Steel Plants Across Europe Cut Production as Power Prices Soar

(Bloomberg) -- Steelmakers across Europe are cutting back their operations as power prices surge to record levels in response to Russia’s invasion of Ukraine.

Producers of the metal from Spain to Germany are beginning to slow down or entirely stop their output as the higher costs make production unsustainable, even with steel trading near record levels. Russia’s invasion of Ukraine has exacerbated already eyewatering power prices, affecting companies including Acerinox SA, Salzgitter AG and Liberty Steel.

“The situation is untenable,” said Andres Barcelo, director of Spanish industry group UNESID, which is lobbying for electricity and gas prices to be decoupled. The government in Madrid may take measures to help as early as Friday, he said.

The day-ahead average power price in Spain this week jumped to almost 545 euros ($599) per megawatt-hour, more than twice what it was just two weeks ago. That kind of cost pressure is being mirrored across the continent as the Kremlin says it is rethinking its gas exports, punishing power-intensive industrial firms.

Acerinox said it partially closed one plant in Cadiz in the country’s south, where a stainless steel mill halted, while the parts of the site that carry out hot rolling and cold rolling are still functioning. A company spokesperson said that the other two parts may cease operating in the next few days if the stainless steel mill doesn’t resume. The company launched a furlough program for 1,800 employees, it said.

In Germany, Salzgitter reduced its melting operations at its Peine plant on Wednesday, a spokesperson for the company said. U.K. producer Liberty Steel stopped production at its Rotherham mill earlier than expected, according to a person familiar with the matter. Liberty declined to comment.

Benchmark prices on construction steel -- typically made in power-intensive furnaces -- surged to record levels in Europe this week as traders braced for shutdowns that will curb supply. Despite that, many mills using electric-arc furnaces are likely to be loss-making. Plants using coal-fired blast furnaces will be less badly affected, as power makes up a lower proportion of their costs.

Higher steel prices will cause more pain for manufacturers and construction firms, which endured a sharp rally last year. The market is already trying to replace metal lost from plant shutdowns in Ukraine, as well as Russian exports blocked by sanctions.

Back in Spain, Celsa Group’s furnaces at its Barcelona plant were halted yesterday, according to a spokesperson for the company. Megasa SA also idled two facilities in the northern region of Galicia, according to Barcelo. The company declined to comment.

ArcelorMittal SA’s Sestao plant in Spain will not resume working as previously planned on March 13 due to high electricity costs, a spokesman told Bloomberg News in response to questions. Its facility in Olaberria stopped Tuesday and restarted on Wednesday, operating intermittently. 

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