The rising cost of energy and fuel is changing the production strategies of some steel companies and reducing profits across the entire stainless steel supply chain.
Four months ago, the United States and Iran signed a memorandum of understanding, which outlined ambitious deadlines for ending the Middle East conflict and opening the Strait of Hormuz. However, the latest escalation has dashed hopes for a quick settlement, pushed up oil and gas prices, and increased global inflation.
For participants in the stainless steel market, this means an increase in both production and logistics costs.
According to Eurostat, producer prices for industrial energy in Europe and the eurozone rose by 12.9% year-on-year in July. In August, energy price inflation in the eurozone accelerated to 14.3%, reaching its highest level since January 2023. Rising gas prices and limited supplies in the EU are increasing concerns that stainless steel producers' energy costs will rise even more this winter.
On September 7, natural gas prices in the Netherlands rose to almost 80 euros per megawatt hour, the highest level since December 2022. Data from Gas Infrastructure Europe shows that on September 24, EU gas storage facilities were about 70% full, which is almost 17 percentage points below the average over the past five years for this time of year.
Reducing output could help European steel companies partially contain rising energy costs. The EU became the only stainless steel production region where, according to worldstainless, a record decline in output was recorded in the first half of the year. Production decreased by 3.7% to 2.91 million tons.
At the same time, demand for stainless steel in Europe remains weak and supply remains high, despite reduced import competition due to the CBAM mechanism and tough new trade protection measures.
Asian governments are holding back price increases for the sake of industry
In Asia, industry has largely been protected from a sharp spike in energy prices in recent weeks. In Taiwan, authorities have frozen electricity tariffs in an effort to keep the industry competitive. This happened despite statements by the state-owned energy company Taipower, which considered it justified to increase tariffs by almost 13% in annual terms. The company noted that since April, prices for LNG used to generate electricity have increased by more than 60%.
The Japanese government also extended measures to curb energy prices for July-September, including discounts for consumers of high-voltage electricity. However, the authorities expect that in the coming months the rising cost of imported LNG will still affect electricity bills.
