The snowball effects of the Ukraine crisis on the steel and metal market

“Then war had more power than Covid” - paraphrasing Conte Ugolino’s words in Dante Alighieri’s Divine Comedy, when he had to endure grief first and fasting later, at times some problems may look unbearable until even worse ones arrive. This is probably the case with the war in Ukraine, which broke out just when we thought we could leave behind – or at least set aside – the concerns about Covid 19.
Before moving on, let me get one thing straight right out of the gate: we are not going to talk about human lives. What I have mentioned are real tragedies that have caused and are still causing terrible consequences. Way too many people had to grieve the loss of their beloved ones to the Covid-19 epidemic. Way too many people are currently suffering or have lost their lives in the conflict in Ukraine. Both Covid-19 and the war have already caused thousands of victims, including children. I don’t want to draw a comparison, nor do I mean any disrespect for the more tragic outcomes of these events.
Since expometals.net is a B2B web platform, I would like to focus on one side of this discussion, namely the repercussions that the Russia-Ukraine war is having on your business and on your companies. And I would like to tackle this topic by voicing the concerns of companies that are striving every day to keep their production up and running.
"A new perfect storm is raging," this is how Giuseppe Pasini, President of the Feralpi Group, described it. Increases in energy costs, already at an all-time high in Europe, along with new supply issues are bringing steel mills to their knees, adding up to the well-known problems which have never been completely overcome. The Russian invasion of Ukraine has again disrupted the global supply chains, which had not yet fully recovered from the pandemic.
"For a steel-making group like ours," Pasini continued, "electricity accounts for 40% of the processing costs, while labor for 15%." It's easy to see why a good portion of Italy's steel plants is at a standstill: large groups prefer to shut down plants, sometimes turning them back on during weekends when the bill weighs less, rather than deal with the impact of new energy costs.
The same is happening in Spain. Many industries have been forced to shut down production, as electricity prices make it impossible to maintain activity. Acerinox, ArcelorMittal, G. Celsa, Megasa, Ferroglobe, and Siderurgica Balboa have already had to stop some of their facilities. Other companies have begun to reduce their production to the minimum, as is the case of Asturiana del Zinc.
More and more critical issues are emerging in terms of raw material procurement. It’s worth noting that Ukraine possesses the largest reserves of commercial-grade iron ore in the world: 30 billion tons, about one fifth of the world's total. And that's not all, the country's steel production accounts for about 10% of European imports. In the wake of the Russian invasion, most Ukrainian steel producers have stopped production. Metinvest has invoked the “force majeure” clause while ArcelorMittal has stopped steel activities in the country. The city of Mariupol, a key hub for many semi-finished steel products, is under blockade by the Russian army.
According to official statements from Pittini Group, “the current war scenario is impacting our activities both in terms of raw material procurement and increased energy costs.”
Innumerable industrial sites across Europe must face the prospect of running out of raw materials in stock, if not immediately, within a very short time. We are witnessing a gigantic reorganization of the production chains and the real impact, also on the metalworking industry, will become apparent as the avalanche falls down to the bottom of supply chains.
"We are experiencing massive price increases for energy, fuel, and lack of truck capacities," said Markus Giese, at the helm of German wire drawing family Künne Group. "The supply of raw materials is limited (as suppliers are cutting production), the inflation is rising dramatically, and the Euro is losing value. There is great uncertainty in Germany about the stable supply of gas, coal, and oil—especially for the next winter. We depend on this supply because we cannot shut down our furnaces without damaging or even destroying them. Moreover, the effects of the additionally imposed sanctions cannot yet be assessed.”
As confirmed by Bottaro, a well-known Italian wire manufacturer: “The prices of gas, electricity, packaging and raw materials have skyrocketed, and we do not know how much more they will increase. Many steel mills are already cutting down production. Billets and slabs, for example, are nowhere to be found. But that's not all. Russia and Ukraine are among the largest exporters of scrap metal. The current conflict has upset this scenario, causing a huge crisis in Europe, Turkey, and the United States. The economic and commercial instability we are experiencing has serious repercussions on the company's ability to plan production. Many orders will suffer considerable delays or will be canceled due to force majeure, thus triggering new tensions on raw material prices and uncertainty about their procurement”. Last but not least, there is the out-of-control growth of oil prices, which—as confirmed by Bottaro—has severe repercussions on the transport sector, both by sea and by road: “Many cargo ships are not available because they are blocked or still engaged in unloading or loading operations in those Russian or Ukrainian ports where, unfortunately, the war is raging.”
Moving a little further downstream, we can find all the players who work WITH and FOR those who make semi-finished products such as wire. Davide Vassena, of the homonymous drawing die manufacturer, told us about both the direct and indirect effects of the Russia-Ukraine conflict. “As for the former, our share of production destined for Russia was 7%—not a lot, but not little either. Then, there are the indirect consequences of the conflict. Demand for steel here in Italy is sky-high, while the supplies that should come from those areas do not arrive. Therefore, the steel available on the market cannot meet the demand, only adding to the high cost of the energy issue. This situation, which currently affects steel mills and drawing mills above all, is causing a cascade effect on all the other links in the production chain”.
As regards metal scrap, several parties have requested a temporary suspension of the trade barriers currently in force in Europe, in order to allow companies the widest possibility of supplying foreign markets.
The story in the tube industry is pretty much the same.
Franco Cortassa, general manager of Elestar commented: "Our company has been operating in Ukraine for several years. We have installed several induction welding systems for steel pipes in the country. Today, communicating with our on-site customers is out of the question. All technical and business operations with both Ukraine and Russia (where we also have installed similar plants) were discontinued.”
Let's talk about the fastener industry. "The bills have tripled in our case too," says Isabella Fusani, Sales Manager of the fastener manufacturing company Viteria Fusani, "and we are keeping an open dialogue with our customers about our price lists that cannot be kept unchanged in the face of situations like this. Until now, we have overcome the risk of production stoppages due to lack of material because we have always worked with well thought-out stocks, but the continuous increase in production requests leads us to have a fast rotation of the warehouse. The sanctions that the EU and the United States are applying to Russia will have very hard consequences on the economy both in terms of prices and in terms of the availability of various products beside the energy sources, such as metals and cereals. Although we are not importing or exporting anything from the countries at war, we expect this to cause a global trade flow upheaval and an increase in demand that will inevitably lead to a further supply shortage and other inflation mechanisms. Unfortunately, we are also turning down interesting jobs because we no longer have room to meet a large number of requests."
All this - needless to say - leads us to think of "catastrophic scenarios", as Bottaro put it. But before we "abandon all hope", again to quote Dante, this time on the door to hell, let us place the last hope in peace. A small flame, which all of us, on whatever side we stand, whatever the impact of this war on our lives, cannot stop feeding. Because, across borders and personal assessments, this war - in such an interconnected world - affects us all.
Daniela Di Maggio
Chief Editor
[email protected]