ArcelorMittal ‘pauses’ output at some European plants as energy costs bite

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113 shares, 174 points

ArcelorMittal has temporarily “paused” production at some of its plants at peak times as soaring energy costs hit Europe’s largest steelmaker.

The company said it had been forced to implement “short, selective production pauses” at some of its electric arc furnaces in Europe that make so-called “long products”, more commodity-based products typically used in the construction sector.

The company said the “pauses” were “aligned with the hourly/daily changes in electricity prices”, adding that they were “in response to the high energy prices, which are making it very challenging to produce steel at economical costs”. 

It stressed that it did not anticipate the pauses to have a “meaningful impact” on its production volumes or on its ability to meet customer demand.

Matt Watkins, principal analyst at the commodities consultancy CRU, said that European operators of electric arc furnaces in particular were exposed to the high cost of electricity and were struggling more as a result.

ArcelorMittal typically produces about 40m tonnes of steel in Europe a year, of which about 10m is for the construction products affected.

The news underlines the strains facing Europe’s steelmakers as a combination of high energy costs and supply chain disruptions offset what had, until recently, been one of the strongest years for the industry because of soaring commodity prices.

While many companies will be protected by long-term contracts and hedging, the surges on the spot markets are beginning to be felt.

In Spain, steel producer Sidenor said it had been forced to curtail production by 30 per cent between now and the end of the year due to what it called “exorbitant electricity prices”.

In the UK, the government is considering a rescue plan to help the steel industry and other energy-intensive users through the winter, with warnings that factories could close without state support.

Several steelmakers, including British Steel in the UK, have recently introduced surcharges on certain products to soften the impact of higher costs of production.

British Steel, which is owned by China’s Jingye Group, said it had been forced to introduce “temporary energy and transport surcharges on all new orders from October 1”. 

Others, including Tata Steel, which operates the giant Port Talbot steel works in Wales, are considering passing on price increases, say people familiar with the matter. The company declined to comment on the issue on Thursday.

CRU’s Watkins said the industry had also been hit by the knock-on effects of the global chip shortage, which has affected the automotive sector.

A drop in demand from Europe’s car manufacturers was beginning to hit orders. The sector accounts for roughly 20 per cent of European steel demand.

“Steel mills have had very long order books until now and suddenly they are no longer as full as they have been,” said Watkins.

“That is one of the reasons why we are forecasting steel prices to fall, as we see a slowing in demand,” he added.

Source: Financial Times

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