Steel and semi-finished products: supply or demand shortage? An overview

Is the EU steel market suffering from a shortage of supplies? The consulting firm GMK Center raises the alarm, highlighting that a gap has emerged between demand and steel supply at the EU level due to various conditions that have occurred over the past year.

It all began, allegedly, in the second half of 2022 when surging energy prices and accelerated inflation caused concerns among European steel mills about a widespread drop in demand and prompted them to scale back their production capacity. Destocking trends continued in January-February 2023, although actual demand did not decrease as expected. Several incidents, such as fires at ArcelorMittal-managed blast furnaces in Gijon (Spain) and Dunkirk (France), have been causing delivery delays of flat products throughout Europe. It is estimated that these incidents will result in a shortage of 1 million tons of hot-rolled coils, with the peak of the supply shortage expected in June-August. Other factors contributing to or set to limit supplies include various planned maintenance and plant closures scattered across Europe. The earthquake in Turkey, which affected one-third of the country's steel production capacity, also has an impact on the availability of steel.

This picture was corroborated and summarized by British consulting firm MEPS in these terms: “Recent disruption to several EU blast furnace production facilities exacerbated output restrictions introduced to prevent an oversupply in the market.”

Now let’s consider the perspective of steel users. Is the problem really there? Are wire rod producers, wire drawers, tube manufacturers, and sheet metal producers encountering difficulty in sourcing raw materials? We have consulted several companies to hear their opinions and take this opportunity to evaluate the state of play in the market.

"Since the first crisis in the European automotive industry in 2019, we became aware of a lack of demand for high-carbon wire in Europe. In recent years, the situation has worsened. The pandemic from 2020 to 2022, the war starting in 2022, the energy shortage in 2022, inflation, and so on - these factors all had a negative impact. There was a notable scarcity of wire rod in Europe, especially at the beginning of 2021. The business sprang from almost 0 to 120%, and the steel plants could not follow the demand, maybe because they underestimated the situation and didn’t increase their output as it would and should have been possible. However, this peak was overcome at the beginning of 2022. With the beginning of the war, the picture started to change again, and the demand for steel decreased. As far as availability is concerned, buying wire rod today is not an issue, even though all suppliers have reduced their capacity. The most frightening aspect is that the overcapacity in the market meets a demand that I consider to be very low for a long time. Moreover, we should keep in mind that production costs are much lower in most parts of the world. So there is pressure from imports and fewer chances for export. This does not only refer to steel producers; this is also an issue for the wire drawing industry."
Markus Giese, Drahtwerk Wagener

"At the moment, we are not experiencing any difficulties. We have stocked up on materials only for the orders we have already received, at a time when the prices had slightly decreased. Our supply chains have remained unchanged over the past year."
Marco Butti, EVB srl

“So far, we haven’t had any problems with the availability of raw materials - which, for us, is high-carbon steel rod - either from EU or non-EU suppliers. Actually, we are in a market situation where demand is a bit slow. Some sectors are doing well, and others are not, even within the automotive industry, for example. Looking at the reconstruction of Ukraine and the areas of Turkey hit by the earthquake, as well as the resources of the PNRR (Ed. note: Italian national plan for economic recovery and resilience), the demand is expected to rise; the real question is when. As is often the case in such contexts, when there is uncertainty, purchases become more cautious.”
Pietro Spina, Steelgroup

"To be fair, Italian steel mills are producing very little because orders are very low - even if they don't like to make it known. In the past few months, the cost of raw materials saw a significant reduction (it was excessive in 2021), but despite that, we also have reduced our orders compared to a very good 2022 and an excellent 2021. It's clear that if things continue this way, stocks will gradually decrease, and we will have fewer purchasing opportunities unless the steel mills change course (if their production costs allow it). We have always had very high raw material inventories, and we have continued to make purchases up to now. It won't be a problem for us."
Graziella Mauri, Trafilerie Assi

"Honestly, we have never had any difficulties sourcing raw materials, and we haven't made any stockpiles in recent months. As for our suppliers, they have remained the same for a few years now: national steel mills."
Attilio Galbani, Trafileria Galbani

"Currently, we are not facing challenges in sourcing wire rod, which is our raw material. The demand for semi-finished products is lower than in 2022, so the steel mills don't have any particular difficulties in supplying their customers; in fact, there may be some shutdowns due to low demand."
Moreno Scerelli, Trafileria Scerelli

"We primarily source from our parent company in Germany, and at least for now, we haven't experienced any material shortages."
Luca Spirolazzi, Wälzholz (Italia)

Regarding the tube sector, Francisco Irazusta, President of the Spanish company Tubos Reunidos, recently stated to elcorreo.com regarding the current scenario that "we are witnessing a slight decline. But this is an effect that often occurs based on the accumulation or reduction of stocks." That being said, "the market fundamentals remain strong."

We also reached out to an Italian tube mill operating in the stainless steel industry: "There is no availability problem, at least from European steel mills. The market is rather stagnant, and prices are dropping. Both steel mills and stockists are chasing us to sell their goods, well aware that prices could easily go down further. Let's take the 2 mm AISI 304 stainless steel strip as an example: the price jumped from 2 euros/kg to 5 euros/kg between the end of 2021 and March 2022. The war and the nickel explosion that month, which will be remembered for the six-day suspension of trading at the LME, have disrupted the markets. Since last September, the price has steadily declined, reaching 2.80 euros today - and everyone knows it will continue to do so. The real problem is that if there is no recovery in demand from households, the situation is not going to pick up easily. For now, the material is abundant; if demand rebounds, then it could be true that the steel available on the market is not enough."

Marco Barbero from Metalweek also provided his opinion:  "Steel mills are undoubtedly trying to create a need among users of semi-finished products. The demand is low, and therefore the price leverage is no longer a deterrent that can generate a rush to purchase semi-finished products by industrial processors of flat and long products. The demand for semi-finished steel products has experienced a significant slowdown that has persisted and worsened over time. Its extent, in terms of tonnage and values, has now reached a point where it is starting to cause concerns for flat product manufacturers, as they initiated a campaign of price increases last December, followed by rebar producers."

We have lined up several opinions without claiming to be exhaustive. Of course, each company is a whole other story, depending on the product it makes and processes, its size and structure, and whether it sources from domestic or foreign steel mills (Italy, for various reasons, seems less affected by the above problems).

Let us now look at the overall picture. According to EUROFER, the European steel industry association, the worst seems to be behind, but the negative factors that impacted the second half of 2022 will continue to weigh through Q2 of 2023. In Q4 2022, apparent steel consumption plummeted to 29.6 million tons (-19.3%), recording the second-worst performance since the pandemic (Q2 2020).

Steel users, EUROFER continues, however, showed resilience above forecasts, ending 2022 with positive growth (+2.5% in the fourth quarter), thanks mainly to the relative recovery of the automotive industry and the rather steady performance of the construction sector (+3.3% and +4.8% in 2022, respectively). We recall in this regard the various European and national programs aimed at supporting repair, maintenance, and civil engineering works.

The European Steel Association predicts a general slowdown in growth during 2023 and a significant decline in the second quarter, with an overall limited annual increase (+0.3%) for steel-using sectors, and significant differences between European countries; growth is expected to regain some momentum in 2024 (+2.3%).

We’ll see how it turns out!

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