One EAF mill source in Southern Europe said that on average, energy accounts for 15% of steel production costs.
“The latest energy price rises will add about €40-50 ($46.8-58.6) per tonne of steel in additional costs,” another mill source said.
“In Southern Europe, electricity prices jumped by 350% in September,” a third mill said.
Consequently, producers in Europe have been hoping to raise prices in October on higher production costs, with some even considering production cuts and stoppages in the near term, “to balance the market,” another mill source said.
However, given the downbeat mood in the steel rebar and wire rod markets in Europe recently, and considerably cheaper imports, the buyers did not see the long steel price increase to be a realistic scenario in the near term.
Fastmarkets’ weekly price assessment for steel reinforcing bar (rebar), domestic, delivered Southern Europe
averaged €766.25 per tonne in September, down by €15.63 per tonne from a monthly average of €781.88 per tonne in August and by €25.63 per tonne from a historical peak of €791.88 per tonne in July.
“The new quota period opens in October [and] we will see a big influx of much cheaper imports coming to the market. Demand has not been so great recently [and] scrap has been on a downward track. The best-case scenario will be rollover of [domestic] prices [in October],” one trader said.
At the same time, mills claimed the sharp raise of energy prices “completely offsets the recent scrap drop.”
“The latest energy price rises are beginning to have not only an economic but also an industrial impact. As a result of these price hikes, we are now reaching the point where some production plant shutdowns at peak times cannot be ruled out. The increase in energy prices is also indirectly affecting other factors such as ferroalloys,” executive director of Feralpi Group Giovanni Pasini said in a statement seen by Fastmarkets.
“These increases are mainly due to higher gas prices. China has been hoarding gas, leading Europe to a shortage and, therefore, to an upward pressure on prices. Let us not forget that, from the point of view of the energy mix, in Italy a large part of energy is produced from gas. In any case, the expansive phase of the prices is not a phenomenon circumscribed to Italy, but we find it throughout Europe,” Pasini said.
Some market participants were skeptical about the true impact on steelmakers, perceiving it to be an attempt to maintain long steel prices, which have begun to soften after feedstock costs and demand fell.
Fastmarkets' weekly assessment for steel beams domestic, delivered Northern Europe
was €1,030-1,050 per tonne on September 22, down from €1,050-1,080 per tonne the previous week.
This was the first downward movement since February 17, 2021, and prices remain at an all-time high.
“They are all shouting that energy is getting more expensive and scrap is not that important anymore. At this moment, there is a lot of air in this price,” a distributor said.
Producers, however, said that energy costs could reach a point where it would be uneconomical to continue production.
“People are looking at low demand and the scrap price is decreasing, but this is balanced by energy costs. This week there are more and more customers aware of this trend, everyone will be realizing that it’s not just mills saying. The real concern is gas cost, [which] is increasing ahead of winter, we are not at peak consumption, it’s a big concern for winter coming in. Cutting production is an option…to reduce energy consumption,” a southern European producer source said.
One European mill source said the energy costs were a significant cost burden, with electricity prices going up from €55 per megawatt-hour (MWh) to €155 per MWh and natural gas prices reaching €65 per MWh from around €20 per MWh. The impact of the two factors alone costs an additional €100 per tonne of steel.
“The cost of production is not going down and is impacted by tremendous energy costs. This definitely something of concern. Producers are constrained, there is an economical calculation for production for each company. At a certain point, we would seriously consider a cut on production; in principle it doesn’t make sense to produce,” the mill source said.
"Indirectly, there is another impact, many of our raw material suppliers such as ferro-alloys and other products have started to ask for a surcharge on top. There have been various statements by governments but there hasn’t been much effective action yet taken," he added.
United Kingdom already at a disadvantage
In the UK, where steelmakers have traditionally faced higher energy costs than their European counterparts, the situation is more pronounced.
“The UK was hit the worst. Current energy prices are £600 ($820) per MWh, up from about £80-90 per MWh in summer. And during the peak loads the price could surge £2,500-4,000 per MWh,” a mill source in the UK said.
The recent power price spikes have already caused some unnamed steelmakers to suspend their operations in certain high cost periods, UK Steel trade association director Gareth Stace said.
“These extortionate prices are forcing some UK steelmakers to suspend their operations during periods when the cost of energy is quoted in the thousands per megawatt hour; last year, prices were roughly £50 per megawatt hour. Even with the global steel market as buoyant as it is, these eye-watering prices are making it impossible to profitably make steel at certain times of the day and night,” Stace said.
“While prices have risen across Europe, wholesale prices have quadrupled in the UK and merely tripled in Germany, when accounting for carbon costs. This exacerbates the already grossly unequal electricity price disparity between UK steelmakers and our European competitors,” Stace added.
Stace called for the government and Ofgem to take action, adding that spot prices of over £2,000 per MWh signal an unhealthy energy market, with the situation becoming more urgent each day ahead of electricity prices increasing in the upcoming winter months.
A British Steel spokesperson told Fastmarkets that they had maintained and are maintaining full production, despite the “spiraling” power prices.
“Power prices are spiraling out of control and represent one of the biggest challenges facing our business. In April they were trading at £50 per MWh but we’re now being quoted prices of up to £2,500 per MWh. These colossal, unprecedented rises make it impossible to profitably make steel at certain times of the day. And with winter approaching, when demand will rise, prices could get significantly worse,” the spokesperson said.
They added that the “exorbitant charges” made it harder to remain competitive when they were already at a disadvantage to European steelmakers who pay less.
“These exponential rises are widening the gulf, particularly as the increases have been sharper in the UK than in many other parts of Europe,” he said.
“We’re maintaining production at normal levels but huge extra costs like these can’t simply be absorbed or ignored. The UK Government and Ofgem must act now to help create a level playing field. We’re not asking for an advantage. We just want the disadvantages removing so we can operate in a fair trading environment.
Flat steel less exposed
European flat steel producers have been less affected by rising energy costs due to long-term gas supply contracts and better self-sufficiency than long steel mills, market sources said.
Flat steel in Europe is mainly produced by blast furnaces and basic oxygen furnaces; they are less dependent on electricity than long steel mills.
High domestic prices for flat steel could absorb higher production costs caused by energy prices, market sources said.
“Now the mills do not even try to use higher costs as a reason to prevent a price fall. We have bigger and more urgent issues to deal with, and the prices for coil are still high enough to allow [energy] costs to rise,” a Northern European distributor said.
Fastmarkets calculated its daily steel hot-rolled coil index, domestic, exw Northern Europe
at €1,053.75 ($1,234.95) per tonne on September 24, down by €36.15 per tonne week on week and by €87.92 per tonne month on month.
An Italian flat steel producer said that the impact of rising electricity costs might become visible in the start of next year. For now, long-term agreements have limited the impact.
German steel producers Salzgitter and Thyssenkrupp said separately that hedging and self-sufficient processes had minimized the impact.
"At our integrated main site in [Thyssenkrupp] Duisburg, we produce relatively self-sufficiently. Nevertheless, we are indirectly affected by the increase in electricity prices; the prices for the industrial gases we use are linked to electricity prices, for example. At the same time, we have hedging mechanisms in the Group against unexpectedly rising prices, especially gas prices. We are not adjusting or shutting down production due to the increase in electricity and gas prices," Thyssenkrupp’s spokesman said.
A Salzgitter spokesperson told Fastmarkets that some of its sites were self-sufficient, while other measures were being taken in peak periods at other sites.
“Our subsidiaries in Salzgitter and Mühlheim are 100% self-sufficient from combined gas generation by our own on-site powerplants – Salzgitter Flachstahl and HKM – which use off-gases of the iron and steel production processes. For all other companies within our group, we have requirements secured for years in advance. Therefore, present increases appear with delay, which can have a negative impact on the international competitiveness,” the spokesperson said.
“In Peiner Traeger, our most electricity-consuming location, where steel scrap is recycled by melting scrap in electric arc furnaces, occurring electricity consumption and price peaks on spot market are balanced with a control system in order to limit cost implications – by switching into to stand-by during price peaks,” he added.