World’s largest steel producer, ArcelorMittal has announced that it will reduce its steel production across Europe by 3 MnT per year amid various challenges that the continent is facing. According to the explanation given by the company, this decision is being taken due to the combination of weakening demand, rising imports coupled with insufficient EU trade protection, high energy costs and rising carbon costs.
While the production will be idled at steelmaking facilities in Krakow, Poland, and will be reduced in Asturias, northern Spain, the steelmaker will also slow down the relaunch of production in Italy at the former Ilva plant in Taranto. This move by the company is going to primarily affect its flat steel supplies.
ArcelorMittal has chosen to stop operations in Poland majorly because its local market has been hard hit due to the influx of cheap imports from Russia and high electricity costs while Spain’s steel market has seen cheaper imports coming into the country.
The adverse effect of trade war
The U.S.’s decision last year to impose tariffs on steel imports has changed the global market dynamics completely. With this closure of U.S. market for imports, increased the risk of steel oversupply in the rest of the world. Subsequently, countries like EU, Canada, Mexico, and many others announced trade restrictions on their steel imports also in a bid to protect their domestic steel sector from the influx of cheap imports. In fact the European Union has imposed safeguard measures on its steel imports with 25% duty being imposed on imports of 26 categories steel products being imported above the set quotas.
However, as mentioned by the company, despite the introduction of tariffs by Europe, there has been a continued and consistent rise in flat steel imports into the continent. Flat steel imports into Europe are currently at record highs, with imports of the hot-rolled coil up 37% so far this year against 2017, on an annualized basis. In addition, the price of carbon has risen by approximately 230% since the start of 2018, placing further competitive pressure on European steelmakers. Apart from this, ArcelorMittal’s EBDITA has reported a 34% decline y-o-y basis in its first-quarter of USD 1.65 billion.
Change in steel consumption forecast
The company earlier this year has made growth forecast for 2019 global apparent steel consumption. However, the major change is seen with its bullish views of China where it has got no business. Nearly half of ArcelorMittal’s steel is produced in Europe, with just under 40% in the U.S.
Excluding China, growth this year would be 1-2%, down a percentage point from ArcelorMittal’s earlier view. It now sees a contraction in Europe and has a more moderate view of expansion in Brazil. The company has left its growth forecasts for the United States and the former countries of the Soviet Union unchanged.
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