Developments in the European steel market during the first six months of the business year 2021/22 revolved entirely around its rebound from the ramifications of the COVID-19 pandemic. Occasionally, strong demand exceeded supply, and it was not until the third business quarter that a semblance of balance returned to the market. By then the production facilities of most steel manufacturers were back in full swing. Demand for steel from the automotive industry weakened after the Northern summer of 2021, because this sector had to curtail production owing to the lack of electronic components even though its order books were full.
In the final quarter of the reporting period, Russia’s war of aggression against Ukraine led to distortions in the European steel market. The rapid enactment of European sanctions against steel products from Russia and Belarus triggered shortages of available materials in the European steel market. The war and Europe’s partial dependence on Russian natural gas gave energy prices, which had already risen sky-high by that time, another push, in turn causing substantial increases in European steel producers’ operating costs.
The Steel Division’s key markets performed very well in this environment.
The automotive industry saw very good demand during the business year 2021/22, but was unable on an annualized basis to service it in full due to supply chain bottlenecks in the semiconductor industry. The outbreak of the war in Ukraine created new supply chain problems just as the situation was showing signs of easing at the start of the fourth business quarter. Wire harnesses manufactured in Ukraine were affected the most at this juncture. For the Steel Division’s third quarter, in particular, this meant a slight increase in volatility with respect to call-ups of orders for materials as well as slightly diminished demand for steel products from the automotive industry. But proactive work to redirect the supply flows to alternative customer segments largely cushioned the impact of these developments.
The consumer goods and white goods industries saw stable, high demand throughout the reporting period. In isolated cases, this segment too had to contend with temporary difficulties in procuring supplies of electronic components. In contrast to the automotive industry, however, this issue did not trigger a decline in the demand for the Steel Division’s steel products.
In the mechanical engineering industry, the entire business year was marked by good demand, especially for high-quality steel grades.
The construction industry for its part also benefited from very solid demand throughout the reporting period. Not until the end of the business year 2021/22 did the enormous volatility in European steel prices make it difficult to plan construction projects.
The energy sector, in its capacity as a key market for the heavy plate segment, delivered positive performance throughout the reporting period due to the increases in the price of crude oil and natural gas, yet contract awards for major projects are still pending. Given the significant market share of Russian and Ukrainian imports into the European heavy plate market, the war in Ukraine triggered significant shortages in supplies and generally steep increases in heavy plate prices.
While the steel markets in both Europe and North America rebounded dynamically from the COVID-19 pandemic throughout the business year ended, steel production in China sharply declined starting in the second business quarter.
Aside from the expiration of economic stimulus measures, this was also due to the declining momentum in the real estate sector. Add to that governmentally decreed production curtailments in the fourth business quarter for reasons relating to environmental action throughout the country, especially during the Olympic Winter Games in Beijing.
These developments had a direct impact on the global iron ore market, because China has by far the greatest steel production capacities worldwide. Following the steep price increases during the first six months of the business year 2021/22, the price of iron ore fell from its highs in the Northern summer of 2021 through to the third business quarter by more than one half, only to rise again substantially in the fourth.
By contrast, the increase in the price of metallurgical coal was interrupted just once by a short consolidation phase toward the end of the reporting period’s third quarter; it reached a historic high toward the end of the business year. This development was rooted in China’s energy shortages that led to generalized increases in coal prices and was further fueled by the Ukraine war on account of the sanctions levied against Russian coal.
Given the Steel Division’s specific procurement structure as well as delays on account of logistical issues, all of this continually pushed up the division’s raw materials costs over the course of the business year 2021/22. Starting in the third business quarter, the sky-high costs of raw materials were exacerbated by sudden surges in the costs of electricity and natural gas that continued to rise dramatically in the reporting period’s last quarter.
While spot market steel prices developed along a volatile trajectory in line with market dynamics and the substantial rise in the operating costs of European steelmakers throughout the business year 2021/22, they did follow an unequivocal upward trend throughout the reporting period. This upward trend, which had already started in the business year 2020/21, reached its apex after the Northern summer of 2021 when it reversed up to the beginning of the Ukraine war. At the end of the reporting period, spot market prices jumped to new highs on the tightening of steel supplies in the European market.
The Steel Division sells its products directly to its customers based on contracts that have different terms. While its sale prices were therefore not quite as volatile, it generally managed nonetheless to pass on to the market the increases in the cost of both raw materials and energy.
Given solid conditions in the North American steel market, the operating performance of the Group’s direct reduction plant in Corpus Christi, Texas, USA, was positive throughout the business year ended. The third business quarter was the only time production was curtailed due to a planned maintenance shutdown. Toward the end of the business year 2021/22, the war in Ukraine caused the price of hot briquetted iron (HBI) to shoot up, because HBI and pig iron from Russia and Ukraine were no longer available.
Following a process of about one year during which the division worked on strategic options for the Texas direct reduction plant, on April 14, 2022, voestalpine signed an agreement with ArcelorMittal regarding the sale of 80% of its equity stake in the facility. The closing of this transaction is expected to take place in the next three months.