europe in focus

Metal ExpertEurope in Focus

March 2016

EU plate segment likely to recover only in 10 years or later

Steel consumption growth in Poland is only beneficial for overseas suppliers

Beltrame: Consolidation of profitability and cash generation – main focus for today

Long journey of European steel industry to new eco standards begins

Metal Expert

Iran in FocusMay 2016

Nuclear deal to breathe new life

into Iran’s steel export

Khouzestan Steel’s billet export

potential yet to be unleashed

Mobarakeh Steel:

exports the only way out

of recession in Iran

Interview:

EAF producers should become

more aware of DRI use

Metal ExpertSquare Billet in Focus

April 2016Nuclear deal to breathe new life into Iran’s steel export

Khouzestan Steel’s billet export potential yet to be unleashedMobarakeh Steel: exports the only way out of recession in Iran

Interview:EAF producers should become more aware of DRI use

Metal ExpertIran Perspectives in Focus

December 2015



Iran’s export potential

in longs and semis yet to be

unleashed

Mobarakeh Steel:

increasing exports is the only

way out of recession in Iran

IGISCO:




August 2015Billet imports to replace foreign scrap in Turkey

Al Jazeera Steel: “No point in own steel making”

Iron ore surplus not to rise in 2015

Metal ExpertEurope in Focus

March 2016EU plate segment likely to recover only in 10 years or later

Steel consumption growth in Poland is only beneficial for overseas suppliersBeltrame:

Consolidation of profitability and cash generation – main focus for todayLong journey of European steel industry

to new eco standards begins

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Main Topicsin Focus

Europe in Focus | March 2016 | 3Metal Expert

CONTENTS

STEEL PLATESOwn steelmaking becomes trial to plate producers in Eastern Europe 9

Eastern European steel plate sector is seeing just a slow recovery, even though the economic growth in the region is the most rapid in Europe.

IRON ORE IN EUROPEWhy European steel mills could not fully benefit from collapsing iron ore 22

Despite the well-publicized plunge in global iron ore price, steel mills in Europe failed to benefit from it as much as the Chinese did. Quarterly/monthly lags, higher quality of ore they consume, and depreciation of national currencies stand among the main reasons why.

EASTERN EUROPESteel consumption growth in Poland is only beneficial for overseas suppliers 12

Steel consumption in Poland is expected to grow in 2016, but local producers can hardly benefit from it as imports pressure persists.

Czech steel industry goes out of recession, but threatened by growing imports into EU 15Czech steel industry is showing signs of growth on economic upturn in the country, but a recovery is still fragile as its dependence on export markets remains strong.

Cloudy future for USSK 18

The future of the U.S. Steel Kosice (USSK), the major producer, which represents the Slovak steel industry, and belongs to American still giant US Steel Corporation, has become cloudy by the end of 2015.

TOP COMPANIESEU steel giants prepare to challenging year 2016 24Despite expected apparent steel consumption growth in EU by 2-2.2% in 2016 amid improving construction and automotive industries’ performance, major European mills anticipate further steel markets weakening mainly due to remaining pressure of growing imports.

Ilva:Production drop makes Italy world largest HRC importer 28More than 1 million t loss of crude steel output in Italy due to the historically lowest production level of the troubled Italian steel producer Ilva in Taranto made Italy the big-gest importer of HRC in 2015.

Beltrame:Consolidation of profitability and cash generation – main focus for today 30Almost a year ago at Made in Steel Exhibition & Conference held in May 20-22 in Milan (Italy) a recently appointed CEO of the leading EU manufacturer of merchant bars Riccardo Garre’ told Metal Expert about the company’s ongoing restructuring and the strategy for further development.

Feralpi: Survival strategy in truggling long product market 34Considering an extremely unfavourable situ-ation in the European long product market (low capacity utilization, plummeting prices, bankruptcy and closures of mills), one of the Europe’s leading producer of the construction steel – Feralpi Group – focuses on business internationalization, vertical integration and switching to niche segments.

STEEL PLATESEU plate segment likely to recover only in 10 years or later 6

Despite an anticipated economic upturn in the region, the plate segment in the EU is not expected to show fast recovery. The participants of the market believe demand and supply will become balanced in 10 years at the earliest.

FACTS & FIGURES

RISKSLong journey of European steel industry to new eco standards begins 40During one year after the adoption of the new EU framework for climate and energy, European still mills have been investing into the ecological projects in order to reduce carbon footprint and remain competitive.

Most important steel sectors still lack protection from EC 43Despite a threat of oversupply hanging over the European steel sector in 2015 amid high imports, the Regulatory Authorities are still too slow to implement necessary measures to defend the market.

4 | Europe in Focus | March 2016 Metal Expert

EDITORIAL

A positive influence of the decline in global iron ore prices that steelmakers started to feel in mid-2014 has faded away by H2 2015. The 2015 financial results will range from worse to disappointing. While the global steel industry is undoubtedly subject to cyclicity, this year it is approaching the bottom. No one in the market can exactly say when the next phase of growth starts and how intensive it will be.

European steelmakers are in a very tight situation. Following the economic crisis of 2008, consumption has plunged in the EU, with a negative impact being seen up to now – the performance in the key consuming sectors (like construction) remains below the pre-crisis levels. This leaves mills no chance to restore capacity utilization as well as adversely affects production costs and competitiveness.

Meanwhile, European steelmakers say the key problem is influx of cheap imports, mainly from China, preventing the companies in Europe to make use even of a slight upturn in consumption. In 2015 steel product exports from China amounted to 112 million t, hitting an all-time high, which corresponds to the North America’s steel yearly steel output. The situation is aggravated by the fact that the European Commission is reluctant to promptly launch

AD investigations, while the procedure can take twice as much time as in the USA, where local mills have developed the effective means to protect their interests.

Lakshmi Mittal, Chairman and Chief Executive of the world largest steelmaker ArcelorMittal said: “It is clear that China has a challenge to restructure its steel industry for a lower growth economy, but we are somewhat encouraged by recent comments concerning capacity closures. Until this situation is fully addressed the effective and swift implementation of trade defence instruments will be critical and we expect to see more positive rulings in this regard during the year.”

European steelmakers are adapting to this situation in different ways: some actively prepare AD investigation requests to protect their positions in European markets, while others keep switching to other sectors, like production of auto components, where competition is softer, or even consider exiting steel sector at least in Europe.

Almost all companies continue to implement long-term production cost optimization programmes, but the financial reports show they still cannot catch up with the plunging prices for steel products.

Tough year for European metallurgy


EDITORIAL

As for the present state of European steel market, it is important to mention the anticipated launch of new eco-standards to comply with which market participants will have to invest billions in the next few years.

Metal Expert: Europe in Focus has attempted to cover all these issues citing the particular cases of certain large European steel companies. Besides, we

have paid special attention to plate market as well as to the situation in Eastern Europe showing the fastest pace of consumption recovery, compared to other regions of Europe, as Metal Expert estimates.

Enjoy your reading,Andrey Pupchenko

Deputy Managing DirectorMetal Expert


EU plate segment likely to recover only in 10 years or later

Despite an anticipated economic upturn in the region, the plate segment in the EU is not expected to show fast recovery. The participants of the market believe demand and supply will become balanced in 10 years at the earliest.

For the past few years European plate makers as well as mills in other EU steel segments have suffered from weak demand and economic recession resulting in tougher competition on the back of overproduction even despite reduced capacity utilization rates. This caused non-stop pressure on prices and consequently mills’ profits. Positive forecasts for plate consumption in Europe as well as the planned investments into the EU economy (EUR 315 billion in 2015-2017) encourage optimism. However, there will be no fast rebound.

Due to weak market sentiment, European plate producers had to gradually reduce production increasing costs. European plate rolling facilities run at 90% in 2007, while in

STEEL PLATES


STEEL PLATES

the recent couple of years the rate dropped to 60-65%. “Profitability of any production facility directly depends on capacity utilization. Current margins of steelmakers, in particular mills producing commercial-quality plate, stay extremely low,” commented a board member, head of sales and marketing department at Germany’s Dillinger Hutte, Dr. Gunter Luxenburger. Some participants think that “European plate producers will have no chance to improve profitability, and it will take at least 10 years to achieve demand-supply balance.”

According to Eurofer’s forecast, steel consumption is likely to increase on growing GDP in the EU in 2016 and 2017 (2% and 1.9% up respectively). Specifically, plate demand in Europe will add no more than 2% year-on-year in 2016. However, the upturn will barely give strong support to European steel industry given stiffer competition with Ukraine and China.

In 2015 average monthly supplies of plates from the third countries to EU-27 amounted to some 220,000 tpm which corresponds to 32% rise compared to 2014, Eurofer’s data showed. China accounted to 53% (116,000 tpm) of supplies and Ukraine despite some reductions in volumes took the second place (23% or 51,000 tpm).

Current events gave place to discussions on the need to launch restrictive measures against plate imports from China and Ukraine. The official investigation is yet to be launched, and interested parties realize that the review can run over many months given too flexible policy of the European Commission. “The European Commission puts to death EU steel industry by its inaction against imports as well as environmental requirements,” conference members say. Eurofer continues to lobby tightening of the quality control for steel imported to the EU.

European plate suppliers can get support from the euro weakening which will make their products more attractive abroad.

However, there are just few new potential destinations, with the USA being the key market. Thus, Vincent Pairet, CEO of Industeel, suggests switching to niche segments with focus on clients’ specific needs. He also thinks that standard material always can find its buyers, so steelmakers should diversify production to maintain revenue position.

� EUROPEAN PLATE PRODUCERS WILL HAVE NO CHANCE TO IMPROVE PROFITABILITY

� PLATE DEMAND IN EUROPE WILL ADD NO MORE THAN 2% Y-ON-Y IN 2016


STEEL PLATES

European countries can get support from decreasing prices for oil and gas as well

as a European investment plan (EUR 315 billion in 2015-2017) to jump-start economy. On the other hand, a decline in power sources costs can affect investments into gas pipeline construction projects, so the market recovery will slow down. “There is no direct macroeconomic influence on plate market rebound. We should wait somewhat to see positive results, though the situation will surely improve,” said Dr. Luxenburger.

� EUROPEAN PLATE SUPPLIERS CAN GET SUPPORT FROM SWITCHING TO NICHE SEGMENTS


STEEL PLATES

Own steelmaking becomes trial to plate producers in Eastern EuropeEastern European steel plate sector is seeing just a slow recovery, even though the economic growth in the region is the most rapid in Europe. A steady overcapacity and surging imports from the CIS and Asia undermine margins of local mills, pushing the prices down further. The strict climate policy is adding to the market picture. In such circumstances, most mills have to reconsider their production strategy or even stop their own steelmaking.

Despite the fact that two main plate consuming industries, construction and shipbuilding, have been performing well in the region during the recent two years, regional producers have not managed to benefit from that. The share of plate imports in the EU rose from 15% in 2013 to 20% in 2014 and continues to grow further, according to Eurometal.

In Eastern Europe, deliveries from the non-EU countries surged by 15% to 530,000 t in 2014, which accounts for 26% of total imports from outside the region. The number already reached 427,000 t in January-August of 2015 (28% of total


STEEL PLATES

imports from outside the region). Among the major suppliers are Ukraine, Russia, South Korea and China. Despite the constantly falling raw materials, this has been putting a non-stop pressure on prices and, consequently, the profits of mills. “Nowadays margins of mills producing commercial-quality plate are staying extremely low,” a Polish mill told Metal Expert.

Besides, the competitiveness of steel producers in Eastern Europe is undermined by the necessity of significant investments in the environmental protection, according to the EU climate policy. In this part of

Europe, a pressure of the new ecological policy is more tangible than in other regions, as the operation life of most equipment in the local mills exceeds 20 years. Therefore, the companies have to combine in-house steel production with slab imports to remain competitive.

Poland’s major plate producer ISD Huta Czestochowa in September 2015 resumed slabs deliveries from Alchevsk, almost a year after it commissioned its

own steelmaking complex. Currently, the company is producing plates using both own and Ukrainian slabs. But the company’s management highlights that the mill would like to import “as much as possible to reduce production costs.” “Making own slabs at reduced capacity is expensive, given tough competition in the Polish plate market. Except traditional CIS suppliers we can see now increasing volumes from China, which doesn’t make it any easier,” a company representative told Metal Expert.

ISD Huta Czestochowa was forced to com-mis sion its steelmaking complex in mid-November 2014, facing slabs supply problems, as the Ukrainian supplier stopped shipments. In 2015, the company has been producing 35,000-40,000 t of slabs monthly, while an annual capacity of the EAF is 700,000 t.

Czech Vitkovice Steel, another important plate producer in Eastern Europe, idled its steel melting complex in September 2015. The company did not want to invest in the environment-friendly equipment to comply with the new ecological standards and decided to continue producing heavy plates as a re-roller. A designed slab CCM capacity of the mill is 965,000 tpy, but “operating rates did not exceed 50% for the last few years,” as a source close to the mill told Metal Expert. In 2014, Vitkovice Steel imported about 130,000 t of slabs, with almost half of the volume being ordered from Ukraine’s Alchevsk Iron and Steel Works. Now the company is going to source semis from the EU and Russia, Metal Expert learnt from the company’s statement. An estimated need of Vitkovice Steel is 400,000-500,000 tpy of slabs.

Also, Vitkovice Steel is going to reinforce its position as a leading producer of high-quality heavy plate in Europe in the near

� THE COMPANIES HAVE TO COMBINE IN-HOUSE STEEL PRODUCTION WITH SLAB IMPORTS TO REMAIN COMPETITIVE

� PLATES PRODUCTION BECAME UNPROFITABLE DUE TO SHARP COMPETITION WITH CHINA


STEEL PLATES

future. “Our current condition is at a decent level, and during the next few years we expect it to improve, because closure of the steelworks will allow us to further develop the operations of our Company,” said Dmitrij Scuka, Chairman of Vitkovice Steel.

Huta Batory, one more Polish plates re-roller (180,000 tpy), part of Pietrzak Holding, is facing serious financial problems. It is unable to successfully compete with imports, which challenges the company’s future as a steel producer. Pietrzak Holding filed for bankruptcy at the end of November 2015. The main reason for the company’s financial insolvency was falling steel prices. Plates production became “unprofitable due to sharp competition with China,” a local source commented.

ArcelorMittal Galati, the sole Romanian plate producer, is running only one BF (2 million tpy) of five (a total capacity is 6.13 million tpy). ArcelorMittal Europe CEO Aditya Mittal underlined that the Romanian market remains fragile and the “growth is

very poor.” The company prioritizes exports in its sales strategy. In 2014, plate exports from Romania reached almost 300,000 t, while in the first eight months of 2015 the number climbed to 236,000 t, according to Metal Expert data. Almost 50% of that volume goes to Turkey. Among other destinations, big volumes are being delivered to Poland, Germany, Czech Republic.

The economy of Eastern Europe is expected to grow a still healthy 3% in 2016, benefiting from the Eurozone’s ongoing economic recovery amid low oil prices and an expansionary monetary policy. This could be reflected in somewhat better plate consumption. The planned investments into the EU economy (EUR 315 billion in 2015-2017) also encourage optimism. However, there will be no fast recovery. “There is no direct macroeconomic influence on plate market rebound. We should wait maybe years to see positive results, though the situation will surely improve,” a source in the market commented.


EASTERN EUROPE

Steel consumption growth in Poland is only beneficial for overseas suppliers

Steel consumption in Poland is expected to grow in 2016, but local producers can hardly benefit from it as imports pressure persists. Competition with overseas suppliers is sharp due to high electricity tariffs, taxes and costs for upgrades of the equipment which has been in service for 30-40 years.

Poland’s apparent steel consumption in 2015 was 12.5 million t, up from 12.1 million in 2014, with only about one-third of domestic material, Poland’s Metallurgical Chamber of Industry and Commerce (Hutnicza Izba Przemyslowo-Handlowa, HIPH) reports. This figure is expected to climb by another 2-3% in 2016 as the largest steel consuming sectors – construction and automotive – maintain positive growth, Metal Expert learns. By 2020 apparent steel consumption will


EASTERN EUROPE

reach 20 million t, the Polish Minister of Economy reported. Statistics are in favour of such optimism. In 2015 Polish mills melted 9.106 million t of steel, 6.4% up year-on-year, according to the World Steel Association, which is the highest figure since 2008. The increase is due to improvements in buying by the main consumers – builders and car manufacturers primarily.

However, domestic producers cannot fully benefit from steel consumption growth as imports eats up a major part of it. In 2015 imports share had almost reached 70% in overall domestic consumption. Taking into account such tendency, local producers insist that production increases become viable only if imports do not “eat up” some of consumption.

Polish market players report low competitiveness of domestic industry comparing with both the CIS and other EU countries. The national currency devaluation in Russia and Ukraine promoted higher supplies from these countries. Specifically, imports of HR coils from Russia to Poland in January-September climbed by 22% year-on-year. Besides, Byelorussia has significantly extended its presence in Poland’s rebar market: in January-September 2015 rebar imports from Byelorussia to Poland jumped to 137,000 compared to 41,000 in 2014. Polish steelmakers fear that “they are losing their own market.” With high electricity costs and environmental expenditures, plants are becoming more vulnerable to cheap imports. Besides, CIS exporters spend much less on raw materials, in particular scrap, as compared to EU suppliers. “It is impossible to compete with mills that source scrap by an average of EUR 100/t lower, than we do,” a Polish mill told Metal Expert.

Growing quantity of non-European cheap material coming to Poland and other EU countries hampers the price growth, which will depress margins of local mills. “In early December 2015, CIS HRC were quoted an average of EUR 30-40/t below domestic material. In the longs segment, the gap is some EUR 15-20/t,” a representative of Polish mill told Metal Expert.

The companies running blast furnaces have problem with increasing costs for CO2 emissions and need to take measures to make production more environmentally friendly in line with the EU standards. In particular, ArcelorMittal’s Polish division reported a need to invest about EUR 400 million into equipment upgrade to correspond to the new environmental policy of the European Commission. New technologies require increased gas consumption, instead of coal and coke, while prices for gas in Poland are among the highest in the EU.

Moreover, steelmakers are concerned about the EU decision to create Market Stability Reserve (MSR) ahead of time – in 2019 instead of 2021. They believe this will affect competitiveness of both European and Polish steelmakers, as quotas for CO2

� APPARENT STEEL CONSUMPTION IN POLAND WILL REACH 20 MILLION T BY 2020

� IN 2015 IMPORTS SHARE HAD ALMOST REACHED 70% IN OVERALL DOMESTIC CONSUMPTION


EASTERN EUROPE

emissions will get more expensive. “Pre-term introduction of MSR will affect our positions against overseas suppliers who face no expenses related to CO2 emissions,” a member of the BOD of ArcelorMittal Poland Surojit Ghosh told WNP.

Poland’s government started to come from words to actions in July 2015, granting local steelmakers support in an important area that had been undermining competitiveness of the Polish metallurgy over recent years, namely environmental projects. In early July 2015, the government of Poland has accepted a Slask 2 programme for Silesia

region envisaging reduction of excise duty on electricity for steelmakers, Metal Expert learns. About 1/3 of the country’s steelmaking companies are located in this region including assets of ArcelorMittal Poland in Krakow city, Dabrowa Gornicza, Swietochlowice, Sosnowiec, Chorzow and CMC Zawiercie, ISD Huta Czestohowa and others. “A decision to partially free producers from electricity excise duties and renewable energy duties included in its cost will drive down production costs. In case with metallurgical plants, this should boost steel smelting…,” documents of the Slask 2 state.

Besides, manufacturers will be able to use money means of environmental funds to subsidize their own environmental projects. Thanks to this programme, local mills will be able to annually save about PLN 1 billion (EUR 224.7 million; EUR 1 = PLN 4.45), the Polish Steel Association HIPH calculated.

� PLANTS ARE VULNERABLE TO CHEAP IMPORTS AMID HIGH ELECTRICITY COSTS AND ENVIRONMENTAL EXPENDITURES


EASTERN EUROPE

Czech steel industry goes out of recession, but threatened by growing imports into EUCzech steel industry is showing signs of growth on economic upturn in the country, but a recovery is still fragile as its dependence on export markets remains strong. Up to 70% of total steel output in Czech Republic is exported predominantly to other European countries, so growing imports from third countries to the EU is a threat to local steel mills.


EASTERN EUROPE

The Czech economy has finally started to recover from recession. In 2014 GDP has inched up 2%, while in 2015 the increase is forecasted to reach 2.5%, according to Czech Steel Federation. Nevertheless, the dependence on external demand is strong as exports account for 84% of the country’s GDP. In 2015 crude steel output in Czech Republic reached 5.262 million t, which is almost equal to 2014 results. That is the second result in Eastern Europe after Poland.

One of the main consuming industries – automotive – provided a strong support to steel sector in 2014 and 2015, while construction is recovering slowly. “Automotive industry is showing us a strong support each month. Construction is running not so well, but it also is starting to show minor signs of recovery. We expect some slowdown throughout summer, but in general prospects are more than positive,” a local trader told Metal Expert.

Automotive industry is expected to grow 4.8% in 2015 and 4.3% in 2016. “Lately we’ve been enjoying an increase in orders in Europe,” a local mill commented to Metal Expert. The country hosts major car manufacturers like Skoda, Toyota/PSA joint

� AUTOMOTIVE INDUSTRY GROWTH AT 4.3% PROVIDED A STRONG SUPPORT TO STEEL SECTOR IN 2016


EASTERN EUROPE

venture, Hyundai. These three companies together produced over 500,000 vehicles at the Czech factories in 2014, Metal Expert has learnt from Czech Steel Federation report. Nevertheless, major part of this amount have been exported. For example, out of 1 million units sold by Skoda in 2014 only 70,000 went to the Czech domestic market.

Exports are the most important part of the Czech economy. Having a national currency (Koruna) makes it beneficial as its depreciation encourages companies for overseas sales and makes exports more competitive. This effect is being supported by the government, whose policy of interventions is aimed at keeping the CZK/EUR exchange rate above 27. A recovery currently observed in most EU countries should secure sustainable growth of exports in 2015.

Nevertheless, the rising imports from third countries to the EU remain a serious risk factor for Czech steel industry. About 80% of the country’s exports goes to the EU countries. In 2014 67% (3.568 million t) of overall Czech steel output was exported, including almost 30% (997,100 t) to Germany alone, and 18% (651,980 t) to Poland. According to Eurofer, in 2014 imports volume to EU countries from China only grew by 49% to 5 million t, which puts additional pressure on local steel producers as their competitiveness is undermined the necessity of significant investments in the environmental protection, according to the EU climate policy.

� IMPORTS REMAIN A SERIOUS RISK FACTOR FOR CZECH STEEL INDUSTRY


EASTERN EUROPE

Cloudy future for USSKThe future of the U.S. Steel Kosice (USSK), the major producer, which represents the Slovak steel industry, and belongs to American still giant US Steel Corporation, has become cloudy by the end of 2015. Despite the recovery of the Slovakian construction industry, close proximity to numerous facilities of globally renowned automobile producers and government support, the performance of the company itself and of its owner in 2015 has been hit by cheap imports which made the American investor unsure about the future prospects of the Slovak mill within the group’s structure.

Slovakia has not been left untouched by the growing volumes of dumped steel imports from third countries into EU. As the USSK is usually not very flexible in pricing, availability of cheap imports in the company’s main outlets undermined its position. In a response to difficult steel market conditions in Europe USSK has idled one BF (1.975 million tpy) in early

December 2015 to cut production. The mill, able to produce 5 million t of pig iron in three BFs annually, now operates only one BF (1.2 million tpy). “We are currently facing massive import of products from countries which do not have to bear the same financial and regulatory obstacles faced by producers in the European Union,” the spokesman confirmed.


EASTERN EUROPE

On the back of the mentioned above situation since mid-December, 2015, the rumours regarding a possible sale of U.S. Steel Kosice to another Czech steel company Moravia Steel has been circulating in different sources. Both companies declined to bring the light to the situation. But it seems to be clear that American owner again started to look ways to get rid of the asset, despite the government support and quite promising location with a good approach to other EU markets.

Being the only flat steel producer in Slovakia, U.S. Steel Kosice is the key supplier for construction (38% of shipments) and transport (16%) industries at home and in neighbouring countries. The company focuses on the construction segment because it specializes in high value-added products, with coated products (HDG, PPGI, tinplate) accounting for

almost one third of the overall sales, according to the information provided in the company’s report. Considering that the Slovak construction industry jumped out of recession in 2015 with an increase of 15% y-o-y over the first nine months of 2015 and in view of Eurofer’s positive forecasts for 2016 (steel demand from construction will gain 2.6% in the EU), the mill is likely to improve its position.

The automobile industry, another important sector for the supplier, is expected to be

� USSK IS THE KEY SUPPLIER FOR CONSTRUCTION AND TRANSPORT AT HOME AND IN NEIGHBOURING COUNTRIES


EASTERN EUROPE

more promising. Slovakia, one of the top twenty automobile producers in the world, hosts plants of Volkswagen (Bratislava), PSA Peugeot Citroen (Trnava), KIA Motors (Zilina) and facilities of global suppliers of components and spare parts. According to the European Automobile Manufacturers Association (ACEA), production of passenger cars to rise by 4.6% in 2015.

The mill’s output is mostly shipped directly to end users (67%); shipments to service centres account for 16%, those to trading companies and other distributors – 7%. U.S. Steel Kosice says in its annual report that 50% of the material is shipped under the long-term contracts, while the rest is sold in the spot market. However, the mill seeks to increase the share of long-term contracts with both local and foreign customers, participants of the European market told Metal Expert. Apart from the domestic market, the main sales markets are Poland, the Czech Republic, Italy, Germany, Hungary and Turkey.

The company is not very flexible in pricing. “U.S. Steel Kosice traditionally offers the highest surcharges for its products. In this case it is more reasonable for us to buy a part of volume from other suppliers, for example from Hungary’s ISD Dunaferr, who offers the same base price and lower surcharge,” a Slovak service centre told Metal Expert.

In order to retain the market share U.S. Steel Kosice keeps pace with other European mills in development of new products,

particularly of extra high strength and light steel for car bodies and components, which reduce car weight and consequently CO2 emissions. “In order to stay competitive in the current circumstances, every steelmaker should invest into development of innovative products with high added value,” the company management comments in the 2014 report.

The company’s operating income increased five-fold in 2014, to $133 million, but in 2015 the result dropped again by almost 40% y-o-y amid more challenging market starting from H2. “Full-year 2015 results for our European segment decreased from 2014 as the benefits from our Carnegie Way [optimization programme] efforts could not counteract the negative price and foreign currency impacts,” U.S. Steel management commented. Besides, the fact that the parent company, the US Steel Corporation, posted a net loss of $1.5 billion in FY 2015 brings even more concerns over the future of its Slovakian asset.

In 2012, the mill already was under a threat of losing its main investor because of negative outlooks for the European steelmaking industry. However, owing to efforts of the Slovak government and optimistic outlooks for the domestic automobile industry, the US parent in 2013 decided not to sell the mill in Slovakia. In order to save thousands of jobs, the Slovak government and US owners of the mill signed a memorandum of understanding on March 26, 2013. Under the agreement, in 2013-2018 U.S. Steel Kosice received discounted electricity tariff and environmental tax and assured the government that it would not lay off its personnel. According to preliminary estimates, this will help the company save around EUR 14 million annually.

� STEELMAKERS SHOULD INVEST INTO DEVELOPMENT OF HIGH VALUE ADDED PRODUCTS TO STAY COMPETITIVE


EASTERN EUROPE

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Metal ExpertIran Perspectives in Focus

December 2015



Iran’s export potential

in longs and semis yet to be

unleashed

Mobarakeh Steel:

increasing exports is the only

way out of recession in Iran

IGISCO:




August 2015Billet imports to replace foreign scrap in Turkey

Al Jazeera Steel: “No point in own steel making”

Iron ore surplus not to rise in 2015

Main Topicsin Focus

COMPLIMENTARY TO WSN SUBSCRIPTION


Why European steel mills could not fully benefit from collapsing iron ore

Despite the well-publicized plunge in global iron ore price, steel mills in Europe failed to benefit from it as much as the Chinese did. Quarterly/monthly lags, higher quality of ore they consume, and depreciation of national currencies stand among the main reasons why. Still, owing to better parameter of steel the Europeans produce as compared to the Chinese, tight competition observed in the low-grade segment only.

IRON ORE IN EUROPE


IRON ORE IN EUROPE

The first answer to the question why is quarterly or monthly lags, still preserved by some companies, meaning that the index part of the price they pay in Q2, for instance, is a reflection of Q1. With iron ore almost halving in 2015, this is something to offset the fast collapse, too. “I hear that one of the largest companies in Germany still has lags,” one of the sources said. Nonetheless, the number of such steelmakers has been falling for several years already and it is expected that mills will continue to retreat from this kind of contracts further. “We used to have lags till 2011, but had to give up on that in order to be able to keep up with the times,” a mill source told Metal Expert.

Also, there are only few mining companies to satisfy iron ore requirements of the EU mills, which results in lower price competition in higher-grade segment. “Those miners are in position to ask for high pellet Premiums, as the quality from other countries, for example CIS, is not comparable with what we can purchase from Brazil and Canada today. While chemical characteristics are good, mechanical strength and metallurgical behaviour in the BF is not complying with our needs,” a mill source from Western Europe said. Premiums for pellets, which the EU consumes more than China in terms of ratio, have varied within $30-40/t in 2014-2015 depending on quality of the product. Moreover, the gap between the medium-grade 62% Fe and low-grade 58% Fe – benchmarks Chinese steelmakers buy in large quantities – and the most popular within the EU Carajas fines 64-65% Fe although thin now, could reach up to $10/t and $16/t respectively one a year ago.

Less beneficial situation was also driven by depreciation of national currencies against

the US dollar, with the latter used as a reference in most iron ore contracts. In 2015 the euro lost 20% and according to analysts, it will continue to slide throughout 2016.

Western Europe is known for producing high-quality steel with prices, although dampened by cheap material from China, but still profitable given uplifts for higher grades. The true concerns rise for companies that produce commercial steel, though. This has already resulted in a number of anti-dumping investigations, which are to be completed later in a year. Until then, however, mills will most probably be very much squeezed by less expensive import from China.

� THERE ARE ONLY FEW MINING COMPANIES TO SATISFY IRON ORE REQUIREMENTS OF THE EU MILLS


EU steel giants prepare to challenging year 2016Despite expected apparent steel consumption growth in EU by 2-2.2% in 2016 amid improving construction and automotive industries’ performance, major European mills anticipate further steel markets weakening mainly due to remaining pressure of growing imports. EU top steel producers have already revised their future profit targets and make a bid mainly for the successful implementation of optimization programmes and diversification of businesses in 2016.

A steel giant ArcelorMittal which financial performance in 2015 was hit by falling steel prices and imports pressure expects 2016 to remain challenging for the industry, with the modest apparent consumption pick-up of up to only 1% y-o-y. However, ArcelorMittal hopes for the more effective trade defence measures from the EU.

“…2016 will be another difficult year for our industries. It is clear that China has a challenge to restructure its steel industry for a lower growth economy but we are somewhat encouraged by recent comments concerning capacity closures. Until this situation is fully addressed the effective and swift implementation of trade defence instruments will be critical and we expect to see more positive rulings in this regard during the year,” Lakshmi Mittal, ArcelorMittal Chairman and CEO said. The company intends to reduce its net debt by around $ 4 billion in 2016 by the issue of $3 billion worth of shares alongside with sale of 35% stake in Spain’s automotive metals component firm Gestamp for $1 billion till June 2016.

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� 2016 WILL BE ANOTHER DIFFICULT YEAR FOR STEEL INDUSTRY


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Despite being less affected by negative price trend, Austrian voestalpine is concerned about further deterioration of steel markets in Europe in 2016 amid imports pressure, chronic overcapacity and overall unpromising situation in global steel market. “Up to now, voestalpine has only been marginally affected by the negative development of steel prices due to its focus on premium products in both the energy and steel sectors and was able to largely

compensate it by concentrating on other industrial segments and economic regions. But this strategy will now become more difficult in the second half of the business year [September 1, 2015 – February 29, 2016], despite the overall slight upward trend in Europe and a largely stable economic development in North America, as very little demand to speak of can be expected from other global regions,” according to company’s statement.


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Voestalpine has adjusted downwards its revenue target from EUR 20 billion to EUR 15 billion by the end of the five-year programme “Strategy 2020” ahead of complicated market prospects. Steel will continue to remain the core material base for the Group in the future, but at the same time, the company has an intention to use more of other metals such as titanium and aluminium in processing activities.

Additionally, voestalpine is going to follow its internationalization strategy. In particular, the company targets to increase revenue share generated outside the EU from 25% to 40% by 2020. Voestalpine plans to focus more on NAFTA region (Canada, USA, Mexico). Besides, the company plans to obtain EUR 800 million revenue from its 10 operating mills in China by 2020.

Sweden’s SSAB anticipates slight upticks in demand both in Europe and in North America during 2016. Despite that, SSAB sees that the global situation still involves many factors of uncertainty that will take a long time to resolve. “Although SSAB considers free trade to be important with regard to development of the global steel industry, the current situation of unhealthy competition means measures are called for to preserve the steel industry in Europe and North America,” SSAB’s CEO

Martin Lindqvist commented in the Q3 2015 report.

SSAB has several initiatives to reduce costs, targeting to save SEK 2 billion (EUR 190 million), mainly through synergies following the acquisition of Rautaruukki in 2014. SSAB is also focusing to grow its Special Steel Division through developing unique applications of high strength steels and growing its service offering, including the after-market business.


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Thyssen Krupp Steel Europe in FY 2015-2016 (October 1, 2015 – September 30, 2016) expects to achieve positive key performance indicators thanks to the “Best-in-Class Reloaded” programme which includes differentiation initiatives for steel grades and extensive sales optimization efforts. Company’s CEO, Heinrich

Hiesinger, expects that risks connected with overcapacity, as well as regulatory decisions will lead the market to the consolidation. “The steel industry is now facing enormous risks and has to fight for its existence. If the opportunity to consolidate arises, we will be involved in it,” the company’s head said in the interview to the Welt am Sonntag.

Tata Steel Europe which suffered the most among EU steel producers in 2015 from high imports from third countries and a strong British pound, sees the way out by focusing on value added products. In FY 2013-2014 the company managed to launch 30 new products, in FY 2014-2015-35, in the first six months of 2015-14. In 2016 Tata Steel Europe hopes for governmental support to implement defending measures. “Across Europe we are calling on governments to ensure the European Commission upholds international trade rules firmly and more speedily,” said Dr Karl-Ulrich Kohler, MD & CEO of Tata Steel in Europe. As a result of adverse market conditions, last year company closed hot strip mill in Llanwern (3 million t

of HRC), suspended operations of a hot-dip galvanizing line in Shotton, mothballed its plate mills in Scunthorpe (625,000 tpy), Dalzell and Clydebridge (400,000 tpy) and one of two coke ovens operating in Scunthorpe. Moreover, seeing no perspectives, the company decided to sell its Long Products Europe business in northern England by April 2016.

So the upcoming year seems to bring more risks for the EU steel sector. And the most important steps that need to be done to support the industry are the activation of defence measures, focusing on downstream segments and intensification of the consolidation process, according to major EU steel companies.


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Ilva:

Production drop makes Italy world largest HRC importer

More than 1 million t loss of crude steel output in Italy due to the historically lowest production level of the troubled Italian steel producer Ilva in Taranto made Italy the biggest importer of HRC in 2015. Considering still unclear future of the major Italian steel mill which is currently in the process of sale to the private investor, the country has all chances to remain one of the most desirable destinations for the HRC suppliers all over the world at least for the next year.

Ilva, which, according to the European Commission (EC), is the largest steel plant in Italy and in the EU is capable of producing 10 million t of steel annually (11.6 million of HRC & sheets) or 40% of Italian steel production. Despite the fact that Ilva’s crude steel production has never exceeded 9 million t per year, since the start of the pollution scandal in 2012 it has been


TOP COMPANIES

facing output reductions. From recorded in 2011 8 million t Ilva’s output dropped to less than 5 million t in 2015 which corresponds to 40% decrease. The most significant drop happened in 2015 when the company had to stop production at its biggest BF No5 (3.7 million t of pig iron) to run an environmental modernization and had some production interruptions at BF No2 due to the mortal accident with the worker. This led to a loss of more than 1 million t in output.

Currently, the mill runs only two blast furnaces of five existing – BF No.2 (2 million t) and BF No.4 (2.3 million t). The company is producing around 14,500 t of steel per day since late September, 2015. Such capacity utilization rate causes EUR 40-50 million loss every month as the breakeven point is 22,000 t per day, Metal Expert learns from local sources. Moreover, Ilva keeps losing customers staying aside of new technologies implementation and new steel types development, local unions warn. “The company has not managed to fully regain the customers trust and it is still considered as unreliable supplier,” Italian trader told Metal Expert. “If the situation does not change in near future, the mill may completely give up its market share which used to be 7-10% of EU market before 2012,” another market source commented.

This situation led to the activation of foreign HRC suppliers into Italy. In January-November of 2015 the country imported 6.210 million t of HRC (+23.3%), of which 3.578 million t (+71.2%) came outside the EU. The most impressive supply growth showed China with 916,700 t (+291.1%) and Iran with 698,100 t (+137%) in eleven month of 2015, according to Metal Expert data. Among the important suppliers remained Russia with 651,100 t (+29.4%). Have not missed the opportunity to increase their presence in Italy in 2015 also Ukraine (+43.5%), South Korea (+157%) and

Turkey (+24.3%), but the volumes these countries sold to Italy remained in the range of 200,000-300,000 t of HRC per year.

Given that EC has started an antidumping investigation against Chinese HRC and Ilva’s future still seems to be cloudy on the back of searching of a new investor, Italy will remain an attractive destination for the foreign suppliers in 2016. First of all Iran will keep using this opportunity as it is eager to increase its exports to Europe. CIS suppliers will maintain the market share, but considering the introduction of the antidumping duty on CRC they will hardly take risks by significantly increasing their presence in Italy in HRC segment. On the other hand South Korean and Turkish exporters will not hesitate to improve their presence in Italy. Also in case of favourable market conditions, Brazil and India can be back to the market.

Ilva’s future is set to be decided by the end of H2, 2016, when the government hopes to close the deal with the private investor. Among the 19 companies permitted to take part in the next round of the tender there are ArcelorMittal, Arvedi, Marcegaglia, Eusider, Tecnotubi, Brazil’s CSN Steel and Switzerland’s Trasteel International and Turkish Erdemir.

� ILVA KEEPS LOSING CUSTOMERS STAYING ASIDE OF NEW TECHNOLOGIES AND NEW STEEL TYPES DEVELOPMENT

� HRC IMPORTS TO ITALY ROSE BY 23.3% TO 6.21 MILLION T OF HRC DURING JANUARY-NOVEMBER, 2015


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Beltrame:

Consolidation of profitability and cash generation – main focus for todayAlmost a year ago at Made in Steel Exhibition & Conference held in May 20-22 in Milan (Italy) a recently appointed CEO of the leading EU manufacturer of merchant bars Riccardo Garre’ told Metal Expert about the company’s ongoing restructuring and the strategy for further development. Since the situation has not changed much over the year, Metal Expert is sharing again the strategy of the powerful player in the EU struggling market.

You have been appointed CEO of Beltrame Group at the end of the year, a time believed to be a turning point for the European steel industry. But so far business conditions, especially in longs segment of Europe, remain challenging. What helps the company to survive?

I think that in this very challenging environment what is supporting the company and allowing it to survive is the differentiation, which is going on in terms of service and its availability for our customers. What we try to do is to re-establish our range of products which was partially lost in a few countries, especially

in France, in order to be able to supply the customers with all products and to be fast in processing. And then also to measure a performance by service rates, which are now showing that we perform well vis-a-vis to the customers concerning the supply chain and offer them quality and reliability.


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So I think today, despite the poor demand, these are supporting the group and giving us

the possibility to achieve a price premium, which is a strong competition advantage.

Beltrame is the biggest merchant bars producer in Europe. As far as Metal Expert concerned, in the previous years, Beltrame covered approximately 50% of the EU needs and had presence almost in all the EU countries. How would you describe the position of Beltrame in the EU market at the moment?

With over 2,000 employees (800 in Italy), three steel mills and ten rolling mills operating in six production plants in Italy, France, Switzerland and Romania, production of about 2 million tonnes of rolled steel profiles and a consolidated turnover of EUR 1.1 billion in 2014, the Beltrame Group keeps being a leading European player in the steel sector.

During the last period, we consolidated the market share in all countries. Our focus now is to develop in those countries where our presence is poorer. I am thinking about Germany, Eastern Europe, markets outside EU.

In those countries, we are aiming to strengthen the sales team to improve the proximity to the market and to be more effective with supply chain in the way this can give us a possibility to increase the volumes and our market shares.

Which countries in Eastern Europe are you going to approach?

We already have a company in Romania named S.C. Donalam SRL (Bucharest), which is now developing well. It produces SBQ and plates, and the volumes are growing during last 2 years.

From Romania we can cover other eastern markets. In particular, we try to grow in

Poland, Hungary and Czech Republic. Also it is important to improve our presence in Switzerland where we also have a production site which is operative [Stahl Gerlafingen, 1.05 million tpy].

So we are trying to get volumes from increasing market shares in those countries.

If you were to characterize the essence of what is happening in Europe’s long steel market today in a few words, what would you say?

I think it is clear that with crises and shrinking volumes there is an increasing overcapacity all over Europe. This caused excessive competition, sometimes very cruel competition, which has already affected a few players.

Today we are observing the picture, where there are only few players struggling, while

others are trying to survive with existing volumes.

That’s why in Europe we should achieve consolidation of production in the long products market. I believe it will come soon, because we have many producers and high overcapacity which is of course deteriorating

� OUR FOCUS IS TO DEVELOP IN THOSE COUNTRIES WHERE OUR PRESENCE IS POORER – GERMANY, EASTERN EUROPE, MARKETS OUTSIDE EU


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the market in terms of commercial margins and profitability. I believe that now when we have a few companies suffering is a good point to start a consolidation process.

As you already mentioned some companies in the segment you work are in troubles. In particular, the Italian market has recently lost Stefana Spa. Has the competition softened due to this fact?

We are more involved in merchant bars business than beams, so Beltrame did not get so much advantage from Stefana stoppage. That’s true that we won some volumes, but this is not a real difference.

But for sure this will change a bit the market from the commercial margin point of view. I mean that in Southern Europe the collapse of Stefana may give a possibility to be more ambitious with prices for merchant bars.

Beltrame is now going through restructuring. You have recently put on sale equipment of production sites in Luxemburg, Belgium and Italy, but at the same time are willing to reopen San Giovanni Valdarno mill. What is this decision connected with, considering excessive supply in the EU?

The decision to stop and sell assets in Belgium and Luxemburg has been made because the overcapacity was very high and we have not managed it. We also decided to stop the steel mill in San Didero [800,000 tpy] in Italy, but to keep the rolling mill [650,000 tpy] there operative.

We will continue production at San Didero and San Giovanni Valdarno [200,000 tpy] in Italy because they are supporting our strategy of being best in service and to complete the range of products. By keeping

only French factory [Lamines Marchands Europens, 950,000 tpy] and Italian factory in Vicenza [1.2 million tpy], it would be impossible to produce all products and to be flexible.

So, finally, now our team is durable and solid. We have two main plants for merchant bars in France and Italy and two smaller plants, which give us a possibility to be reactive and flexible and to complete the range of products, which is a real competitive advantage of the Beltrame Group today.

Do you plan to extend your presence outside the EU, considering better opportunities thanks to weak euro?

Yes, we try to do that. At present, we are trying to cover all countries or to grow where the currency is US dollar. This is not a massive part of our business, but it is developing and supporting the possibility to reach a saturation of our plants in Italy and in France.

� EUROPE SHOULD ACHIEVE CONSOLIDATION OF PRODUCTION IN THE LONG PRODUCTS MARKET

� NOW IT IS NOT A GOOD MOMENT OF THINKING ABOUT INVESTMENTS


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What measures have you already introduced to comply with the EU environmental plan?

I think that the EC has been efficient since ever in terms of regulation of CO2 emissions and energy saving. We have already developed a few actions at our plants, ful�lling the rules. We try to be strict with EU law because we believe that it is

giving some advantages from the image point of view. All plants all around the perimeter are managed in the ful�lment with the EC environmental regulation without exceptions.

Are you going to obtain any support from the EU huge investment initiative called Junker’s plan?

Today the main focus of Beltrame is the consolidation of pro�tability and cash generation. It does not make any sense for us to invest even if we can get the money from the EC funds at very low interest rate.

At this moment, we have to show that our pro�tability is improving. We are on track of doing that. We are consolidating further

the production perimeter and saturating further our production capacity. Only after this phase is completed, we will take care of evaluating whether with public money we can get an advantage. But right now it is not a good moment of thinking about investments when the main purpose is to maintain pro�tability and enhance the trust of the banks.

About AFV Beltrame Group

The AFV Beltrame Group has been operating in the steel industry for more than a century, producing rolled sections for construction, shipyards and excavators. 2016 will be the year of the company’s 120th anniversary. Five entrepreneurial generations led the Beltrame Group to become a leader in Europe in the production of merchant bars intended for construction, mechanics, shipbuilding and earth-moving machines. The Group is also a leading producer of rebar for the Swiss market and special pro�les for the automotive and mechanical manufacturing sectors.


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Feralpi:

Survival strategy in struggling long product market

Considering an extremely unfavourable situation in the European long product market (low capacity utilization, plummeting prices, bankruptcy and closures of mills), one of the Europe’s leading producer of the construction steel – Feralpi Group – focuses on business internationalization, vertical integration and switching to niche segments. Even though most European companies consider the asset optimization programme (sale or closure of non-core assets) as the only way to regain profitability in the current conditions, Feralpi Group continues investing into acquisition of new facilities to optimize the supply chain and get closer to its key customers.

The EU long product market, especially in Italy, has witnessed no improvements in the past six years. Even in 2015, when many European countries enjoyed the economic

growth, Italy ran risks due to the weak construction sector. “The construction sector edges towards recovery but remains Europe’s weakest as it is still around 40% below the highest pre-crisis level that was registered between September 2007 and August 2008,” the Eurostat’s research said.

Earlier, reduced domestic consumption of longs was completely compensated with sales to Algeria, accounting for more

� SALES TO ALGERIA ACCOUNTING FOR MORE THAN A HALF OF ITALIAN LONGS SUPPLIES –3.5 MILLION TPY


TOP COMPANIES

than a half of Italian longs supplies (some 3.5 million tpy), but starting from 2016 the situation in the key export destination will get worse. The new Algerian government elected in April 2014 has a clear intention to reduce the country’s dependence on imports. The country is deeply concerned about the falling oil prices which make it even more eager to cut import flows. The tightening, by the means of import licenses, that will affect the ongoing year, depreciation of the local currency and numerous projects of domestic steel capacity expansion are among the main challenges for EU longs suppliers to Algeria.

According to the information coming from Algerian distributors, since 2016, Algerian rebar market may become much narrower for foreign rebar suppliers after the introduction on January 14 of a quota restricting rebar imports to 2 million t per year. Practically that means that Southern European exporters (Italy, Spain, Portugal) will lose around 500,000 t or 20% of their total yearly rebar supply to Algeria, Metal Expert estimates. Despite this, Feralpi has decided to avoid leaving the market. Besides, the company cautiously seeks to strengthen its influence and become nearer-located to its major customers.

The first steps towards Feralpi’s stronger presence in Algeria were made back in 2013 by launching the commercial company Feralpi Algerie in Oran, owned by 70% by a Feralpi holding and by 30% by an Algerian partner. The company has a storage premises capable of holding 30,000 t of rebar and wire rod. “With this new company we intend not to replace our traditional channels (30% of international traders and 70% of direct imports) but integrate them from the point of view of the direct knowledge of the market in the country,” Giuseppe Pasini, the President of Feralpi, explained this strategic step.

Much tougher competition and a more complicated process of finished product sales from Europe to Algeria could push Feralpi Group to establish its own longs production in the country. In spring of 2015, it announced a project for construction of a rolling mill in Algeria for a total of some EUR 35 million. According to the current regulations in Algeria, Feralpi may not own more than 49%, so the remaining 51% will be left to an Algerian investor. The designed capacity of the mill will be 300,000-400,000 t per year, the company has declared. Now in the situation with imports limitation this step seems to have


TOP COMPANIES

a great potential to succeed. “We will not abandon the plan to build a steel mill in Algeria even if we intend to proceed with extreme caution,” Giuseppe Pasini commented.

Billets will be purchased in international markets. Owing to cancellation of a 15% import duty on square billet in 2013, the material of CIS, Turkish, Chinese and other origins became available in the Algerian market. However, semis imports in Algeria amount just to 200,000-250,000 t annually so far. CIS exporters are the leading suppliers, accounting for 50% of that volume, Metal Expert’s data show.

Before the introduction of import quota for rebar, Giuseppe Pasini, mentioned that the

Algerian market would remain attractive to European exporters at least for the next three years in spite of large-scale expansion projects in the country. Longs capacity in Algeria, according to Metal Expert data, may gain additional 3.5 million tpy by 2017, so the total designed capacity will be 6.9 million tpy which is twice as much as the current longs import from the EU. “Algeria will remain a key importer of European steel products for the next three years. Only after this period manufacturers will have to face competition from new local companies. Today Algeria imports nearly 4 million t of steel products, with a domestic output no more than 1.2 million tpy locally. Therefore, we are still far from Algerian self-sufficiency,” he said in one of the interviews to local media. But even with the quota which is now restricting only rebar imports, Feralpi as a key player in the market will hardly lose its positions being closer than any other supplier to the customers. “The news that Algeria is decreasing its steel imports, although it is not a welcome news and causes problems of volumes reduction, it is not such as to undermine Feralpi’s production. This reduction, surely is not a disaster,” the company told Metal Expert.

Feralpi is not going to back down in the unfavourable Italian market either. In the context of stiff rivalry amid a lack of orders, the company has decided to strengthen the downstream integration by acquiring shares of two companies specialized in longs processing for the construction industry. In January 2015, Feralpi bought a 48% stake in Italian enterprises Presider SpA and Metallurgical Piemontese Machining (MPL) owned by Ferrero Group. Presider has been active for decades in the field of supply and installation of reinforcing steel for concrete, as well as all the ancillary products for construction. MPL is known as a supplier

� REDUCTION OF STEEL IMPORTS IN ALGERIA IS NOT A DISASTER FOR FERALPI’S PRODUCTION


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and processor of the beams and other long products.

One more strategic direction of the company is entering the segment of high value added products to compensate losses from permanently falling prices in the segment for standard products. For that purpose, Feralpi and Duferco established a strategic alliance to buy a mill producing high quality wire rod owned by Lucchini Group. The consortium will invest EUR 5 million within the next five years into the enterprise with a new name Caleotto Spa in Lecco to gradually restore production at the site (to 300,000 tpy). The target of about 60,000 t has been achieved in 2015, while the forecast for 2016 is 160,000 t, 2017-250,000 t, 2018-300,000 t (around 100% operation rates), according to company’s balance sheet. Semi-finished products for operations will be supplied in equal shares from the facilities of the parent companies – Feralpi Acciaierie di Calvisano and Duferco San Zeno Acciai.

Besides, the company is backed by well-developing German market, where

it operates Elbe-Stahlwerke Feralpi, a 900,000 tpy rebar and wire rod mill. “Germany is going well opposite to Italy. Berlin never actually stops, it can only slow its march for some time,” Pasini said.

Despite the negative environment in the European longs market, Feralpi is now one of the few producers in the segment, which has been showing positive balance and raising production volumes and revenues from sales for the last two years. In 2014, the company managed to raise production volumes and revenues from sales by 10.1% and 2.9% to 2.091 million t and EUR 971.2 million respectively, as well as to almost double EBITDA achieved EUR 49.8 million, according to the company’s balance sheet. In the first half of 2015, the output of steel gained 11.7% compared to the same period last year. “The achieved results confirmed the validity of the choices made by the Group to respond to the new structure of the markets. We will keep moving along three strategic lines: vertical integration, diversification and internationalization…,” chief of the company highlighted.

38 | Europe in Focus | March 2016 Metal Expert60708090100110120

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

40 45 50 55 60 65 70 75 80

100

120

140

160

180

200

220

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

FACTS & FIGURES

� PRODUCTION OF HOT ROLLED LONG PRODUCTS IN EU 28 2005-2014 million t

� PRODUCTION OF HOT ROLLED FLAT PRODUCTS IN EU 28 2005-2014 million t

� CRUDE STEEL PRODUCTION IN EU 28 2005-2015 million t


FACTS & FIGURES

34%

18%14%

14%

13%

3% 2% 2%

Construction

Automotive

Metal goods

Mechanical engineering

Tubes

Domestic appliances

Other transport

Miscellaneous

0

10

20

30

40

50

20152014201320122011201020092008200720062005

02468

1012141618

20152014201320122011201020092008200720062005

7,1 9,1 11,5 10,7 5,6 6,7 7,9 7,6 7,4 7,6 7,1

2,7

4,4

6,15,6

2,52,9

3,8 3,3 3,3 3,92,7

27,2 36,3 37,4 34,3 20,6 27,5 28,2 26,1 27,6 27,9 31,9

9,6

14,8 14,9 13,6

7,7

10,5 11,7 9,5 10,7 11,314,5

FACTS & FIGURES

� EU STEEL CONSUMPTION STRUCTURE IN 2015 %

� IMPORTS OF PLATES INTO EU (EUROPEAN DELIVERIES AND OUTSIDE THE REGION) million t

� EU APPARENT STEEL CONSUMPTION million tpy

� IMPORTS OF HRC & SHEETS INTO EU (OUTSIDE THE REGION AND EU DELIVERIES) million t

100 110 120 130 140 150 160 170 180 190

2008

2009

2010

2011

2012

2013

2014

2015

2016*

2017*


During one year after the adoption of the new EU framework for climate and energy, European still mills have been investing into the ecological projects in order to reduce carbon footprint and remain competitive. Ahead of Paris Climate Conference in December 2015 Metal Expert summarizes the first steps of European steel companies on their difficult path towards sustainable development.

ArcelorMittal, the world’s largest steel producer, leads this race. The company invests millions into the environment-friendly equipment at its European facilities. ArcelorMittal Ostrava (3.2 million tpy), major steelmaker in Czech Republic, commissioned 13 investment projects in 2015 only. The total cost of the projects is CZK 3.1 billion (EUR 114 million). However 90% of this sum will be subsidized by the EU government because the projects are configured in accordance with the new environmental law of the European

Union, which takes effect in 2016, as the company spokesperson told Metal Expert.

In July 2015, ArcelorMittal Poland announced it would invest PLN 500 million (over EUR 130 million) in its Krakow mill modernization. The company is going to invest more than EUR 400 million totally into its facilities in Krakow over the next few years.

Around EUR 40 million was spent on the modernization of a 1.65 million tpy coke oven and a 4.8 million tpy hot-rolling mill at ArcelorMittal’s Fos-sur-Mer plant in France.

Long journey of European steel industry to new eco standards begins

RISKS


RISKS

In Romania, ArcelorMittal is going to start a new investment project worth EUR 3 million to cut the energy consumption at Galati steel-making plant by 15% during the next five years.

Troubled Italian steel mill Ilva, which sets an example that non-compliance with environmental standards is fraught with fines and production shutdowns, keeps implementing its environmental plan. The company invested about EUR 638.3 million in the government-required environmental protection: EUR 204.9 million was invested into the area remediation, EUR 93.7 million in an 11 million tpy sinter plant upgrade and EUR 143.9 million in a 3.5 million tpy coking plant modernization. However, there is still a threat of closure for Ilva due to lack of working capital.

Despite the fact that the cost related to the new climate policy of the EU may come for voestalpine to around EUR 3 billion over the next 15 years, the company management is going to keep investing in Austria to support their strong position in the domestic market. Practically, this means that voestalpine will not move its production sites outside the EU at least in the short run. “Our investment focus is to improve existing production processes and a continuous expansion of our product portfolio,” the Board member and CEO of the Group Dr. Wolfgang Eder said.

In spite of the challenging market environment in Europe, Tata Steel Europe plans to invest EUR 25 million in the new metallurgical technology HIsarna, developed at Tata Steel IJmuiden, Netherlands. The project will improve the efficiency of raw material use in the steelmaking process and reduce CO2 emissions by 20%. If tests of the new technology are successful, the company will build a new facility to apply

the technology in the industrial scale. “We need the European Union’s continued, long-term support for the HIsarna project. If next year’s tests are successful, the following stage would be developing, constructing and testing an industrial-scale plant at a cost of 300 million euro,” Karl Koehler, Chief Executive of Tata Steel’s European operations, said.

Development of eco-projects involves very high costs, which is problematic for many companies against the background of steadily falling steel prices globally and stiffening competition. According to calculations of Eurofer and Ecofys, direct and indirect costs for the European steel companies related to the CO2 emission will come to EUR 34 billion in the period from 2020 to 2030. “The average EBITDA of the EU steel industry over the last five years was EUR 35/t of steel produced. A cost of up to nearly EUR 30/t of crude steel in 2030 would wipe out most of the industry’s profit margins,” Axel Eggert, Director General of Eurofer, said.

As Metal Expert reported earlier, the main goals of the climate programme, set back in end-October 2014, were reduction of CO2 emissions by 43% by 2030 compared to 2005 and the increase of the share of renewable energy sources to no less than 27% by the same time. Besides, the European Commission will introduce Market

� THE MAIN GOALS OF THE CLIMATE PROGRAMME IS TO REDUCE CO2 EMISSIONS BY 43% BY 2030


RISKS

Stability Reserve in 2019. The reform is intended to reduce the surplus of carbon credits available for trading in order to support the price of the emission rights. Currently, steelmakers receive free permits for emissions, but in 2019 they will have to buy them, and the price can exceed EUR 20/t.

Despite numerous attempts of the industry leaders to convince the EU institutes that the adopted strict measures hamper the EU steel industry development, the EC commission is not willing to step back. The only positive moment for the EU steel companies is the introduction of EUR 315 billion EU Investment Plan to finance new projects.


RISKS

Most important steel sectors still lack protection from ECDespite a threat of oversupply hanging over the European steel sector in 2015 amid high imports, the Regulatory Authorities are still too slow to implement necessary measures to defend the market. Despite being more active in 2014-2015, the European Commission (EC) keeps ignoring the steel segments that are most hurt by imports, paying attention mostly to the narrower segments. The absence of trade defence instruments remains one of the main obstacles for the recovery of the EU steel sector.

The GDP growth of EU-28 is anticipated at 1.9% in 2016. As a result, the apparent steel consumption in Europe is expected to grow by 2% in 2016 after a 1.5% rise in 2015, according to Eurofer. Meanwhile, the EU steel mills will hardly benefit from this growth due to imports invasion, especially in the flat steel sector, where the consumption growth in 2015 was being “eaten” by imports. “Steel demand in the EU is growing year after year but this allocation of extra volume is mainly going to import. European steel producers are not picking a big part of this growth,” Robrecht Himpe, President of Eurofer, said in an interview to Metal Expert.

Plate and HRC segments are the most affected by growing imports. The total

volume of plates delivered to the EU from non-European suppliers grew by 32% to 2.156 million t in January-October of 2015, of which 55% was the share of Chinese products (1.189 million t or 119,000 t per month on average), according to the Business Dynamics Statistics (BDS) statistics. The share of Ukrainian suppliers

� STEEL DEMAND IN THE EU IS GROWING, BUT LOCAL PRODUCERS ARE NOT PICKING A BIG PART OF THIS GROWTH


RISKS

reached 23.5% (507,000 t), of Russian 9.4% (203,000 t).

Total HRC imports from non-EU countries in January-October of 2015 inched up by 9% to 5.5 million t. Chinese coils imports to Europe have been increasingly stronger, with HRC deliveries topping 600,000 t in 2014 (twice as much as in 2013) and 900,000 t during the first ten months of 2015, according to Metal Expert data.

An absence of any barriers for HRC and plate imports, combined with permanently falling prices for raw materials and semi-finished products in the international market, resulted in significant price drops for both HRC and plate over the year. Prices for plates in Italy, Germany, Czech Republic and Poland have fallen by EUR 120-140/t depending on region, according to Metal Expert data. Prices for domestic HRC in the EU have lost EUR 100-110/t over January-December 2015. “Demand was better this year. The main problem was oversupply caused by uncontrolled growth of imports. Local mills in such conditions will have no choice but to cut capacities in the near future,” a major German HRC producer commented. “Too high stocks and low prices of imported steel bring to the knees participants of the market chain. AD investigation might become a saving boat, but so far [there are] no actions,” a German trader added.

At the same time, there were only some defence activities last year, which might help the EU steel industry cope with unfair competition. The most important step was the AD investigation against of CRC imports from China and Russia started on May 14. “We have not ordered Chinese and Russian CRC starting from January delivery because of antidumping investigation,” a German service centre said. “Imports of CRC are coming now from Brazil and South Korea mainly as buyers have stopped booking Chinese and Russian CRC being sure that antidumping will be in force in early 2016,” an international trading company confirmed. The decision regarding the amount of the duty is expected to be released on February 14, 2016.

Moreover, starting from December 19, all CRC shipments from China and Russia were made subject to registration till the second half of 2016. Registration allows the EU to impose duties on the previous transactions.

In mid-October, 2015, the EC prolonged the antidumping duty of 7.9-24% against wire rod originating from China imposed in 2009.

On January 29, 2016, European Commission imposed a 9.2-13% provisional antidumping duty on high fatigue performance (HFP) rebar originating in China. But this decision was highly criticized among EU steel associations (UK Steel, Eurofer) as the provisional dumping margins have been previously set in the range of 51.5-66%.

All other EC measures are related to specific narrow segments, such as grain-oriented electrical steel, stainless steel cold-rolled flat products, tubes and pipes of ductile cast iron, steel ropes and cables etc.

� THE MAIN PROBLEM IS OVERSUPPLY CAUSED BY UNCONTROLLED GROWTH OF IMPORTS


RISKS

Unlike in the USA, where the authorities immediately close any market if there is at least a little threat of dumping, the EC continues to defend only small segments, while strategically important ones remain being hurt by growing imports as the trade cases take too long in the EU. “Europe needs to rapidly modernize its trade defence instruments. Presently, it can take a year and a half from complaint to definitive

antidumping measure. This is too slow,” Robrecht Himpe said.

In 2016 more measures are expected to be implemented, including, first of all, an antidumping duty against plates and HRC originating in China. According to ArcelorMittal, the complaints were already filed on December 23 and the investigations start was awaited in mid-February.

� ANTIDUMPING CASES IN EUROPE

Country Product Date Amount of AD duty, %

China, Russia CRC (cold rolled coils)Investigation started

on May 14, 2015decision is expected on

February 14

ChinaHFP rebar

(High Fatigue Performance)AD duty imposed

on January 29, 20169.2-13

China, Russia, USA, Japan, Korea

GOES (grain-oriented electrical steel)

AD duty imposed on May 12, 2015

21.6-35.9

ChinaWR

(wire rod)

AD duty imposed in 2009, prolonged

on October 15, 20157.9-24

China, Russia, Belarus

Welded tubes and pipes of iron or non-alloy steel

AD duty imposed on January 25, 2015

10.1-90.6

India Tubes and pipes of ductile cast ironAD duty imposed

on September 18, 201515.3-31.2

hina, TaiwanStainless steel cold-rolled

flat productsAD duty imposed

on March 24, 201510.9-25.2

China, South Korea Steel ropes and cablesInvestigation started

on November 24, 2015pending investigation

China HRC (hot rolled coils)Complaint filed

on December 23, 2015

investigation’s start expected

in mid-February, 2016

China PlateComplaint filed

on December 23, 2015

investigation’s start expected

in mid-February, 2016

2nd Steel Plate

Conference Europe

On The Agenda:

Chances for restoring capacity utilization

Lack of efficient tools to restrict strong import flows

Necessity of modernization to fit upcoming ecological standards in EU

For more information, attendees updates and to book your place visit www.europesteelplate.com

FRIDAY, 11 MARCH 2016Derag Livinghotel De Medici, Düsseldorf, Germany

In partnership with

Aleksandra Kozlowska

European Commission

Evgeniy Sarkits NLMK DanSteel A/S

Tadaaki Yamaguchi

JFE Steel America

Dr. Martin Theuringer

German Steel Federation Wirtschaftsvereinigung

Stahl

Dmitrij Scuka Vitkovice Steel

David Phillips Off-Highway Research

Limited, UK

Georges KirpsEurometal

Prof. Dr. Andreas Kern

Thyssenkrupp Steel Europe AG

Peter Schmitz SMS Group GmbH


RISKSProgrammeFRIDAY, 11 MARCH 2016

8:30-9:30 Registration

9:30 – 11:30 Session 1: Growth of Competition in European Market

· Aleksandra Kozlowska, Policy Officer, European Commission, Belgium - The European Steel Action Plan: Implications for Steel Plate Market

· Dr. Martin Theuringer, Director economics, German Steel Federation Wirtschaftsvereinigung Stahl, Germany - The steel industry in Germany in a difficult international environment - a trade policy perspective

· Dmitrij Scuka, CEO, Vitkovice Steel, Czech Republic - Steel Plate Trade and Distribution on the Buyer’s Market

11:30 – 12:00 Coffee-break

12:00 – 14:00 Session 2: Changes in Consumption Structure

· Andrei Syedykh, Senior Economist, Metal Expert, Ukraine - Key drivers for EU’s steel plate consuming industries in 2016

· David Phillips, Managing Director, Off-Highway Research Limited, UK - Changing Structure of the Global Construction Equipment Industry

· Georges Kirps, Director General, Eurometal, Luxembourg - The systemic role of steel distribution and SSC in supply of EU steel and plates markets

· Evgeniy Sarkits, Sales Director, NLMK DanSteel A/S, Denmark - European steel plate market outlook. Meeting consumers needs.

14:00 – 15:00 Lunch

15:00 – 17:00 Session 3: Business Opportunities

· Tadaaki Yamaguchi, President, JFE Steel America, Inc., USA - Global plate market review and business opportunities

· Prof. Dr. Andreas Kern, Head of the Department for Quality and R&D within the Heavy Plate Unit, Thyssenkrupp Steel Europe AG, Germany - Production of heavy plates made from special structural steels for highest requirements

· Mike Brammer, Director Plate & Aluminium Mills, Primetals Technologies Limited, UK - Future-Proo� ng the Plate Mill – a Mill Builder’s View of Adapting to Changing Customer Needs

· Peter Schmitz, Project Director Technical Sales Hot Rolling Mills / Plate Mills, SMS Group GmbH, Germany - Added value products for heavy plate mills – a technological perspective

17:00 – 17:30 Networking Buffet

Register today at www.europesteelplate.comEmail: [email protected]

Tel.: +38 056 375-79-12

This publication is for information purposes only. The information contained in this document has been compiled from sources believed to be

reliable. Metal Expert cannot be made liable for any loss no matter how it may arise.

© Metal Expert 2004-2016. All rights reserved. No part of this publication (text, data or graphic) may be reproduced, stored in corporate data

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