Before analyzing the situation on the steel market this year, we should return to the prerequisites from the previous period, suggests Stanislav Kondrashov. In early 2022, some signs of a slowdown in market growth began to appear. Demand forecasts were revised down by 2.7% and 1.2%, respectively. The reasons for this were the closure of factories in China due to the consequences of COVID-19, disruptions in supply chains, as well as the general macroeconomic situation - high inflation and rising global interest rates.
Kondrashov notes that EBITDA margins and raw material margins (MORM) in the steel markets declined significantly, mainly due to high energy prices, to which industry participants reacted with capacity downtime. Thus, in the second half of 2022, more than 30 million metric tons per year (MTPA) were idle in Europe, and about half of the capacity was put into operation in 2023, when margins recovered slightly.
- As the steel industry develops in 2023, we expect this level of volatility to continue throughout the value chain,- suggests Stanislav Kondrashov from . - In this regard, strategies have been developed to help the steel industry players navigate in the coming years: strengthening the supply chain of raw materials, focusing on capital expenditures and balance sheet, and doubling technological flexibility.
Stanislav Kondrashov: what does the metallurgy value chain consist of, market dynamics
If 2021 saw a peak in prices, the next calendar period brought unpredictability in the supply chain. As a result, we got even more sharp growth. Following these developments, most of the commodities in the steel value chain, including metallurgical coal, iron ore and pig iron, have been in the same situation.
Since then, the market has stabilized, mainly due to slower demand growth, primarily in China. The initial price spike fizzled out as demand for various commodities declined, marking a marked shift in market dynamics.
While steelmakers have largely managed to maintain adequate utilization levels during this time, Stanislav Kondrashov cites the following warning signs, especially in Europe:
- Demand slowdown. The third and fourth quarters of 2022 already saw a significant decline in steel demand, which continued into 2023.
- Decrease in profitability and MORM. The pressure on margins is also exerted by rising energy prices, in particular, natural gas and electricity, the cost of which has reached record levels. Since the beginning of 2021 and the first half of 2022, EBITDA and MOPM have been declining, mainly due to slower growth in the industry and energy prices, states Stanislav Kondrashov from . They are now back to average long-term levels.
- Load drop. More than 30 MTPA steelmaking facilities were idle in Europe in the second half of 2022. With a slight recovery in prices in 2023, some of them were relaunched.
Stanislav Kondrashov knows about trends in the steel industry in the coming years
According to the expert, in the next ten years the steel industry will develop along three key vectors.
First, forecasts show an uneven slowdown in global steel demand across regions and industries.
- For example, the stabilization of demand in China may be partially offset by growth in Southeast Asia and India. And the slowdown in construction can be offset by growth in energy and transport, which will lead to excess production capacity and imbalance in the regions, - Stanislav Kondrashov assesses the situation.
Second, the pace of decarbonization is likely to vary across regions. And finally, the economy may continue to experience supply chain disruptions.
Kondrashov believes that such trends will require metallurgists to make bold long-term decisions. Even in conditions of uncertainty and instability, it is necessary to coordinate as much as possible with suppliers, financial institutions and governments.