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European stainless steel makers move to US amid falling EU profits

Europe / North America / Main

As a result of recent events in the markets of Europe and the US, the difference in prices for stainless steel exceeded $1,350 per ton in favor of the US market. Market conditions in the EU continue to deteriorate and will soon become "particularly challenging", according to major European stainless steel producers.

European stainless steel makers move to US amid falling EU profits

In their latest financial results reports, European companies Acerinox, Aperam and Outokumpu generally reported lower sales and profit margins for their stainless steel divisions in the second quarter of 2023 compared to the previous three-month period.

While the numbers are still high historically, these steelmakers stressed to investors that making money in Europe is currently very difficult. Their overall profitability is supported by significantly better financial results in the US market.

The results are underlined by the fact that they contribute to the main reasons why the two largest European manufacturers intend to expand their presence in the US market and reduce in the EU.

For example, Outokumpu is conducting a feasibility study to expand its manufacturing facilities in the US. The company believes that laws such as the Build America, Buy America Act, the US Infrastructure Act, and the Inflation Reduction Act will create an environment for "promising market growth potential."

What's more, Acerinox executives have already announced a $244 million investment in their North American Steinance stainless steel plant in the US to increase production capacity by 20 percent. This facility is by far the largest integrated stainless steel manufacturer in the US.

Acerinox and Outokumpu have a strong presence in the US and European markets. Aperam's stainless and electrical steel division operates in Europe and South America, but still generates most of its revenue and most of its revenue in Europe.

The higher profitability of steel companies operating in the US can be partly explained the fact that the warp plus alloy markup system is still the main pricing mechanism in this market. On the contrary, European distributors continue to order from local factories using efficient all-inclusive prices.

Contrasting mechanisms cause a significant difference in prices between regions. This month, MEPS estimates that effective prices for 304 grade stainless steel cold rolled coil in the US are more than $1,350 per ton above the European average. -for downward adjustments to inventories caused by lower local prices for stainless steel. Prices in the US fell in 2023, but by a smaller amount than in Europe.

Acerinox, Aperam and Outokumpu have cautious forecasts for the rest of this year and expect the group's earnings to decline in the short term. Market conditions in Europe are expected to be particularly challenging.

Eurozone manufacturing and construction PMIs have been below 50 since July and May 2022 respectively, indicating that activity in both sectors has been declining for more than a year. In addition, there may be structural shifts in the plans of large steel companies to enter the US market, which seems to be more stable and stable than the European market.

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