Security of supply is further threatened and prices are exploding

Back in January, Damstahl a/s had to wonder about a 2021 that took a somewhat different shape than the steel distributor could have predicted. The year had taken the form of “a perfect storm”, where a confluence of political decisions, rising energy and commodity prices and an undercapacity in the production of stainless steel in Europe challenged security of supply. A situation that has continued into 2022.

Three Ukrainian works have been closed down

Now the war in Ukraine has come to. and it has complicated the situation even more.

The Central European market is sourcing seamless pipes and bar steel from three Ukrainian plants, which are currently closed indefinitely. This means that demand will move to other suppliers that we also make use of. This is putting pressure on an already overheated market, says Director Henrik Ørskov.

Nickel at $ 100,000 per tonne

The price of nickel is on a regular skyrocketing. Nickel is a very important component in the manufacture of batteries for electric cars as well as stainless steel. On the Shanghai Stock Exchange, nickel traded at an astronomical $ 100,000 per tonne on March 8, while the price of the London Metal Exchange also rose so fast that it was quickly decided to suspend trading for the rest of the day. The price rose by up to 250 per cent during the previous weekend.

The LME stock market reopened on March 16 at $ 48,000 and all trades from Monday evening (March 7) until Tuesday morning (March 8) were cancelled. Trading reopened with a regulatory spread so that prices could vary a maximum of +/- 5% per day. This has been changed to a spread of +/- 8% today (March 17). 

- The world's second largest producer of class one nickel is located in Russia, and although they are not yet directly covered by the trade sanctions, it may be a matter of time before steel producers receiving nickel from Russia have to stop supplies and look for nickel elsewhere. A natural consequence will be rising prices, says Henrik Ørskov.

Russian gas is essential for steel producers

In addition, the whole issue of gas from Russia. Gas is a major energy source for most steel mills, and if Russia shuts off gas - or the West puts a plug in the Gazprom pipeline - those already extreme energy prices will rise explosively again, which can naturally be read directly in steel prices.

The uncertainty has also caused many manufacturers to stop offering something from new production, and it puts the entire market in an uncertain and hesitating position.

Possible driver shortage results in more expensive transport

As if all of this was not enough, transportation can also cause additional problems.

- Apparently a lot of international truck drivers come from Ukraine, and if they go home to fight for their country, an already pressured transport sector becomes even more heated by driver shortages. In addition, the EU has tightened cabotage requirements so that foreign drivers must return home more frequently and return. Together with the rising diesel prices, this will make the transport of steel an even more expensive and complicated affair, says Henrik Ørskov.

Impossible to predict the development

The stock at Damstahl looks reasonable on pipes in particular, just as it looks ok with sheets and plates. Bar steel is without a doubt the product category that is hardest hit in the first place.

- It is completely impossible to predict what the future will bring and right now we size up the situation from day to day and are in close contact with our suppliers and customers to navigate as well as possible through this unprecedented supply challenge, says Henrik Ørskov.