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Ag Metal Miner

Ag Metal Miner

MetalMiner is the largest metals-related media site in the US according to third party ranking sites. With a preemptive global perspective on the issues, trends,…

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How Europe’s Push To Cut Off Russian Gas Is Impacting Steel Markets

  • Natural gas and steel prices are closely intertwined.
  • Sky-high energy costs fueled by Europe’s push to reduce its dependence on Russian gas are beginning to weigh on the steel industry.
  • Steelmakers rely on natural gas for ironmaking in blast furnaces as well as for steelmaking in electric arc furnaces.

Steel prices and gas are the primary topics of conversation today. It seems that steel traders in China are seeking more buyers abroad for their finished steel products. Meanwhile, Russia is mulling cutting gas supplies to the EU. Gas prices have an enormous impact on steel prices.

China: Lockdowns at Home, Low Demand Abroad

The news comes hot on the heels of reports detailing reduced consumption in Europe and ongoing COVID-19 lockdowns throughout China. Indeed, China’s latest anti-Coronavirus measures have resulted in a 2.9% industrial output drop year on year for April. At the same time, reports indicate that retail sales were off 11.1%. Steel price offers from Taiwan and South Korea were €860 ($910) per metric ton cfr Europe, also down from €1,080 ($1,140) cfr Europe from Southern and East Asia. As one trader told MetalMiner, “Energy costs are hitting people hard. There are more defaults on energy bills.” He added that “The whole world wants to sell to Europe.” However, with inflation hitting record highs and the war in Ukraine charging onward, the market is anything but ripe for the picking.

Another trader pointed out that summer holidays in the Northern Hemisphere (normally in June, July, and August) will also mean lower building activity and lower demand. This is sure to put further downward pressure on steel.

Russia: War, Sanctions, and Rubles

Uncertainty about whether or not Russia could cut gas supplies to the EU over European Commission sanctions has created volatility in prices for that hydrocarbon. Steelmakers can rely on natural gas for ironmaking in blast furnaces as well as for steelmaking in electric arc furnaces.

In 2021, the European Union imported 155 billion cubic meters of natural gas from Russia. This accounted for around 45% of total imports and close to 40% of its total gas consumption.

Another possible factor contributing to the ongoing volatility is the possibility that buyers might refuse to pay for Russian gas in rubles. In late March, Russian President Vladimir Putin issued an order demanding that “hostile countries” pay for their gas supply in their currency by opening accounts at Gazprombank. Indeed, Russia has already cut off gas supplies to Poland and Bulgaria over their refusal to comply with the demand. This immediately sparked concerns over what might happen if other countries followed suit.

Related: Poland Says Norway Should Share Its “Gigantic” Oil & Gas Profits

The European Commission, the executive body for the European Union, has since softened its stance against buyers of Russian gas opening accounts at Gazprombank. They even stated that buyers could make payments in dollars or euros. However, the organization said nothing about operators opening a second account in ruble-based payments, which several have reportedly done.

The benchmark Dutch TTF price for the hydrocarbon commodity was €95.50 ($100) per megawatt hour on May 17, up 2.84% on the day from €92.86 ($97.93). The price achieved a high of €227.20 ($239.68) back in March.

Steel Prices and Gas Still Closely Intertwined

On April 29, the European Statistical Office reported that the month’s outlook for inflation was 7.5% year on year in the 19 states that have adopted the euro as their currency. The organization also noted that energy was likely to have the highest annual rate in that outlook at 38%.

Of course, the EU has been trying to lessen its dependence on Russian oil and gas since the country invaded Ukraine in February. So far, their efforts include ramping up renewable energy products, lowering energy consumption, and diversifying sources.

However, many industry watchers have difficulty believing that Europe will be able to achieve that goal. “How is Europe going to back off from Russian gas?” one analyst asked. “I simply can’t see how they’re going to get away from it.”

A second source noted that it would be possible to reduce dependency on Russian gas by sourcing it from North Africa. Of course, this would require the construction of new infrastructure such as pipelines and terminals. He also said that whilst other countries have tried to diversify their gas supply, others like Germany have not. “It was comfortable for the Germans,” he said of the country’s gas transmission infrastructure.

One option for some steel plants would be to use gas produced from coking ovens to help fire blast furnaces. However, results would be inconsistent, as not every steel plant is so equipped.

By AG Metal Miner

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