Wartime steel spike threatens to hamper global economic recovery

(Bloomberg) — A failed bid to build a bridge in Rome highlights another consequence of Moscow’s war: rising steel prices.

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Earlier this month, there were no takers in the 146 million euro ($163 million) contract for the Ponte dei Congressi across the Tiber River, as steel market turmoil caused potential bidders to turn away. they would be wary of being burned. In the three weeks after the Russian invasion of Ukraine, benchmark European steel prices rose 51% as shipments from those countries were withdrawn from the market.

That’s worrying for the continent’s recovery, as steel remains an essential component of the modern economy. Spiraling prices, on top of skyrocketing energy costs, leave European manufacturers and builders with a stark choice: absorb the pain, pass it on to their customers, or cut production.

Europe depended on Russia and Ukraine for a fifth of its steel imports and the impact was exacerbated by rising energy costs that forced mills to cut output. However, other nations, including the US and Turkey, are also affected by the loss of key products.

Read: Oil Drillers Say Steel Shortage Is One Reason For Flat US Output

“It goes to the very core of economic activity in major economies like Europe,” said Tom Price, head of commodities strategy at Liberum Capital. “The effect goes back up the supply chain so that all economic activity is affected.”

The war in Ukraine, adding to previous supply chain disruptions, is already causing shortages of some steel grades, according to Angelica Donati, head of business development at her family’s Rome-based construction company, Donati SpA. That includes corten, a naturally rusty steel used in construction.

“Corten steel, produced mainly in Ukraine, is not available at the moment,” Donati said. “This means that any site where corten is used, for example, is an important component for viaducts in Italy, it will inevitably have to stop production.”

Further gains in steel prices risk demand destruction, according to Bloomberg Intelligence analyst Grant Sporre, who sees the auto and consumer goods sectors to be hit the hardest.

“All of a sudden his car was up $700 to $800 to make,” Sporre said. “That eliminates your margin, so you have no choice but to raise prices.”

The impact is also reverberating across the Atlantic. Benchmark US steel prices have risen about 56% since Russia’s invasion, after falling from record levels last year. Accounting for about 70% of US steel production, electric arc furnaces source more than half of their shipments of key feedstock pig iron from Ukraine and Russia.

“Everyone is struggling with uncertainty,” Timna Tanners, an analyst at Wolfe Research, said in a phone interview.

Diminishing availability of pig iron is driving up the price of another raw material, high-grade scrap, as other EAF producers such as Turkey and Egypt seek to secure supplies.

“If they can’t get pig iron from Ukraine and Russia, they need to get scrap, and the best place to get scrap is the United States,” said Dan DeMare, director of sales for Heidtman Steel Products Inc. “So to keep it here, the price had to go up, that’s what created a price floor in the US market.”

The other great shock of raw materials from the war in Ukraine: Javier Blas

China, the world’s largest steel market, also presents upside risks to global steel markets. Closures in central Tangshan have forced some closures of 19 blast furnaces in the area, according to local researcher Mysteel, pushing prices higher.

In theory, that could provide some relief to mills in other parts of the world by lowering the costs of coal and iron ore. But that has yet to materialize: Prices for both commodities have risen more than 35% in Singapore this year on expectations of rising Chinese demand.

Any relief may come too late for Suomussalmi, where Finnish troops repelled the Russian army in the 1939-1940 Winter War. The city may now be forced to shelve its own new bridge, after higher steel prices helped nearly double the starting price.

“Some of the older people said this project has been in the works for a decade,” Mayor Erno Heikkinen said by phone. “We had a hint that steel prices were going up, but the increase really has been sudden.”

(Add details about the affected regions in the fourth paragraph)

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