Steelmakers across Europe cut production as power costs surge

Steel plants across Europe are cutting back productions as power costs surge to record levels in response to Russia’s invasion of Ukraine.

Metal manufacturers from Spain to Germany are starting to slow down or completely stop their work as the increased costs make production unsustainable, even with steel trading near record levels.

Russia’s invasion of Ukraine has worsened already exorbitant power prices, affecting companies like Acerinox SA, Salzgitter AG and Liberty Steel.

This week, Spain's day-ahead average power price surged to about $599 per megawatt-hour, more than double what it was only two weeks ago.

As the Kremlin claims it is reviewing its gas exports, penalising power-intensive industrial sectors, this type of cost pressure is being felt across the continent. Andres Barcelo, director of Spanish industry group UNESID, told the media that they partially shut down one plant in Cadiz, south of the country, where a stainless steel mill stopped, while the parts of the site that carry out hot rolling and cold rolling are still operating.

According to a company spokesperson, if the stainless steel mill does not restart, the other two parts of the plant might shut down in the upcoming days. The company has executed a furlough programme for 1,800 employees.

Salzgitter in Germany also decreased melting operations at its Peine factory. As per the media, Liberty Steel in the United Kingdom stopped operations at its Rotherham plant sooner than scheduled.

Benchmark costs on construction steel generally made in power-intensive furnaces has reached high record levels in Europe as traders braced for shutdowns that will curb supply.

Besides that, many mills using electric-arc furnaces are expected to be loss-making. Plants utilising coal-fired blast furnaces would be less badly impacted, as power makes up a lower proportion of their prices.

Increased steel prices would severely impact manufacturers and construction firms, which endured a sharp rally the previous year.

Currently, the market is already trying to replace metal lost from plants closed in Ukraine, along with exports blocked in Russia by the authorities.

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