Steel makers fear the crisis will worsen from the energy crisis as production stops

Steel makers fear the crisis will worsen from the energy crisis as production stops

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By Philip Blinkensop

Genk, Belgium (Reuters) – Rising energy costs have forced steelmakers to cut production across Europe, threatening to close huge plants and some warning that it will always be in a sector that employs more than 300,000 and contributes tens of billions of euros to the region’s economy.

Even with four wind turbines and more than 50,000 solar panels at its site in eastern Belgium, stainless steel maker Aperam has been forced to halt production due to rising energy prices.

The company now pays for energy in a month what it used to pay in a year and has stopped working on a facility that would normally melt scrap stainless steel into giant slabs, employing about 300 workers.

“We have temporary levers to get through a certain period but this can’t go on for years,” Bernard Holmans, head of Europe at Aperam, told Reuters from the calm inside the plant.

“If this happens, we will see a decline in manufacturing in sectors like ours, and Europe will also, for base metals like us, become dependent on imports.”

Summer maintenance typically limits production to around 80% of capacity, but Holmans says the figure has been around 50% since late June, after Russia sharply cut gas supplies to Europe, sending already inflated prices to new record levels.

Imports into Europe, largely from Asia where energy prices are much lower but the carbon footprint are higher, have risen from 20-25% in 2020 and 2021 to 40% this year, peaking at around 50% in the past weeks.

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Hallimans says Europe has to come up with answers. According to a McKinsey report last year, steel contributes about 83 billion euros ($80.97 billion) to the direct added value of the region’s economy, and directly employs 330,000 people.

The European Commission says EU trade defense measures protected 195,000 steelmaking jobs in 2021, although critics say the energy cost gap is now so large that imports could be cheaper even with additional protective tariffs.

On energy, the EU failed to agree on a cap on the price of gas, but supported a plan to distribute excess revenue from energy producers to users.

Hallemans says potential payment producers like Aperam are unclear and could be months away, with energy prices rising just as Aperam seeks to bind customers to annual contracts.

winter in manufacturing

In Germany, which is largely dependent on Russian gas to fuel its export-driven economy, the steel industry faces additional energy costs of €10 billion, about a quarter of the sector’s average annual turnover, with the additional costs of a green transition in the European Union.

“If we don’t pull the trigger now, a winter of deindustrialization threatens us in Germany,” said WV Stahl president Hans-Juergen Kerkhove.

ThyssenKrupp Steel Europe has scaled back production there, with customers reluctant to face emerging recession and energy prices challenging their international competitiveness.

ArcelorMittal (NYSE:), the world’s second-largest steelmaker, has also shut down its blast furnace in Germany, along with others in France, Poland and Spain, and expects its European production in the fourth quarter to be about 17% lower than a year earlier. .

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If the energy crisis is not addressed in the short term, the pauses could become more permanent, says Adolfo Aiello, deputy director of the European steel union Eurofer, and also apply to other energy-intensive sectors such as other metals, fertilizers and chemicals.

Eurofer says the situation has worsened significantly since its August forecast of a modest 1.7% decline in European steel consumption this year, but a strong rebound of 5.6% in 2023.

The union’s next quarterly forecast is due only in late October, but Director of Economic Studies Alessandro Schiamarelli said the 2022 decline will be deeper than current forecasts, with a notable decline also in 2023.

“The events of the past two months have completely disturbed the picture,” he said.

The 1,200 employees of Aperam’s Genk plant are at risk of temporary unemployment, with their salaries cut by at least a fifth while inflation hits 10%.

The plant has suffered from pauses before, particularly during the 2008-2009 global financial crisis.

“Today no one knows how (the) energy prices will go … how our customers will react, will we be able to pay the bills, etc.,” production manager Yves Dufran said before his three-day downstream hiatus. facility.

“I think it’s worse than what we saw in 2009.”

(1 dollar = 1.0250 euro)

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