While the COVID-19 pandemic had a major influence on the production, logistics, and therefore prices of raw materials in calendar years 2020 and 2021, the Ukraine war had a massive impact on these areas, including energy prices, in calendar year 2022. The outbreak of the war in February 2022, in particular, triggered a price shock. Two major suppliers of iron ore, metallurgical coal, and alloys—Ukraine and Russia—are embroiled in the war. Access to Russian raw materials has been limited on account of sanctions and voluntary boycotts. On the Ukrainian side, supplies have been limited due to the occupation or partial destruction of storage facilities as well as increased difficulties navigating logistics routes. The shortages were not the only factor leading to the uptrend in raw materials prices. It also arose from the buildup of inventories, given the generally uncertain situation and the disintegration of transport logistics. Against this backdrop, the volatility in the market for raw materials indispensable to steelmaking continued unabated in the business year 2022/23. voestalpine’s raw materials management was therefore tasked with ensuring the security of production. In part, this required developing alternative sources and transport routes as well as temporarily expanding inventories of iron ore, metallurgical coal, and alloys. The Ukraine war also caused massive distortions in terms of energy. Given Europe’s heavy dependence on Russian energy supplies, the price of natural gas rose rapidly and dramatically across large parts of the continent. This region also saw an unprecedented upsurge in electricity prices as a result.
Iron ore
Iron ore is the most important raw material in the production of crude steel using the blast furnace route. The price of iron ore soared to a record high of USD 220 per ton in the Northern summer of calendar year 2021 but dropped by almost 60% to about USD 90 per ton (62% Fe, cost and freight (CFR) China) in subsequent months. Early in calendar year 2022, the price rose yet again due to both inclement weather in Brazil and the outbreak of the Ukraine war. At the start of the business year 2022/23, iron ore was selling for about USD 150 per ton. However, global steel production and hence demand for iron ore trended downward in calendar year 2022, with the result that the price gradually fell to just over USD 80 per ton by early November. More optimistic forecasts for the global economy in the Northern fall of 2022 and, in particular, improved growth prospects for the Chinese steel industry turned out to be stabilizing factors. The price of iron ore then ranged between USD 90 and USD 130 per ton up to the end of the reporting period. As Ukraine is an established and significant source of iron ore pellets, voestalpine’s raw materials procurement shifted its focus to greater diversification in sourcing and increasing the pool of suppliers. The unfavorable conditions in both mining and shipping notwithstanding, the Group managed to obtain Ukrainian iron ore throughout the business year just ended. Given the rising uncertainty and logistical challenges, voestalpine drastically increased its inventories of iron ore, especially in the initial phase of the war.
Coking coal
Coking coal is another key primary raw material for the production of crude steel as part of the smelting process. It is the base material for the production of metallurgical coke, which is used not only as a source of energy in blast furnaces but also as a reducing agent because it extracts oxygen from the iron ore. While the price of coking coal already was very high in the months leading up to the outbreak of the Ukraine war, Russia’s attack on Ukraine along with torrential rain on Australia’s east coast sent the price of coking coal on the spot markets (HCC Premium, FOB Australia) to a record high of USD 660 per ton. However, the spot market price fell back to normal levels over the course of the business year 2022/23 and varied between USD 200 and USD 300 per ton from the second business quarter. This price decline reflected fears that the global economy might be heading for a recession. The price of coking coal did not rise again until the fourth business quarter, significantly exceeding the threshold of USD 300 per ton. This trend reversal was due to the growing optimism among market players who, by this time, were no longer assuming that the United States and Europe would plunge into a deep recession. China, in its capacity as the world’s largest steel producer, does not play as decisive a role in the spot market pricing of coking coal as it does for iron ore. This is because the country largely relies on domestic sources or on imports from its neighbor, Mongolia. After the start of the war in Ukraine, voestalpine switched its imports of pulverized coal injection (PCI) coal from Russia to both existing and new suppliers and shored up its overall inventories of coking coal.
Steel scrap
High-quality scrap is a valuable raw material, in that it is used in blast furnace-based steelmaking to supplement pig iron, and it is the main input material in electric arc furnace (EAF) steel production. A significant portion of the quantity of scrap required is generated during steel production itself and is fed back into the production process as recycled scrap. The processing of steel also generates large quantities of steel scrap, for example, in connection with stamping in the automotive industry. Known as “recycled scrap,” this is a high-value raw material in steelmaking. The pricing of steel scrap at the outbreak of the Ukraine war was initially influenced by fears of supply shortages. Starting from a very high level of about USD 660 per ton (CFR Türkiye) early in the business year 2022/23, the price of steel scrap dropped by half within a single quarter. This occurred against the backdrop of adequate supplies, the prohibitively high cost of energy used in EAF-based steelmaking, and the dampening of economic sentiment. The price then stabilized at between USD 350 and USD 400 per ton up to the end of calendar year 2022. It rose slightly yet again in the fourth business quarter, selling for about USD 450 per ton at the end of the reporting period.
Alloys
Alloys are a key cost factor in the High Performance Metals Division. They are used in steel production alongside pig iron and scrap to manufacture highest-quality steel grades. The onset of the war in Ukraine triggered sharp distortions in alloy prices as well. Dramatic price fluctuations had already occurred toward the end of the business year 2021/22, especially with respect to of alloys that are largely sourced from Russia and Ukraine. This affected nickel, ferrovanadium, and ferrotitanium in particular. As far as nickel is concerned—the most important alloy for the High Performance Metals Division—fears of supply bottlenecks in early March 2022 led to all-time high closing prices of just under USD 43,000 per ton. The market then calmed down again fairly quickly, and the price of nickel fell at the start of the business year 2022/23 to under USD 33,000 per ton. By mid-July 2022, it had settled at the level prevailing prior to the outbreak of the Ukraine war. The nickel price was moderately volatile during the Northern summer of calendar year 2022, but jumped yet again to over USD 30,000 per ton in the fourth calendar quarter. The price started to drop again from early February 2023, finally settling at about USD 23,000 per ton at the end of the business year 2022/23. The fluctuations in the prices of ferrotitanium and ferrochromium due to the Ukraine war were even more pronounced than those of nickel. The fact that Ukraine is considered a significant global producer of ferrotitanium raised fears of a sharp tightening of supplies of this alloy, which is indispensable to special steel production. The price of ferrotitanium soared by more than 160% within a few weeks, remained at a very high level until early June 2022, and then dropped continually in the subsequent months. By about early December 2022, the price had fallen back to the level prevailing prior to the outbreak of the Ukraine war and remained at this fairly moderate level until the end of the business year 2022/23. When it comes to ferrochromium, Russia, in particular, possesses large deposits of this alloy. The erratic price fluctuations in the Northern spring of calendar year 2022 were also rooted in the fact that ferrochromium requires a lot of energy in production, so its price rose yet further in the wake of the massive increases in energy costs. The trend in the price of ferrochromium in the reporting period was similar to that of ferrotitanium, albeit with slightly fewer fluctuations. Ferromolybdenum pricing followed a completely different trajectory. After a fairly uneventful first half of the business year 2022/23, erratic fluctuations characterized the pricing curve in the second half of the year. As a result, the price of ferromolybdenum more than doubled in early February 2023 compared to its level in early November 2022. These significant price increases resulted from production shutdowns in copper mining in tandem with high demand; ferromolybdenum is a byproduct of copper mining.
Energy
Natural gas and electricity are the most important sources of energy for voestalpine. Natural gas is required mainly for heat treatment and for the rolling mills in the steel plants. voestalpine’s blast furnace-based steel plants in Austria are largely autonomous when it comes to electrical energy thanks to the in-house electrification of the steel mill gas generated in the production process. By contrast, the electric arc furnaces in the High Performance Metals Division that produce special steel require larger quantities of externally generated electricity. This is where the massive distortions in energy prices resulting from the Ukraine war made themselves felt. The price of natural gas in Europe climbed to historic highs shortly after the outbreak of the war, briefly breaching the threshold of EUR 200 per MWh (spot market THE Settlement, Germany). Fears of cutbacks in natural gas deliveries or even a complete suspension of supplies from Russia were distinct possibilities. Yet the situation eased at the start of the business year 2022/23, causing the natural gas price to fall temporarily to less than EUR 100 per MWh. From June 2023, however, the price of natural gas rose dramatically yet again, as Russia was continually curtailing natural gas deliveries to the European Union (EU). Fears that Russian deliveries could be suspended completely spread. At this point, the EU prepared contingency plans in case of natural gas shortfalls. In August 2022, the price of natural gas breached the threshold of EUR 300 per MWh for the very first time. By building liquefied natural gas (LNG) terminals and shifting to alternative suppliers, Europe was able to reduce its dependence on Russian natural gas. Natural gas storage facilities were filled for the winter, quickly and sufficiently. At the same time, consumers and industries alike curtailed their consumption of natural gas. The pronounced easing of the situation resulted in rapidly crumbling prices: In the Northern fall of calendar year 2022, the price of natural gas finally dropped to less than EUR 50 per MWh. It remained volatile thereafter and briefly climbed back to EUR 150 per MWh. In December 2022, it started to weaken incrementally—among other things due to the unusually mild temperatures at the height of the heating season—and settled at just under EUR 50 per MWh toward the end of the business year 2022/23. To ensure natural gas supplies (especially at its Austrian facilities), in May 2022 the voestalpine Group also contractually secured natural gas storage facilities for its own use. In an emergency involving the complete loss of external supplies, existing reserves of 1.5 TWh of natural gas would enable the Group to maintain full operations for a period of three months or limited operations for a longer period, depending on the production process. The Group has also been working with both existing and new suppliers on expanding its natural gas sources. Pursuant to the merit order principle, electricity prices are determined by the marginal cost of the most expensive type of electricity produced; as a result, the price trajectory of natural gas materially determined the price of electrical energy during the reporting period. While the procurement price of electricity on the spot market was just under EUR 200 per MWh (spot market EXAA AT Base) at the start of the business year 2022/23, it rose to all-time highs in the Northern summer of calendar year 2022 and reached a level of just under EUR 500 per MWh on average in August. It was only in subsequent months that a continuous easing set in. Toward the end of the business year 2022/23, prices were just above EUR 100 per MWh.
