 

A similar picture exists on merchant bar where excessive supply exhausted the Q3 quota very early and again bonded quantities will likely exhaust the Q4 quota on the very first day of the period. 

Duties on the likes of Turkish and Indian origin products will have high risk exposure to attracting duties.

Port Congestion
The issues associated with port space remain a problem and with more material having to be bonded for lengthy periods to avoid duties the problems will arguably only intensify. 

The other big news this week is that 1,900 dock workers will walk out on strike at the UK’s biggest container port (Felixstowe) between the 21st to the 28th August 2022.  This will result in circa 45,000 containers not being processed and will create backlogs running into the year end with huge demurrage penalties likely to be experienced by importers. With the dockers having already rejected pay settlements above 7% this dispute could be a long-drawn-out affair with even more disruption to follow.  With Felixstowe handing circa 40% of all UK container movements the disruption here will be massive. Whilst such constraints appear in all ports the costs are continually rising and warehousing costs in many ports have increased 8-fold over the past 12 months.

Liberty UK
The outage at many of the Liberty UK steel plants remains an issue and Liberty Merchant Bar PLC has now been out of production for nearly 6 months with no immediate signs of a restart.  Surprisingly, the absence of such a major supplier of merchant bar to the UK market has not really been missed but with excessive Turkish merchant bar imports now likely to trigger duties going forward the product will undoubtedly see an uplift in market prices.

Currency
The devaluation of the £ sterling against the US$ has been significant during Q2/early Q3 due to high recessionary concerns in the UK.  This has been noticeable on All Steels’ new US$ based steel purchases adding circa 12% to our sterling purchase costs on Q4 supplies.

With the media widely reporting economic gloom for the UK and with fiscal intent in the US to keep pushing up interest base rates above those applied in the UK the £ is likely to remain weak for some time. 

Conclusion
We have not included details on all the steelmaking commodities in this report but coking coal spot prices as an example have increased from $188 to $238.50 per tonne over the last fortnight according to Simpson Spence Young.  General inflationary measures and the ever-increasing costs of finance can also not be ignored by steel producers.

Hence, All Steels’ considered belief is that all the fundamentals will put significant pressure on the mills to increase prices shortly.  Moreover, these pressures are occurring at a time when stocks in the supply chain are believed to be moving to very low levels as we approach September so mills will certainly react very quickly on price in added response to increased steel buying activity!

Tube & Wire 2022 in Düsseldorf, Germany!

All Steels is thrilled to be exhibiting all this week at Tube & Wire in Germany. In fact, as a loyal follower, All Steels has participated as an exhibitor at arguably the world’s most significant and best attended biennial trade fair for the steel industry since its inaugural year i.e., back in 2012. 

For All Steels, and our two sister manufacturing businesses namely Bromford Iron and Special Steel Sections, Tube & Wire provides an ideal platform for showcasing our collective wide range of general and niche market steel products in addition to exchanging indispensable opinions and highly valid thoughts with our globally based set of suppliers and customers. 

As always, we are also looking forward to having an opportunity to simultaneously examine the steel industry’s latest technologies, high quality new products and explore new business opportunities etc with other leading steel industry companies also in attendance. 

Please do come and visit All Steels, if you are attending the Tube & Wire international trade fair this week, at our stand in Hall 12 B43.

All Steels’ UK Steel Market Evaluation - 28 February 2022

It is pleasing to see the timely actions of the UK Government in applying tough sanctions on Russia in alignment with other world allies and doing what is seemingly justifiable to support the Ukrainian people. What now looks evident is that the conflict between Russia and Ukraine is likely to continue for some time, and many of our customers are naturally already asking for All Steels’ opinion on what the impact might be for UK steel supplies and prices. Hence, this report will simply address this specific question by providing some clarity on the situation.

UK Direct Steel Imports from Russia, Ukraine, and Belarus
Given the extended sanctions announced yesterday, it looks unlikely that we will see any direct imports from Russia and Belarus for quite some time. We have also included Ukraine here as it is already known that most steelmaking in Ukraine has been put on hold with blast furnaces being banked up to just care and maintenance status. 

It is evident that slab is by far the biggest imported product from these regions and this will be for UK rolling mills to manufacture into HR coil/sheet or plate. It also can be seen that quite large volumes of finished plates are supplied direct to the UK so this would suggest a tightening in supply of plate products and possibly even some short-term disruption to supplies. This logically suggests a general price rise on commercial plate products. Wide universal flats that are also often used as a substitute product for plate are also likely to rise as demand consequentially increases. Supply volumes on rebar and wire rod are also quite significant and supply absence here again should tighten up availability short-term and apply upward pressure on prices. At the bottom end of the spectrum imports on bright products are not that large but some of these products will be bespoke and will possibly cause a headache for some engineering consumers.

UK Indirect Steel Imports from Russia, Ukraine, and Belarus:

Merchant Bar 
UK imports from Turkey are annualising at circa 50,000t but a large part of this merchant bar will originate from Russian / Ukrainian billet /blooms. In 2021 Turkey imported 1.57 million tonnes of billets from Russia and 350 thousand tonnes from Ukraine. With semi supplies currently suspended from both countries this must result in a damaging impact on supplies and as a minimum it must inflate Turkish mill purchase prices from other countries. It is therefore possible that some Turkish imported supplies of merchant bars will suffer some form of disruption and future prices must rise. 
(We should clarify that All Steels’ imports of merchant bar from Turkey are predominantly of Ozkan Steel origin that operate their own steelmaking plant from scrap /iron pellets, so we don’t envisage any supply disruption).

Hollow Sections 
UK imports from Turkey are annualising at circa 220,000t when you include gas pipes and large tubes which makes them by far the largest supplier to the UK of this product type. But like merchant bars many of the imported hollow sections will originate from Russian / Ukrainian hot rolled coil. In 2021 Turkey imported 1.92 million tonnes of HRC from Russia and 1.063 million tonnes from the Ukraine. These imports represented more than 50% of Turkish purchases and with supplies currently suspended from both countries this again must have a damaging impact on supplies and as a minimum it must inflate Turkish mill purchase prices from other countries. It is therefore probable that some Turkish imported supplies of hollow sections will suffer some form of disruption and again future prices must rise. 
(We should clarify that All Steels’ imports of hollow sections from Turkey are all Tosyali Steel origin that operate their own steelmaking plant from scrap /iron pellets and their own HRC mill so we don’t envisage any supply disruption).

EU Imports from Russia, Ukraine, and Belarus
Another indirect impact for the UK will be a tightening in supplies in Europe caused by the starvation of steel that the EU has traditionally imported from Belarus, Turkey, and the Ukraine. EU steel buyers for such products will no doubt be searching the same alternative options as UK buyers so this can only intensify supply from a narrower supply field, and this must result in inflated steel prices.

Scrap
Russia and the Ukraine’s combined exports of scrap total circa 4 million tonnes of which circa 2.5million tonnes is exported to Turkey. Whilst the latter only represents 10% of Turkey’s overall scrap imports it is sufficiently large for other major suppliers to be more bullish on prices. To our knowledge Turkey has not issued any sanctions on Russia but at present it is currently understood that all scrap supplies from the Baltic have been suspended. Some media reports have suggested that US Scrap prices are likely to increase by $30p/t in March because of the Russian situation and whilst this is pure speculation at this time it seems logical that we will see some scrap price escalation. 

Currency
Upon Russia declaring war on Ukraine the £ immediately weakened against the US$ as the foreign currency players appeared to ditch both Euros and the £ sterling, probably due to our closer proximity to Russia and the Ukraine and our higher levels of trade with these neighbouring countries. The movement here was approximately 3 points, which effectively creates a circa £18p/t premium on US$ based transactions, which is typically used on purchases from Turkey. 

UK Russian /Ukrainian Owned Business
To the best of our knowledge only Metinvest/Spartan UK Ltd fall into this category being part of the Metinvest Holdings with a head office based in Donetsk Region of Ukraine. Metinvest is an international, vertically integrated mining and metals company. The group also operates in the EU and the US although its heaviest concentration of companies is based in the Ukraine. It is likely that Spartan UK will be importing slabs from the Ukraine, and this is likely to cause disruption to their plate production. Should any of our customers be buying plates from Spartan it would make sense to call them immediately for clarification on supplies.

Oil Prices
Oil prices have now more than quadrupled since the early days of the Covid-19 pandemic and the actions announced by Vladimir Putin on Thursday caused oil prices to rally even further to a 7 year high of $103.24 per barrel for Brent Crude. This situation is already pushing up fuel prices to record high levels that will have another big impact on road transportation and shipping costs. From our own experience we are already seeing continual increases in our own shipping rates from Turkey. With oil and consequential fuel prices still rising it is difficult to know when we will hit the top of this cost curve, but steel price increases will have to be applied to offset such higher transportation costs, especially on material we import from Turkey. 

Energy
Energy prices were thrown into turmoil on the outbreak of war in Ukraine and this sent the price of gas through the roof. The price of British gas jumped 53% to 326p per therm. Forecasts are suggesting that over the coming months rates could exceed 550p per therm but there is even a bigger concern of gas shortages. In Germany 40% of gas is supplied from Russia and the current heavy sanctions imposed on Russia could result is a backlash with Vladimir Putin cutting off gas supplies to the EU. With no immediate contingencies in place this would have a devastating effect on EU steel production and there would simply be inadequate gas supply to maintain current levels of steel output. With such potential rationalisation of gas, it would also be inevitable that energy costs would rise even more dramatically. Even at today’s new spot prices for energy, steel producers will not be able to absorb such mammoth cost increases so steel price inflation here is inevitable. With such fluidity at present in the energy market it is too difficult to estimate how this situation will translate into steel prices, but we must expect to see significant price increases.

Conclusion
It is the All Steels view that steel price increases over the coming months will amount to somewhere in the region of £50-£100 per tonne based on all the factors detailed in this report. However, if the Russian/Ukrainian crisis deepens further and Russian gas supplies are shut down to the EU, the big issue will purely be the availability of steel rather than the concerns of its price. Hopefully, some of the suggestions of talks between Ukrainian President Volodymyr Zelensky and a Russian delegation will materialise to stall the fighting but news on this potential progress has been slow to be reaffirmed. The coming days will therefore be critical to shaping up the future of steel prices but more critically the state of the world!​

We are delighted to report that All Steels’ Sandra Malecka has very recently walked in the footprints of famed explorers and mountaineers on her successful climb to the top of Africa’s tallest mountain peak ie Kilimanjaro.

As you can imagine Sandra hiked through lush rainforests and alpine deserts, across glaciers by day, and slept closer to the stars than she ever dreamt possible by night! The six day trek, as anticipated, proved to be a very positive life changing experience for sure, but consequently Sandra also very pleasingly raised £5805 for The Prince’s Trust. 

So well done we all say to Sandra on completing such an inspiring, mentally and physically demanding challenge, but whilst also choosing to support the youth charity that is especially dear to All Steels’ heart. 

It is relatively easy to report on current and historical costs of the physical ingredients that drive steel prices but this All Steels bulletin steps over this boundary by making bold predictions on forwarding price direction.  These forecasts are all logically based on analytical trends, sentiment and anecdotal evidence collected from a wide base of trusted industrial contacts.

At the outset of this year, the impact of Omicron created massive uncertainty with such a high spread of infections.  However, whilst this has most certainly curtailed industrial consumption of steel during the early part of January, Omicron aftereffects now appear to be fizzling out, which should allow a steel business recovery.

It is still All Steels’ view that the rapid acceleration of steel prices during January -June 2021 were totally justified as steelmaking costs necessitated such price movement.  When we reflect on the data available however it is clear to see that a lot of the demand during this period was artificial with companies throughout the industry re-stocking from a very low base.  True underlying demand was therefore hidden and very much exaggerated by heavy inter-trade volumes within the stockholding and dockside trading community.  It was this activity that forced steel prices up a notch too far over the summer and by September steel traders and stockholders woke up to this reality, and demand on the mills rapidly diminished causing a price softening.  Much of Q4, 2021 was therefore a period of market correction as the industry tried to rebalance stocks to reflect true underlying demand and we believe it is fair to say that this correction process is still spilling over into Q1, 2022. 

It is also worthy of note that as part of this stock rebalancing process many mills did cut back capacity during Q4 and are still operating at reduced levels, so the supply and demand balance is not too out of kilter, and this is what has helped to avoid a boom-and-bust cycle like historical experiences.  As previously expressed, it is always the supply and demand balance that dictates prices, and therefore we saw rates softening in Q4, but the All Steels current view is that sentiment has largely improved.  Moreover, stocks will get into balance by the end of February 2022 and with the impact of Omicron expected to moderate many of the large infrastructure projects planned for the UK will finally take off. 

As All Steels, we have already seen evidence of steel buying to cover very large rail-related projects coming to fruition, but you can also see from construction media reports produced by the likes of Barbour ABI and Glenigan that the 2022/23 outlook for the construction industry is very strong.  Only this weekend news was released of electric vehicle battery start-up, Britishvolt securing £1.7 billion of funding to build a new factory in the North East that even makes an Amazon Warehouse look small all of which will consume a massive amount of steel to build the new factory.

The forecast for 2022 construction growth is circa 7% largely created by public sector investment.  It is also fair to say that construction was also constrained during 2021 by the general tight availability of building materials so many of last year’s construction projects will spill over into 2022.  Much of the supply flow should improve this year allowing the construction industry to flourish although optimism probably still needs to be tempered as labour availability is expected to remain tight.  Having said the latter industrial buildings in the construction sector which is one of the key focus areas for steel consumption is forecast to grow by a staggering 24% during 2022.

Whilst we are confident that steel buying activity will be strong in the months ahead off the back of the improved sentiment and more imbalanced stock levels many of the steelmaking cost drivers appear to be creating a necessity for mills to increase prices further.  It would therefore appear that we could be on course for another re-run of 2021.  The only variance this time is that a much higher steel price base should avoid excessive speculative buying, and this should logically result in a smoother rising of steel prices rather than the big leaps we experienced last year.

Hopefully, our opening message above gives a flavour of what we should expect but here are some of the updated data on steelmaking ingredients that force mill price changes which reinforce some of the positive sentiment messages already expressed.

Coking Coal
0.7 tonne used to make a tonne of steel
The recent movement in coking coal prices has remained under the radar but the new up spin must start to feature in the coming weeks' steel journals as prices are now at record-breaking levels.  It will be renewed buying activity that has probably been the catalyst for change as Chinese steelmakers return to the market to build up raw material inventories ready to increase production immediately after the Beijing Winter Olympics that concludes on 20 February 2022.

It is also understood that supply disruption currently exists in some of the major metallurgical coal mines.  Trade flows are also being hampered by rail transfer constraints from mines to the ports.  One such example was caused by an explosion at a coal transfer station in the US at the Curtis Nay terminal in late December that is one of the main handlers of this commodity.

The graph below clearly shows the impact for BOS route steelmakers.  Whilst the graph below shows Chinese domestic price movement the more highly transacted Australian seaborne coking coal hit a historic record high of $445 per tonne FOB Australia on Friday after a $15 per tonne daily jump.


Iron Ore
1.7ttonne used to make a tonne of steel
As conveyed in the coking coal section the increased Chinese buying activity will also be the probable cause for the recent push up in iron ore prices and with restocking continuing over the coming weeks, we will probably see little change to the upward price pressure.  This is surprising news for many pundits that were speculating that iron ore would remain in the zone of $80-$100 per tonne although it is perhaps the heavy resumption of steel production planned in China that is likely to have caught the market by surprise.  Such planned growth in steel output obviously questions China’s commitment to environmental improvements.



Scrap
tonne used to make a tonne of steel
Scrap rates in Turkey always provide one of the best barometers for assessing steel prices as the speed of change is always most reactive to sentiment so it provides excellent direction on future steel prices.  The graph below nicely depicts steel price movement through the pandemic industrial recovery, but it is the current month's price bounce that should be spotlighted.  The All Steels view is that this immediate curve would have shown a higher price trend if production output in Turkey had not been constrained by energy issues which are explained below, nevertheless, this upward movement must be one of the early signs of another strengthening in steel prices.



Energy
The cost of gas and electricity remains hot news around the world and whilst we thought the problem to be just a winter spike issue the fundamentals would now suggest that high energy costs are likely to remain firm well into 2023.  There are many reports in the public domain produced by energy brokers and leading utility suppliers to justify the high prices and the table below nicely summarises the factors, reasons and resolution timeframes concerning the UK. 


Further afield in Turkey both gas and electric shortages are so bad that virtually all producers are having to regularly cut output.  In the Izmir region for the week ahead, there are three full days of government-enforced steelmaking closures.

Shipping Prices
The shipping cost of bulk raw materials such as metallurgical coal /iron ore fell away sharply in Q4, but this was understandably a reaction to a lack of raw materials flowing into China during this period as government pressure dictated a cut in steelmaking capacity.  As reported early however Chinese high volume steel production looks set to come back on stream for the second half of Q1 and just like coking coal and iron ore prices must be set to rise.

Looking more locally on typical 2,000-3,000t shipload quantities that service the UK there is no relaxation in shipping prices.  In our last UK steel market evaluation, we reported that we had seen shipping costs from Turkey increase by $70 per tonne during the period April 2021 to September 2021.  We can now confirm that the shipping costs on our December inbound material from Turkey increased by another $30 per tonne to $150 per tonne.  What is even more disconcerting is that our main Turkish hollow section supplier is now indicating that the forward price for Q2 could be as high as $190 per tonne.



EU suppliers on shorter shipments from Germany, Italy and Spain are also experiencing a similar surge in costs and on cargo we have just booked from Italy we have seen a shipping rate increase from September 2021 to January 2022 of Euro 60 per tonne.

At present we really can’t see any softening in shipping rates and when you consider that EU steel activity looks set to increase and marine diesel costs simply follow oil prices that are still trending upwards as shown in the graph even higher shipping costs look most likely. 

Port Congestion 
All UK docks remain congested and the peaks and troughs in trade flows are now creating total mayhem as all importers try to de-risk by advance bonding material for longer periods at the ports in preparation for the onset of each new quarter.  This is also being compounded by imports increasing to reflect demand growth and volumes to substitute the loss of domestic supply (left by large voids due to cuts in capacity to the market by the Liberty Steel Group particularly on engineering bar supplies).

The overload in the material at the ports is now commonly resulting in material being block stowed to maximise floor space capacity but the negatively of this action results in severe delays for material to become unscrambled for despatch after customs clearance.  In some cases, delays of 4-6 weeks are being experienced.  Moreover, due to such huge loadings on the ports, many have increased storage charges over the last six months from a low of 25p per tonne per week up to new highs of £2 per tonne per week.

Transport
The good news here is that transport availability constraints seem to have eased but we must recognise that this is against a background of lower trade activity in Q4 as the supply chain attempted to reduce stocks.  As we progress through Q1 and into Q2 buying activity and real underlying demand are all forecast to increase so tight transport problems are very likely to materialise once again.  Even with lower activity, the cost of transport has remained expensive and with fuel prices yet again rising we should probably expect more increases in transport costs especially given that diesel prices continue to move up.

Inflation (Finance)
High inflation levels have already resulted in one recent bank base rate increase and whilst this movement was small the movement is more impacting in today’s world of steel with material costs being so high.  More bank rate increases will inevitably be seen in 2022 and whilst this will add greater cost to the financing of steel inventories it will create wage pressure, adding even more costs to steel prices in an industry that is still heavily labour intensive.

EU Carbon Permits
Since our September report, the cost of Carbon Permits has advanced by another €21 per tonne to a new record high of €85.80 per tonne.  Such a rise impacts utility costs as referenced above but the bearing on steel prices through environmental taxes is more direct.

All steel producers are on a path aiming for net-zero carbon emissions but for many, this will take decades to be realised.  In the short term on capacity exceeding carbon allocations blast furnace operators must buy 2t of CO2 for each tonne of steel produced whereas electric arc manufacturers depending on the efficiency of their plant must buy 0.5-0.8t of CO2 for each tonne of steel manufactured.  As can be seen from the graph below these costs were insignificant 12 months ago but the impact today is very significant and with the cost of carbon permits continuing to rise this will just become an even bigger cost for those plants that fail to reduce carbon emissions.


In blast furnace production the carbon tariff escalation cost adds €171.60 per tonne to steel manufacturing costs (£143.60p per tonne).  In EAF manufacture the cost is somewhere between €42.90p - €68.64p per tonne.

UK Safeguard Duties
Safeguard duties seem to be impacting more of our inbound supplies and the cost of such duties are now becoming more punishing as it is a percentage charge on what are ever-increasing steel prices.  We are also finding that HMRC’s administration of quota monitoring and reporting is becoming so bad that traders are losing visibility as to when quotas become exhausted and by what level thresholds have been exceeded.

New rules on category 12 (effectively merchant bar/engineering bar) have tried to split out these products into two separate categories through chemical composition rules but material intended as general structural steel supply is regularly falling into the engineering bar classification due to high residuals such as copper.  Consequently, customs clearance is in total disarray.

On truckloads, this confusion has caused serious delays on customs clearances all of which adds to transport demurrage costs.  The big issue here however is that as a mass importer of steel, as of today (23-1-22), we have no idea of our duty liability on material customs cleared on 1 January 22 and little clarity on what quota, if any, remains available in products that we are landing in the UK during the coming week. 

Conclusion
There are many other factors that we could report upon all of which are upwardly affecting steel prices but, in this report, we have simply tried to focus on just the main steel price influencers.  We could for example expand on energy and steel price inflation caused by the threat of war between Russia/Ukraine that would have an unbelievable impact, but this would be speculative whereas we are just choosing to report on actual known facts.

As a steel trader that takes large stock positions the fear of a price crash is our biggest risk/concern and the reason why we must analyse steel price influencers in such detail.  It is against this background that we have resumed buying heavily for our Q2 requirement despite the high prevailing steel prices.  We recommend that you take a pragmatic view on the data presented here, and make sure that you are reflecting anticipated replacement prices on the extremely valuable stock you hold for sale. 

After yet another extraordinary pandemic year, and as 2021 draws to a close, we are delighted to share an image here of our dazzlingly spruced up outside office Christmas tree.  We hope this magical sight will bring a smile to your face too! 

Truly, it’s officially now a time for celebration and festive cheer - well at least already here at All Steels!

It's been an interesting few months at the Thirsk office watching each All Steels colleague taking great care of their given chilli plant in the hope of being crowned either the winner/owner of the best looking chilli plant or the winner/owner of the chilli plant bearing the biggest chilli!

As you can imagine there's a fine line between under or over watering such a plant as well as ensuring the plant is left to grow in the right light conditions and pruned when necessary! However, it's fair to say that all colleagues were extremely keen to participate in the challenge set by All Steels' green-fingered Managing Director, who had grown the set of originally all identical chilli plants from seeds. 

We are very grateful to Dr Sophia McDougall & Dr Jim Dunnill (chilli plant growing aficionados) who kindly volunteered to come along to the All Steels office to act as independent judges for the All Steels chilli plant growing competition. They arrived with calibrated weighing scales, and duly marked each anonymous office grown chilli plant in accordance with the set of pre-determined criteria.
Without further ado here are the Judges' declared results:

Best looking chilli plant winner -
Lee White (Export Sales Director)
Lee's chilli plant certainly had the greatest considered wow factor ie excellent symmetry, thickest stem, healthiest looking leaves, highest number of chillies etc!  

Largest chilli winner -
In fact Lee's plant also bore the single biggest chilli in recorded mass (7g), but the rules of the competition dictated that a colleague could only win in one category of the competition! Hence, the judges declared Jon Jacobs' (Operations Director) and Adam Grant's (Business Development Manager) chilli plants joint winners in this particular category, as each of their plants bore a chilli of 6g in recorded mass respectively.

It's hoped that the token prize money awarded to the All Steels competition winners in each category coupled with the healthy competitive fun and banter experienced along the way here will inspire our colleagues to continue to develop their green-fingered skills even further! However, all of our colleagues can now also take their chili plants home and enjoy the fruits/chillies of their labours!

Dear All Steels Customers,

This is a relatively short note intended to provide you with an update on the key outcomes relating to predictions we made in our 23 April 2021 UK Steel Market Evaluation Report.

Steelmaking Raw Materials
Virtually all raw materials continued on an upward trajectory, as anticipated, with record-breaking price levels being reached.  In our previous note, we reported iron ore levels breaking the US$180 per tonne barrier (KORE 62% Fe/Qingdao CFR) and for the last fortnight, the rate has capitulated at a new record-breaking high in the band of US$208.84 to $226.07 per tonne.  As you would expect scrap prices also followed this move growing from US$427 per tonne to US$510 per tonne (HMS1/2 Scrap/Turkey CFR). 

The two graphs below showing this move requires little explanation to understand the impact on steelmaking. 
1: Iron Ore


2: Scrap 


Whilst the push on iron ore prices appears to have taken some breathing space over the last fortnight the dynamics remain unchanged with demand continuing to increase.  Hence, the possibility of another price run over the summer must now be a serious consideration.  Similarly on scrap the market is currently adjusting to the reality of the newfound high prices but speaking to one of our main Turkish suppliers over the weekend they remain deeply concerned that the price of scrap is likely to push on again.  The new concern on the horizon for Turkish steel makers is that there is speculation that the EU will enforce scrap export taxes and there are already reports of the Ukraine increasing its scrap export tax to 90 Euro per tonne.

General Steel Price Movement in the UK
In our note of 23 April 2021, we strongly expressed the likelihood of further price increases and this has happened at quite staggering levels as summarised below: 

Structural Sections
5 May 2021   – British Steel announced a £50p/t increase.
14 May 2021 – British Steel announced a plan / necessity for customer allocations to apply.
18 May 2021 – British Steel announced a further £100p/t increase.
18 May 2021 – British Steel announced a customer allocation system based on historical purchase levels.
4 May 2021   – ArcelorMittal announced a £40p/t increase.
17 May 2021 – ArcelorMittal announced a further £80p/t increase.
18 May 2021 – ArcelorMittal issued a rolling programme with restricted availability and notification of tonnage allocations to be applied.

At the time of writing this report virtually all other EU producers have extended a period of not offering to the UK market due to overwhelming demand in mainland Europe and the fact that scrap prices have not settled down so there is a reluctance to offer forward.

As a reminder since the prices started to climb on the current cycle from August 2020 British Steel has now actually applied a total of £410 per tonne of price increases.

Merchant Bar
19 May 2021 – Liberty Merchant Bar announced a further £80p/t increase to follow up on a £40p/t mid-April price increase.
26 April 2021 – LME (Beltrame) announced a £20p/t increase.
14 May 2021 – LME (Beltrame) announced a further £80p/t increase.
Other suppliers of merchant bar do not make public price increase announcements, but they have all applied similar price measures and most have restricted availability.

As a reminder since the prices started to climb on the current cycle from August 2020 Liberty Merchant Bar has now actually applied a total of £310 per tonne of price increases.

Hollow Sections
Like merchant bar we do not see official price increase announcements from domestic producers although at this present time we understand that Liberty Tubes has temporarily ceased manufacture due to the availability and price of hot rolled coil.

What we can advise however is that our buy price from Turkey since 23 April 2021 has increased by a magnitude of U$250 per tonne (£178 per tonne).  In addition to this price increase, there is then also a Safeguard duty factor which is unavoidable even when customs clearing on the first day of each quarterly quota window and this is becoming more sizable as the cost of hollow sections keeps rising.

As a reminder since the prices started to climb on the current cycle from August 2020 Turkish Hollow Section Prices have increased by US$670 per tonne from our own experience (£478 per tonne).  However, you then need to add increased shipping costs and a Safeguard duty impact, which became a reality when UK Safeguard Quotas came into force on 1 January 2021.  Both of these impacts are significant.

Supply & Demand
In our report of 23 April 2021, we made the point that we were entering a new paradigm of market pressures where demand exceeds supply, and it is fair to say that we are already now starting to see the consequences of this situation.  Over the past several days we have already witnessed availability being more critical than price and given that we are now knocking on the door of the mill summer shutdowns this problem is going to become even more acute.

Speaking out as a trader a new phenomenon for All Steels and probably many other businesses in the supply chain is affordability.  As a business typically holding 40,000-45,000t of stock with similar quantities in the pipeline financed by letters of credit our substantially increased banking facilities will simply not allow for such volumes to be maintained.  Hence, the only way to combat this is to reduce inventory levels to an affordable level.  It, therefore, seems inevitable that whilst availability from the mills cannot keep pace with demand dock stocks and probably stocks amongst the UK stockholding community will also tighten up even further.

As the saying goes it, therefore, looks like we are heading into a perfect storm that will inevitably lead to more rationalisation/consolidation in our supply chain.  Hence, it is now totally unpredictable as to how long it will take for supply and demand to get in balance and how far prices will rise in the intervening period.  The consensus is that unaffordability will eventually bring prices crashing back down but at the same time, you can appreciate the logic that steel producers can now see the benefit of keeping capacity tight, and with such huge costs of bringing lost capacity back to life will any steelmaker wish to make such a move?  It is fair to say that many pundits had speculated that the rising cost of copper would not be sustainable on the grounds of affordability but on the London Metal Exchange the price of copper has increased from US$ 2,908 per tonne in December 2008 to its current level of US$ 10,011 per tonne and demand remains insatiable.  Food for thought!  

Dear All Steels Customers,

Two months have passed since our last posted newsletter and as always, the main purpose of such messages is to communicate All Steels’ views on the market / events and more importantly anticipated developments ahead.

In our messages over the last 5-6 months, we have been able to predict steel price increases primarily by showing the rising cost of raw materials associated with steelmaking that have all necessitated mills moving their prices up to maintain profitability.  The graphical displays with some basic explanations have been easy to understand and the steel price increases have clearly been justified.  Again, in the graphs below such base costs remain high and mainly on an upward trajectory, especially iron ore that has moved to a 10-year high.  However, we are now entering a new paradigm of market pressures that are even more price influential.  This being basic economics, where demand exceeds supply, and this is occurring at a time when stocks within the supply chain are already coming from a very low base following the effects of the Covid-19 pandemic.

It is also clear that we have a huge gulf with respect to price and availability between long products and flat products where the latter has already entered a stage of critical shortages with a consequential surge in prices.  As All Steels our expertise is on long products, so our message needs to bear this in mind although as a seller of hollow sections that is a derivative of HR Coil, we do make some references to the flat rolled market in this context.

The usual graphs are detailed below and now require little explanation based on past newsletters, so we have skipped over the usual narratives as going immediately forward it is far more important to focus on supply / demand.

STEELMAKING COST DRIVERS

1: Iron Ore

1.7t of iron is required to make a tonne of steel. 

2: Scrap

1.1t of scrap is required to make a tonne of steel. 

3: Coking Coal

0.7t of coking coal is required to make a tonne of steel. 

4: Oil Prices 


Main influencer of energy and transportation costs. 

Supply and Demand
At present we have several factors which have created a steel supply and demand imbalance both at a macro and micro level and in no particular order we have simply listed what we consider to be the main factors:
1. According to the Worldsteel Association despite the Covid-19 pandemic 2020 global demand for steel only fell by 0.2% y-o-y, to 1.7 billion tonnes.  (This was due to a surprisingly robust recovery in China).  This year Worldsteel is forecasting that demand will recover by 5.8% y-o-y and in 2022 by 2.7% y-o-y.  We are therefore going to see all-time record-breaking consumption over the years ahead. 

2. On the world stage most of the main countries plan to inject huge financial stimulus packages and lot of this funding will be aimed at infrastructure projects to effectively build countries out of recession.  To understand the scale of fiscal stimulus around the world the Atlantic Council Organisation publish some very detailed information on their website and the image below best illustrates the level of stimulus packages by drawing comparisons between planned support to recover from the Covid-19 pandemic compared to the levels of support made back in 2009 to assist recovery from the financial crisis. 


3. Closer to home data produced by the National Association of Steel Service Centres shows that March 2021 sales had fully recovered to March 2020 levels but by contrast service centre stock levels are hovering around a level of 70 days of sales compared to a more normal 100 days of sales.  Very few stockists have been able to build up stocks.  Moreover, there is now a question of affordability and desire to build back to normal stock levels given the high costs even if availability exists. 

4. In our local market the difficulties for Liberty Steels are well publicised and until such time that group finds a financial resolution output from their many steel manufacturing facilities in the UK will remain badly restricted. 

5. China is entering its traditional period of enforcing steel production restrictions to curb dangerous levels of air pollution.  At the end of last week Handan Municipal Government, announced such restriction measures for April 21 to June 30 of this year.  The estimated resulting average daily production losses in Handan for wire rod, steel plate and HR Coil will amount to 8,700mt, 6,500mt and 5,600mt respectively! 

6. Closer to home All Steels has tried to keep its review of supply and demand simple by looking at EU production capacity and EU apparent demand whilst recognising that import balancing is more difficult with Safeguard measures in place.

Data 1 (below) is data published by McKinsey, which shows that massive EU crude steel capacity in 2019 of 216mt was reduced to 150-160mt by the end of 2020. 

Data 2 (below) is data published by Eurofer, which shows that apparent demand forecast for 2021/2022 should climb to 157mt. 

Evidently, we can see that apparent demand in the EU is forecast to have fallen by 13% in 2020 and to rebound to +13% in 2021 and whilst quick transition in apparent demand can occur steel producers (especially those that have closed plants and turned off blast furnace capacity) just cannot react so quickly.  It therefore seems inevitable that in the short term the EU will need more imports at a time when world demand is increasing.  In addition to the resulting tight availability Safeguard quotas will therefore start to be exceeded on many products resulting in large duty payments that we as a UK trader are already starting to experience.  In the short to midterm, it therefore seems inevitable that the cost of steel will continue to rise until such time that EU producers can bring on stream additional capacity.  All Steels’ view is that EU producers will most likely avoid such expenditure having now seen the price benefits of keeping supply tight.  They will therefore in the short to midterm typically prefer to take profits rather than take risks and go to the huge expense of bringing lost capacity back to life.

Data 1

Data 2

Looking more specifically at the UK here is our view on each of the products we trade.

UK PRODUCT REVIEWS

Merchant Bar
Price increases by the mills are becoming less formal by way of public announcements but they are all increasing prices and a lot of the adjustments have become more sophisticated and product focused where bigger extras are logically being applied to those products that cost more to produce or are on tighter availability.

It is the supply situation however that has become more alarming.  The well-publicised financial problems in Liberty Group are seriously constraining output at one of the UK’s largest producers (Liberty Merchant Bar).  We are also finding that some of the producers of the smaller sizes of merchant bar have ceased production (Cogeme, Italy & Feralpi Profilati Nave, Italy) and large producers such as Beltrame appear to be shying away from the very small merchant bar sizes and those product sizes where demand is traditionally small.  To cap off the supply difficulties containerised goods out of Turkey have almost become impossible due to lack of containers especially after the infamous Suez Canal blockage and this will probably take several months to rebalance container availability (the container box situation was already dire all the way through Q1 before the Suez Canal event).  As most merchant bar is containerised out of Turkey such supply has basically dried up!

What is apparent just now is that many UK distributors of merchant bar have turned to mainland EU supply to address the imbalance and whilst this should improve availability from UK stockists it seems a foregone conclusion that UK Safeguard quotas will be breached at some point in Q2 on EU imports, and this will either block supply to the UK as imports are deferred until Q3 or it will simply result in price premiums as the distributors will need to recover the 25% duty hits.

As a final point it is evident that merchant bar is probably the poor relation with respect to market prices on popular sizes.  Hence, whilst this is the case it is most exposed to the rising costs of steelmaking and any upshift in scrap prices, which seems highly likely in the EU, will automatically have to trigger further mill price increases.

Structural Sections
Since our last newsletter British Steel announced a further £30 per tonne increase on 5 March 2021 taking total increases since the summer of last year to £260 per tonne.  It was expected that price increases would keep flowing through to properly restore profitability for the large EU manufacturers but evidently this has not happened.  The environment for further prices increases in the UK seemed very likely with the inflow of EU imports remaining very low and virtually no supplies arriving from further afield. 

All Steels’ view is that underlying demand did not accelerate as quickly as anticipated and so some of the heat out of the necessity to increase prices diminished as scrap prices stabilised /slightly softened.  At this present time NASS data does show that stocks within the distribution chain remain very low and it feels like we are at that turning point when underlying demand is about to jump up with so many new infrastructure projects being awarded.  As shown early on in this report iron ore prices have also continued to push up over the past few weeks and pressure must therefore be returning to our domestic BOS route steel producer (British Steel) to increase prices.

What is also worthy of note is that British Steel does produce slabs on its concast lines at Scunthorpe and with slab market prices rising close to section prices this does present a very good profitmaking opportunity for British Steel if it wishes to sacrifice some heavy section production for more lucrative slab sales.  Logic would suggest that British Steel would not wish to cut section production, but it does form a basis for them to choose to be more price aggressive on section selling. 

Given all the above we are therefore of the view that we might be on the cusp of further section price increases that should become clear quite early as we progress through Q2.

Hollow Sections
As a direct derivative of HRC hollow sections are in critically short supply and it appears that the situation will only get worse.  As a large trader of this product, it simply feels like the quota level for Turkish, UAE and even EU supplies is inadequate since the new UK Safeguard quotas came into play on 1 January 2021.  Only last week we received retrospective C18, HMRC duty invoices for our proportion of quota exceeded on day 1 of Q1, and in the coming months, we will see repeat retrospective HMRC bills for day 1 of Q2.  (These are very hefty charges!).  Import duties are therefore going to become a standard feature of importing hollow sections and as general hollow sections prices rise this becomes an even bigger number!  We then have the headline price issue that is being driven by massive HRC availability constraints and the consequential price surge.

On Friday, the EU’s largest steel producer (ArcelorMittal) announced another €30p/t of increases to take HRC to €1,000p/t.  (€200p/t of increases since 4 March 2021).  The graph below best illustrates the HRC movement although it does not yet reflect the most current increase: 


Whilst this surge in EU HR Coil prices looks excessive you only need to look at the US to see what effect further shortages can have on steel prices where mill selling prices have tripled over the last 9 months. 


It is therefore fair to conclude that hollow sections will remain the most troublesome product.  Tight availability will become a bigger issue and it is difficult to predict how high the price will go but it is clearly going to be substantial. 

From an All Steels point of view we have already signed off contracts for Q4 supply, but we have only booked two vessel loads rather than the three vessel loads we booked for Q3.  This decision was basically governed by affordability with respect to banking facilities available due to the high prices but virtually all this capacity has been forward sold.  We have also seen a rush on sales of our hollow section stocks even though we have substantially increased prices.  It is therefore already a foregone conclusion that we will have little stock /forward availability for the rest of this year.  We are sure that other steel traders will be facing the same issues and it may be that we will see a reversal of structural sections displacing what has become traditional markets for hollow sections as we genuinely believe that the shortages will be catastrophic!  

Conclusion
As a summary note, we are of the view that:
1. World steel demand is likely to skyrocket as we move into a safer world post the height of the Covid-19 pandemic as a successful vaccine protection rollout continues.
2. Steel producers will have to increase production and possibly re-open closed facilities to meet new levels of higher demand, but their approach will be cautious keeping supply tight for some time.
3. Stocks amongst the stockholding community are unlikely to fully recover as the high prices make it unaffordable for many and the risks will be too high when supply catches up with demand, even though the shortages are envisaged to persist for some time.
4. Base materials that influence steel prices will remain strong off the back of forecasts that global crude steel production will grow to an all-time world record high over the next two-year period.
5. Other costs associated with steel manufacturing and distribution are all increasing, and look set to continue with further rises ahead i.e. raw materials, energy, all taxes including environmental, road transport, shipping, trade insurance, employment, mill housing/warehousing, port handling charges, etc.

The underlying message here is that the scene seems to be set for steel prices to remain high and with tight availability!

Please note that these are only All Steels’ views and experiences, which we have generally been asked to share.  However, we hope this provides you with some useful guidance on how pricing in our professional opinion is most likely to continue to unfold.

All Steels is truly delighted that our local sponsored champion Jasmine Harrison made her world record-breaking (youngest solo female) row across the Atlantic in just 70 days, three hours and 48 minutes. 

Jasmine set off on her 3,000-mile (4,828km) Talisker Whisky Atlantic Challenge from La Gomera in the Canary Islands on 12 December 2020. Her safe arrival in Antigua today was naturally greeted with a fanfare on Facebook, and where she was broadcasted crossing the finishing line. What an emotional sight it was to see Jasmine triumphantly standing in her rowing boat, called Argo, and lighting her flares as she came into Nelson’s Dockyard in Antigua.


As you can imagine, Jasmine faced several challenges en route. In the early stages of the journey, the weather was so bad she was blown back to where she had started from at the end of one gruelling day. Her incredible voyage saw her battling 20ft waves, being tracked by sharks, and a near-miss with a 750ft tanker which came within 1,000ft of her boat. It was only about six minutes before a collision occurred that Jasmine was able to alert the huge vessel to change course! The last part of Jasmine’s journey had also seen her tackle the Sargasso Sea, home to fish and baby turtles but also to thick seaweed that she needed to periodically remove from underneath her boat!


Burning 5,000 calories a day, Jasmine survived on ration packs, chocolate spread and peanut butter. She drank 10 litres of water a day - plus an occasional shot of Dead Man’s Fingers Rum!

Jasmine’s record-breaking feat has raised more than £10,000 for charity, with the money going to the Blue Marine Foundation, which aims to fight overfishing, and ShelterBox, an organisation providing relief to people affected by natural disasters.

“I want to inspire young people to get out there and do something, whether that be changing the world or just doing something outside your comfort zone,” Jasmine wrote in a statement on her website.

All Steels believes it is fair to say that Jasmine has certainly set an inspired scene for many others to now go on and ultimately share such world record and/or world changing feats! Naturally, we are also feeling proud to have been able to support and assist Jasmine in attaining such a world record-breaking nautical achievement.

 

We are extremely pleased to introduce our new colleague Paola Itri to you all! 

All Steels has every confidence that she will prove herself to be a very valuable member of our international sales force. Paola comes to All Steels Trading shortly after gaining a Master of Science in strategic marketing management from ISM München International School of Management. There can also be no doubt that Paola will be regularly called upon to utilise her impressive range of European language speaking skills in collaborating effectively with our growing expanse of international based customers.

At All Steels Paola’s general responsibilities will include dealing with a range of domestic and relevant foreign emails and telephone calls, seeking price and availability on new inquiries, progressing existing orders plus controlling and dispatching all documentation legally required for example test certificates, CE required documents, etc for full traceability of all our products from the mill to our customers. 

Dear All Steels Customers,

Changes in the steel market certainly continue to move at significant pace, and the forecasts we predicted in our mid-August note have very much all now come to fruition.  Hence, many of our customers have been asking for our considered view on the current and foreseeable market situation, so here is another relatively succinct update on observations, and our forecast for the most likely changes ahead.

Understandably the resurgence of Covid-19 is causing further confusion and uncertainty for us all.  However, it is also fair to say that most countries around the world seem to be taking the stance that the industrial world cannot be allowed to suffer, and construction markets all appear to be strong as governments advance their infrastructure projects to assist employment.  “The Get Britain Building Campaign” certainly still looks to be a top initiative in the UK, and if we look at the sales statistics produced by the National Association of Steel Service Centres (NASS) it is evident that demand for structural sections, merchant bars and hollow sections have returned back, indeed since July, to pre Covid-19 levels.

Our own UK rolling mills are also very busy and overtime working is now starting to be applied to keep up with demand, so the speed of positive turnaround of our industry from being in a rather dark place in the spring is quite extraordinary.

For simplicity, we have started off by updating the usual graphs, which we last presented to you in mid-August, and that we typically follow on a daily basis as it is these fundamentals that drive steel prices combined with supply and demand. 

Iron Ore



Iron ore prices clearly remain strong.  Recent concerns have been expressed that increased mining capacity coming on stream would result in a price softening and whilst the bull run came to a halt in mid-September prices once again seem to be on an upward trajectory. 

China's crude steel output is now estimated to exceed a record breaking 1 billion metric tonnes this year.

What is evident from media reports is that China’s crude steel production has been running at very high levels since May with consumption being lifted by the country’s infrastructure boom, and underpinned by their manufacturing sector.  Such activity is probably now sufficient to keep iron ore hovering around its current high levels.

When considering ratios of iron ore usage to the manufacture of steel it cannot be ignored that this element alone is adding circa £52 per tonne to BOS route steel-making costs since the end of April’s low point!

1.7t of iron ore is used to make a tonne of steel. 

Coking Coal



Like most commodities coking coal prices recovered sharply following the first wave of the Covid-19 pandemic.

As seen with iron ore, Chinese BOS route steelmakers are producing crude steel at a rate of knots with daily output records being recorded in September.

With such strong demand coking coal prices must logically stay strong, which the graph reflects from one of China’s major domestic sources.

The top graph also shows FOB Australia prices that are a good illustration of the recovery following the price decline at the end of Q1.

Moreover, only this week severe heavy rainstorms and floods are once again making headline news in Australia’s major mining territories, and we all know what impact this can have on both iron ore and coking coal prices.

0.7t of coking coal is used to make a tonne of steel.  

Scrap



As expressed in previous steel bulletins Turkish imported scrap prices are always the most reactive to supply and demand and other world steel events.

The graph therefore naturally depicts general steel price movement and little explanation is required to where steel prices appear to be trending.

Clearly iron ore and scrap prices are currently moving in tandem, so both electric arc and BOS route steelmakers both face the pressure of rising costs.

Unsurprisingly, Europe and UK scrap prices are generally moving in the same upward direction, so there is no geographical immunity to such increases in steel-making costs.

We also picked up news yesterday that the Chinese are reappearing in the world market buying up scrap and this could cause a serious uplift in scrap prices.

1.1t of scrap is used to make a tonne of steel.

Exchange Rates



The £ sterling recovered quickly from the initial shock of the Covid-19 outbreak, but it still remains weaker than its year opening position especially against the Euro.  Such an outcome only serves to firm up imported steel and steel-making raw material costs.

In an environment where we have American elections and Brexit negotiations closer to home it will be a volatile time for the £ sterling, and we would shortly expect to see some significant movement, but the direction is currently too difficult to call.

If you look at the value of the £ sterling against the Euro in particular, which is most relevant to the UK, the devaluation of the £ sterling here has added circa £36 per tonne to imported steel costs from mainland Europe since the start of the year.

All shipping and road transport for deliveries to the UK are also Euro based, so this is also adding additional costs to imported prices from the EU.  

Oil Prices 



 As is usually the norm the oil price mirrors the world’s general economic trends.

It is certainly reflective of what we have seen in the UK, with June and July showing the strong bounce back we have seen in steel demand.

It equally shows some confusion in recent months as the Western world wrestles with further uncertainty of the Covid-19 second wave.

On balance, we would say it shows improved confidence in the economy.

Whilst all these graphs convey a positive message for strengthening steel prices the same health warning applies again here that the Covid-19 pandemic could return to ultimately bite more severely as we progress through the cold winter months ahead.

In the section below, we have tried to give a short overview on each product group.  The underlying message however is that from the selection of graphs above is that everything is pointing towards a necessity for steel prices to keep on increasing, especially when you combine this with the knowledge that virtually all steelmakers are still losing money.  Evidence would therefore suggest that we will continue to see mill price increase announcements. 

PRODUCT REVIEWS

Merchant Bar 

Merchant bar prices are now firmly up by £40 per tonne with all the major domestic and European players having successively implemented a second round of increases since the summer.  Rising raw material costs are the main drivers, but the tightness in supply is continually forcing buyers to source many infill purchases from the wholesale market and consequentially radically increasing their costs by an extra measure.  Looking at the overall picture you basically get the impression that all mills cut back shifts and associated labour to deal with the early impact of Covid-19 and whilst demand has returned there has been a reluctance to re-recruit in fear of further Covid-19 pandemic setbacks.  The effects of the Covid-19 pandemic have also forced the closure of another producer i.e. an Italian merchant bar producer (Cogeme) and the resurgence of the Covid-19 pandemic is again creating disruption to manufacture.  Even our own Bromford mill is currently taking some necessary manufacturing time out due to a small-scale Covid-19 outbreak and this issue is evidently most likely to become an even bigger manufacturing impediment for all EU producers.

We have certainly never witnessed supply being so tight on merchant bar, and at present we simply cannot see any immediate change in this situation.  Against this background if we do see the slightest uptick in scrap prices, as anticipated, further price increases have to be on the agenda especially when you consider that the increases applied to merchant bar to date fall some distance behind the movement we have seen on both hollow sections and structural sections.

As a business our own merchant bar stock for infill supply to stockholders has been heavily depleted, and we are struggling to replenish at the desired pace, and nothing on the horizon is going to allow us to correct this situation.  Container shipments out of Turkey also remain extremely dangerous due to the Safeguard issues with no practical solution to bonding the boxes should quotas get exhausted.  We therefore cannot see a simple solution for quickly filling our stock gaps.

Hollow Sections 

As mentioned in August imports have always largely satisfied the UK market and whilst the new quarterly quota system was introduced to better stabilise the spread of imports throughout the year it has added another complexity and risk to hollow sections traders.  The quota for the October to December period was actually exceeded on the first day of this trading period by 6,000t and all importers could be subjected to a retrospective HMRC C18 post clearance demand.  This demand could, by all accounts, be inflicted by HMRC at any time over a three year post the initial clearance follow on period.

Needless to say, availability is tight and bonding has once again had to be used by many importers’ ships that arrived after the 1st October to avoid duties.  Such constraints will be an ongoing problem and arguably the new individual UK Safeguard quota will tighten up supply even further with new measures coming into effect on EU imports of the product.  At present the limit for EU imports is set at only circa 10,000t per quarter and with many EU deliveries being made on trucks supplying the UK from the 1st January 2021 will become extremely arduous and high risk never mind deterring many suppliers away from the UK.  Some of the quotas set for mills outside the UK and Turkey also appear to have been set at very low levels especially for the likes of the UAE, which has been a significant supplier to the UK market over recent years.

The perfect storm on hollow sections supplies is therefore likely to worsen and the prices in the marketplace from domestic mills and dock stock sellers reflects what is an unbelievably tight situation.  Price increases since the summer of over £200 per tonne are commonplace and whilst some traders will no doubt sell forward at cheap rates they will be potentially playing with fire with respect to HMRC imposing a C18 regulation.  Another additional problem is that with so much hollow sections being bonded in preparation for clearance on the first day of each month dockside warehousing is in real short supply and simple economics is forcing up the cost of such storage for the traders.

With such huge obstacles and trading risks in play a number of traders have already called it a day and very few imports will escape some duty charges over the quarters ahead.  As a trader, we are trying to minimise the risk for our customers by heavily bringing in supply well in advance of each quarter and accordingly bonding material for customer clearance on the first day of each quarter.  Warehousing however restricts the volumes we can trade and therefore our own sold stock positions are being greatly reduced.  On the price front it will be availability more so than raw material price movement that will influence price movement and with availability being set to remain in very short supply it is logical for prices to remain exceptionally high.  Hence, there is really no ceiling as to where prices could go given the immediate circumstances.

Structural Sections 

The National Association of Steel Service Centres' sales statistics on structural sections strongly reaffirms that “The Get Britain Building Campaign” is a reality with September daily sales being in line with the average for Q1, Covid-19 pre-pandemic.  Similar to all other products mill supplies are all running late and there is serious confusion for the EU mills on how to service the UK post the 1st January 2021 following our separation from the EU.  Customs clearance becomes a new requirement in the process, but the bigger concern is that EU Safeguards becomes a new obstacle and whilst these have been tabled in the event of a Brexit Deal the EU has still not reciprocated with quota arrangements for UK exports to the EU.  In the event of a no-deal Brexit the proposed UK Safeguards immediately get thrown out of the window, so at this very late hour nobody is clear on the terms of engagement with EU section mills.  With such lack of clarity, it is possible that EU suppliers will take a trade break for supplies to the UK during January or until such time that we get further clarity. 

With regard to price, we have seen £60 per tonne of price increases since the summer months (2 x £30 per tonne) all of which appear to have been fully implemented, but prices have still not got back to levels seen this time last year even though raw material prices are higher.  It therefore seems apparent that the mills still need to make further price increases and with supply remaining tight and raw material prices appearing to be still driving upwards it is highly likely that another sizable official price increase will be announced shortly.

Please note that these are only All Steels’ views, which we have generally been asked to share.  However, we hope this provides you with some useful guidance on how things are in our professional opinion most likely to unfold.

Dear All Steels Customers,

We are delighted to inform you that we have recently attained CARES quality system approval in regard to being certified by the Authority to purchase and supply steel products for the reinforcement of concrete.

For your convenience, a copy of All Steels’ valid CARES quality system certificate can be found by clicking on the hyperlink provided directly below:
A PDF copy of All Steels' CARES quality system certificate can be found here 

Hence, we are also very pleased to announce that as from the week commencing Monday 2 November 2020 we will have the following range of CARES approved REINFORCING BARS available for immediate ex-stock delivery:
SIZES: 10mm, 12mm, 16mm, 20mm & 25mm
LENGTH: 6/6.3m
GRADE: B500B
BND WGTS: 2-2.5T

Such material can of course be readily ordered in full bundles as part of a composite load (utilising the highly comprehensive All Steels stock range) – or in standalone full loads.

For further details about this new All Steels product supply option then please do not hesitate to contact your relevant All Steels sales contact.

Alex joins All Steels Trading shortly after achieving a first-class honours degree in Economics from Durham University.

It goes without saying that Alex will be called upon to utilise his strong mathematical and analytical skills on a daily basis in collaborating effectively with other members of the AST head office accounts department.

Alex’s key responsibilities will include processing group company payments for approval, assisting with the preparation of group company month end accounts including accruals and prepayments for review. He will also assist the head office accounts department with the preparation of group company VAT returns and year-end audits. Alex is also simultaneously studying hard to try to attain ACCA postgraduate certified professional membership asap as part of his planned continuing professional development.

As you can appreciate Alex’s group finance department appointment represents another very pleasing and key step in helping to secure the long-term and sustainable future of the All Steels group of UK family owned businesses!

Dear All Steels Customers,

It was certainly a difficult second quarter for all steel producers, and our own rolling mills took their fair share of lockdown time as demand sharply fell away.  Thankfully both Bromford Iron and Special Steel Sections have been back in business since the start of July and demand continues to slowly improve.  On the trading side of our business many customers are asking for our view on the market as a multi-product trader, so here it is based on the usual fundamental hard facts that normally drive steel prices.

When I looked back at my last circulation I mailed out in mid-March I was pleased to see that I logically opened my message with the following statement:
“Everything said below has to be tempered with a belief that demand will slow down and it could even fall off a cliff edge if forced self-isolation and social distancing measures continue for most of 2020”. 

Understandably the same health warning applies again, but hopefully we are on the road to recovery in most respects.

My opening section below really just addresses the raw material cost fundamentals on steelmaking.  As you can see from the selection of graphs everything is pointing towards a necessity for steel prices to increase, especially when you combine this with the knowledge that virtually all steelmakers are losing money.  Evidence would therefore suggest we must be hitting a bounce back point.

Iron Ore


Mining commodity prices fell nowhere near the levels anticipated, primarily because of China’s quick economic recovery. Moreover, Chinese demand has continued to strengthen at a time when Brazilian mines have almost ground to halt as a result of large Covid-19 outbreaks amongst the mining communities.

Brazilian output will eventually return but in the short to mid-term the maths is simple to do.

A $30pt iron ore cost increase is just not possible for a steel producer to absorb so BOS route steel prices must rise.

1.7t of iron ore is used to make a tonne of steel.

Coking Coal



As more metallurgical coking coal production has been concentrated in Australia, prices have been more influenced by extreme weather over the last decade rather than supply and demand.  The onslaught of Covid19 however did take its toll on coking coal prices, but the dip was clearly short lived as the graph shows.

Evidently coking coal prices are now within $2p/t of pre-crisis levels.  There is also a lot of new speculation pointing towards rising prices off the back of many mining giants’ decisions to significantly cut capacity.

0.7t of coking coal is used to make a tonne of steel.

Scrap



Turkish imported scrap prices are always the most reactive to supply and demand and general world events.  Clearly, we are seeing a common theme with scrap prices having hit rock bottom in early April followed by a sharp recovery.

Against expectations of a July scrap price fall the opposite now seems to be the reality. 

The same outcome is also being mirrored in both the UK and mainland Europe.  Scrap route melters are therefore facing equal cost pressures to that of the BOS route steelmakers!

1.1t of scrap is used to make a tonne of steel.

Exchange Rates





As Covid-19 took a stranglehold in the UK at the end of March the £ took a thumping and lost circa 12% of its value.

Again, the recovery here was relatively quick, but it still remains much weaker against both the Euro and the US$ than its position at the start of the year.

Whether it is raw materials for UK steelmakers or imported finished steel this devaluation is significant.  Since the start of the year the currency effect alone is adding circa £35-£40 per tonne to steel imported from mainland Europe.

All shipping and road transport for deliveries to the UK are also Euro or US$ based, so this is also adding additional costs to imported prices.

Oil Prices


A notorious rule of thumb is to use oil price trends as a barometer for steel price movements.

Despite our move to green steel oil generally still has a bearing on steelmaking energy costs, so this again has an impact on prices.

In general, however oil prices are usually just a reflection of the economic world and without surprise this is pointing to a position of improvement.

PRODUCT REVIEWS
The pricing dynamics by product are quite varied, so in this second section I have tried to give All Steels’ true view on how we see trade.

Merchant Bar
Domestic over capacity for today’s UK market remains a constant problem and the imbalance on supply and demand has already taken its toll once again on merchant bar prices.  As we have all seen in the media the mills have been pushing hard for Government loan assistance and some support has been granted, but these are loans at a cost that have to be paid back.  On a positive note, I am sure the weak value of sterling will be assisting exports, but current domestic prices cannot be sustainable for the mills. 

At the outbreak of Covid-19 most of the mills took the brunt of the costs as they were left with the financing of stock as many stockholders/consumers simply closed.  The mills naturally cut back capacity and discounted prices to encourage some sales, but the balance now seems to have been addressed.  Stockholders have called in the mills’ aged stocks, mills and traders dock stocks have been heavily depleted, and we have finally reached the mills’ extended summer shutdown periods.

Everything therefore suggests a tightening in supply and a much busier period on their return from summer breaks.  Given all the other steelmaking cost factors referenced above price increases must be on the mills’ agendas.

Hollow Sections
As EU Safeguard quotas became exhausted mid-February it was almost guaranteed that hollow section investors were going to get a very nice margin return in Q2.  Once again this was another one of those lessons that nothing is guaranteed in the steel industry.

Demand fell off a cliff and Turkish prices collapsed, and the new July Safeguard quota window quickly opened.  As buyers have understandably returned in a cautious mode there has been a reluctance to forward order.  Mill stocks and dock stocks have suddenly become heavily depleted and shortages are now evident on many popular sizes.  This coincides with Tata UK announcing a £50 per tonne price increase on HRC that logically must wash through into hollow section prices.  From All Steels’ experiences we are also seeing similar changes in our Turkish buying prices especially when you factor in the adverse foreign exchange.

Hollow sections has always been one of those products of feast or famine with consequential dramatic price swings, and at present it looks like we are entering a window of famine!

Structural Sections
The Jingye Group’s acquisition of British Steel literally happened as UK manufacturing slammed on the brakes and went into lockdown.  Miraculously British Steel Sections has managed to plough on regardless and appear to have spanned the world to find the necessary sales to keep their mills rolling.  This was clearly a set out intent of Jingye to maximise plant utilisation as a first priority to improve competitiveness, and I am sure they will have recovered UK market share.  Even with such efficiency gains however the rising costs of steelmaking ingredients have surely reached a point where they can no longer be ignored. 

It also has to be recognised that “The Get Britain Building Campaign” appears to be a top priority Government initiative, so this has to bode well for structural steel demand.  The coming together of these developments would therefore appear to be good timing for a recovery in steel prices, and British Steel has already formally announced a €30 per tonne price increase to its European customers.  An increase on structural section prices for the UK therefore has to be just around the corner!

These are only All Steels’ views, which we have generally been asked to share.  However, we hope this provides you with some useful guidance on how things are most likely to unfold in what will hopefully prove to be a time of recovery for all concerned in our industry.

Keep staying safe!

All Steels is delighted to announce that our accounts department colleague Lee Harrison has passed his final accounting exam with flying colours and become a member of the ACCA.

We think it’s fair to say that Lee’s motivation during studying was the knowledge that the qualification would enable him to further assist All Steels' group of businesses and wide range of respective suppliers/customers through the highly valuable experience and expertise Lee has so very successfully and well-deservedly gained.

Many congratulations Lee!

Dear All Steels Customers,

A fair number of you have recently been asking for All Steels’ opinion on market developments based on our international trade experience and contacts. Hence, rather than potentially repeating the same current message many times over here is our view on trying to make sense of steel trade in the UK in these unprecedented times.

Everything said below has to be tempered with a belief that demand will slow down and it could even fall off a cliff edge if forced self-isolation and social distancing measures continue for most of 2020.

My opening section really just addresses the raw material cost fundamentals on steelmaking, but as we all know it is supply and demand that always has the hardest bearing on steel prices.

As you can see from the selection of graphs below iron ore, coking coal and scrap prices remain relatively high, and with the knowledge that virtually all steelmakers are losing money we can take some comfort that steel producers simply can’t afford to cut prices:

Iron Ore


Prices clearly remain firm and the recent stabilising in price is reportedly resulting from the Chinese heavily returning to buying as they resume normal production.

The acceleration on prices at the start of 2019 leading to the June 2019 peak was primarily caused by major output cuts in Brazil following the collapse of a major dam at Vale’s Córrego do Feijão mine. This followed with closure of many other Brazilian mines due to concerns over the structure of their tailings dams. Production has remained slow to recover, so over supply has been avoided.
1.7t of iron ore is used to make a tonne of steel.

Coking Coal


Whether you are looking at Australia or China, metallurgical coking coal prices all follow a close trend.

The peaks usually arise at the time of monsoon weather conditions and resulting heavy floods in Australia.

Over the last few years prices have been in a more stable band of $160-185 per tonne and have remained relatively flat since the start of this year.
0.7t of coking coal is used to make a tonne of steel.

Scrap


Turkish imported scrap prices are always most reactive to supply and demand and whilst prices have tumbled circa $35-40 per tonne over recent weeks, they still remain much higher than the early October 2019 position. The downwards trending of scrap was expected to continue, but the tightening up of availability from US Ports as they go on lockdown is now becoming a constraint on supply, so this trend could reverse.
1.1t of scrap is used to make a tonne of steel.

Another big influencer of UK steel prices is obviously exchange rates and the message here is clear to see.

Exchange Rates



Since the onslaught of the coronavirus the value of the £ has taken a tanking with the loss of circa 10% of its value.

Whether it is raw materials for the UK steelmakers or imported steel this movement is dramatic adding circa £50 per tonne of price growth to steel with a typical price tag of £500 per tonne.

All shipping and road transport for deliveries to the UK are also Euro or US$ based, so this is again adding big additional costs to imported prices.

PRODUCT REVIEWS
The pricing dynamic by product are quite varied, so in this second section I have tried to give All Steels’ true view on how we see trade.

Merchant Bar
In the UK we are blessed with a good volume of domestic mills including Bromford Iron, Celsa UK, Liberty Merchant Bar, etc, but all these mills have the reverse benefit on exchange rates with a 10% sterling return gain on Euro selling prices.

Moreover, two of the most prolific producers of merchant bar in Europe (Beltrame Italy & LME France) are both on coronavirus lockdowns for manufacture and despatches. There are also many other small family merchant bar mills in southern Europe that are also known to be closed. This is creating a huge mainland European demand for our domestic mills whilst a hole is left in import supplies to the UK from Beltrame and LME. This has resulted in Celsa UK applying £50 per tonne of increases on deliveries this coming week (£25 per tonne on Monday 23-3-20 + £25 per tonne on Thursday 26-3-20). 

Our other domestic mills are also applying increases, but demand is really tight and providing demand holds up more dramatic increases seem inevitable. We also can’t rule out the risk of the domestic mills suffering the same fate as LME/Beltrame. The chances of the latter has to be high as it does not take too many key operatives to be absent for a mill / steel plant not to function.

Hollow Sections
There has been an abundance of hollow section availability with so many purchasers buying so heavily to beat EU Safeguards against the Turkish supply quota that got exhausted much quicker than anticipated in mid-February. Dock stocks do remain relatively high and All Steels also heavily front loaded to beat Safeguard quotas, but the holes are just starting to appear in our hollow sections stock range.

With no prospects of Turkish imports being possible until the new Safeguard quota window opens on the 1st July supply has to tighten up as we step through each month in Q2. It is also worthy of note that Italian imports will clearly become more difficult with the coronavirus constraints on both production and logistics. With respect to replacement prices out of Turkey current prices are high due to the weak value of the £, so domestic prices in the UK have to rise over the next three months, but this will be somewhat curtailed by an anticipated weakening in demand.

Structural Sections
This is another product where stocks have remained high in the UK as everyone bought heavily in anticipation of price increases pre-Christmas and then demand suddenly weakened. The price increases had all failed by the time we entered February, but two factors will come into play on forward supplies.

1. Virtually half the UK supply is satisfied by EU imports and the 10% devaluation of sterling against the Euro must end up being reflected on import prices.

2. Over the weekend ArcelorMittal has declared a force majeure on raw materials supplied to its European steel mills. This signals a strong message on the likelihood of further mill closures. The likes of Duferdofin Nucor, Italy’s largest section producer is already closed and more must follow. When one of these mills goes down it leaves a huge hole in the supply chain. When more than one mill goes on lockdown availability will become analogous to trying in vain to purchase a fair share of necessary toilet rolls from one of Britain’s supermarkets!

These are only All Steels’ views, which we have generally been asked to share. However, we hope this provides you with some useful guidance on what is most likely to unfold in these difficult business times.

Stay safe.

Best regards,

Laurence McDougall
Managing Director