All Steels’ UK Steel Market Evaluation - 28 February 2022

It is pleasing to see the timely actions of the UK Government in applying tough sanctions on Russia in alignment with other world allies and doing what is seemingly justifiable to support the Ukrainian people. What now looks evident is that the conflict between Russia and Ukraine is likely to continue for some time, and many of our customers are naturally already asking for All Steels’ opinion on what the impact might be for UK steel supplies and prices. Hence, this report will simply address this specific question by providing some clarity on the situation.

UK Direct Steel Imports from Russia, Ukraine, and Belarus
Given the extended sanctions announced yesterday, it looks unlikely that we will see any direct imports from Russia and Belarus for quite some time. We have also included Ukraine here as it is already known that most steelmaking in Ukraine has been put on hold with blast furnaces being banked up to just care and maintenance status. 

It is evident that slab is by far the biggest imported product from these regions and this will be for UK rolling mills to manufacture into HR coil/sheet or plate. It also can be seen that quite large volumes of finished plates are supplied direct to the UK so this would suggest a tightening in supply of plate products and possibly even some short-term disruption to supplies. This logically suggests a general price rise on commercial plate products. Wide universal flats that are also often used as a substitute product for plate are also likely to rise as demand consequentially increases. Supply volumes on rebar and wire rod are also quite significant and supply absence here again should tighten up availability short-term and apply upward pressure on prices. At the bottom end of the spectrum imports on bright products are not that large but some of these products will be bespoke and will possibly cause a headache for some engineering consumers.

UK Indirect Steel Imports from Russia, Ukraine, and Belarus:

Merchant Bar 
UK imports from Turkey are annualising at circa 50,000t but a large part of this merchant bar will originate from Russian / Ukrainian billet /blooms. In 2021 Turkey imported 1.57 million tonnes of billets from Russia and 350 thousand tonnes from Ukraine. With semi supplies currently suspended from both countries this must result in a damaging impact on supplies and as a minimum it must inflate Turkish mill purchase prices from other countries. It is therefore possible that some Turkish imported supplies of merchant bars will suffer some form of disruption and future prices must rise. 
(We should clarify that All Steels’ imports of merchant bar from Turkey are predominantly of Ozkan Steel origin that operate their own steelmaking plant from scrap /iron pellets, so we don’t envisage any supply disruption).

Hollow Sections 
UK imports from Turkey are annualising at circa 220,000t when you include gas pipes and large tubes which makes them by far the largest supplier to the UK of this product type. But like merchant bars many of the imported hollow sections will originate from Russian / Ukrainian hot rolled coil. In 2021 Turkey imported 1.92 million tonnes of HRC from Russia and 1.063 million tonnes from the Ukraine. These imports represented more than 50% of Turkish purchases and with supplies currently suspended from both countries this again must have a damaging impact on supplies and as a minimum it must inflate Turkish mill purchase prices from other countries. It is therefore probable that some Turkish imported supplies of hollow sections will suffer some form of disruption and again future prices must rise. 
(We should clarify that All Steels’ imports of hollow sections from Turkey are all Tosyali Steel origin that operate their own steelmaking plant from scrap /iron pellets and their own HRC mill so we don’t envisage any supply disruption).

EU Imports from Russia, Ukraine, and Belarus
Another indirect impact for the UK will be a tightening in supplies in Europe caused by the starvation of steel that the EU has traditionally imported from Belarus, Turkey, and the Ukraine. EU steel buyers for such products will no doubt be searching the same alternative options as UK buyers so this can only intensify supply from a narrower supply field, and this must result in inflated steel prices.

Scrap
Russia and the Ukraine’s combined exports of scrap total circa 4 million tonnes of which circa 2.5million tonnes is exported to Turkey. Whilst the latter only represents 10% of Turkey’s overall scrap imports it is sufficiently large for other major suppliers to be more bullish on prices. To our knowledge Turkey has not issued any sanctions on Russia but at present it is currently understood that all scrap supplies from the Baltic have been suspended. Some media reports have suggested that US Scrap prices are likely to increase by $30p/t in March because of the Russian situation and whilst this is pure speculation at this time it seems logical that we will see some scrap price escalation. 

Currency
Upon Russia declaring war on Ukraine the £ immediately weakened against the US$ as the foreign currency players appeared to ditch both Euros and the £ sterling, probably due to our closer proximity to Russia and the Ukraine and our higher levels of trade with these neighbouring countries. The movement here was approximately 3 points, which effectively creates a circa £18p/t premium on US$ based transactions, which is typically used on purchases from Turkey. 

UK Russian /Ukrainian Owned Business
To the best of our knowledge only Metinvest/Spartan UK Ltd fall into this category being part of the Metinvest Holdings with a head office based in Donetsk Region of Ukraine. Metinvest is an international, vertically integrated mining and metals company. The group also operates in the EU and the US although its heaviest concentration of companies is based in the Ukraine. It is likely that Spartan UK will be importing slabs from the Ukraine, and this is likely to cause disruption to their plate production. Should any of our customers be buying plates from Spartan it would make sense to call them immediately for clarification on supplies.

Oil Prices
Oil prices have now more than quadrupled since the early days of the Covid-19 pandemic and the actions announced by Vladimir Putin on Thursday caused oil prices to rally even further to a 7 year high of $103.24 per barrel for Brent Crude. This situation is already pushing up fuel prices to record high levels that will have another big impact on road transportation and shipping costs. From our own experience we are already seeing continual increases in our own shipping rates from Turkey. With oil and consequential fuel prices still rising it is difficult to know when we will hit the top of this cost curve, but steel price increases will have to be applied to offset such higher transportation costs, especially on material we import from Turkey. 

Energy
Energy prices were thrown into turmoil on the outbreak of war in Ukraine and this sent the price of gas through the roof. The price of British gas jumped 53% to 326p per therm. Forecasts are suggesting that over the coming months rates could exceed 550p per therm but there is even a bigger concern of gas shortages. In Germany 40% of gas is supplied from Russia and the current heavy sanctions imposed on Russia could result is a backlash with Vladimir Putin cutting off gas supplies to the EU. With no immediate contingencies in place this would have a devastating effect on EU steel production and there would simply be inadequate gas supply to maintain current levels of steel output. With such potential rationalisation of gas, it would also be inevitable that energy costs would rise even more dramatically. Even at today’s new spot prices for energy, steel producers will not be able to absorb such mammoth cost increases so steel price inflation here is inevitable. With such fluidity at present in the energy market it is too difficult to estimate how this situation will translate into steel prices, but we must expect to see significant price increases.

Conclusion
It is the All Steels view that steel price increases over the coming months will amount to somewhere in the region of £50-£100 per tonne based on all the factors detailed in this report. However, if the Russian/Ukrainian crisis deepens further and Russian gas supplies are shut down to the EU, the big issue will purely be the availability of steel rather than the concerns of its price. Hopefully, some of the suggestions of talks between Ukrainian President Volodymyr Zelensky and a Russian delegation will materialise to stall the fighting but news on this potential progress has been slow to be reaffirmed. The coming days will therefore be critical to shaping up the future of steel prices but more critically the state of the world!​