European steel prices are directly dependent on Russian gas prices - MetalMiner
EU metallurgists continue to rely on natural gas as the currently uncontested fuel for pig iron production in blast furnaces, as well as for steel production in electric arc furnaces.
Steel and gas prices make headlines in today's trade publications around the world. While Chinese steelmakers are looking to expand their exports to new regions and boost overseas sales, Russia is considering cutting off gas supplies to the EU. At the same time, gas prices have a direct and very significant impact on steel prices.
China's latest anti-coronavirus measures led to a 2.9% year-on-year drop in industrial production in April. At the same time, reports show retail sales are down 11.1%. Steel bids from Taiwan and South Korea were 860 euros ($910) per metric ton in Europe, also significantly lower than 1,080 euros ($1,140) in Europe from South and East Asia.
Due to rising prices, today the European market has become the most desirable source of demand around the world and especially for traders from Asia. However, due to record high inflation and the war in Ukraine threatening to drag on for several years, the market is considered high-risk.
According to one of the Asian traders, quoted by MetalMiner, the summer holidays in the Northern Hemisphere will also mean a decrease in construction activity and a decrease in demand. This will no doubt put further downward pressure on steel.
Russia: war, sanctions and rubles
Uncertainty about whether the European Commission can use sanctions to force Russia to cut gas supplies to the EU has caused volatility in prices for this hydrocarbon. Metallurgists continue to rely on natural gas as the currently uncontested fuel for iron production in blast furnaces, as well as for steel production in electric arc furnaces.
Another possible factor contributing to continued volatility is the possibility that buyers may refuse to pay for Russian gas in rubles. In late March, Russian President Vladimir Putin issued an order requiring "hostile countries" to pay for gas supplies in their own currency by opening accounts with Gazprombank. Indeed, Russia has already cut off gas supplies to Poland and Bulgaria due to their refusal to comply. This immediately raised concerns about what might happen if other countries followed suit.
The European Commission, the EU's executive body, has since softened its stance on the opening of Gazprombank accounts by buyers of Russian gas. They even stated that buyers can make payments in dollars or euros. However, the organization did not say anything about the opening of a second account by operators for settlements in rubles, which several regular customers of Gazprom reportedly did.
TTF target price for hydrocarbons in the Netherlands was €95.50 ($100) per MWh on May 17, up 2.84% on the day from €92.86 ($97.93). The price peaked at €227.20 ($239.68) back in March.
Steel and gas prices remain closely linked
April 29, the European Statistical Office reported that the monthly inflation forecast is 7.5% year on year in 19 countries that have adopted the euro as their currency. The organization also noted that energy is likely to have the highest annual figure in this forecast at 38%.
Of course, the EU has been trying to reduce its dependence on Russian oil and gas ever since Russia launched a military sting operation in Ukraine in February. So far, their efforts include increasing renewable energy production, reducing energy consumption, and diversifying sources.
However, many industry observers find it hard to believe that Europe can achieve this goal. It is possible to reduce dependence on Russian gas relatively quickly only by starting to buy hydrocarbons in North Africa. Of course, this will require the construction of new infrastructure such as pipelines and terminals.
Another option for some steel mills could be to use coke oven gas to mix with blast furnace natural gas. However, the results will be inconsistent, since not every European steel mill is equipped with such equipment.
Earlier last week, the European Metallurgical Association Eurofer warned that hasty decisions by the European Commission regarding Russian gas supplies could be fatal for the EU steel industry.