This is how the steel industry faces the runaway rise in energy

With electricity through the roof and supplies at a minimum, the machines slow down or stop. This is the maxim that now conditions the productivity of the Spanish steel industry due to the war in Ukraine.

Since the conflict began, prices for Petroleum, gas and electricity have been shot. The light, which had already become more expensive at the end of 2021, has arrived to rise 115% in just ten days of conflict, touching historical peaks of 700 euros/MWh. In addition, at the beginning of March its average price multiplied by ten that of the same season in 2021: 47 euros/MWh compared to 545 euros/MWh reached on March 8.

On the other hand, these increases have been transferred to essential materials such as chromium, nickel, palladium, silicon and clays necessary for the manufacture of metals and ceramics.

The rise in energy prices and supplies has led some companies to turn off their ovens or reduce their production to a minimum, with the impact that this has on employment and the supply chain. Thus, Ferroglobe stopped its factories in Arteixo (Galicia), Boo (Cantabria) and Monzón (Huesca), and Acerinox stopped its activity at the Algeciras plant on March 8 and placed 1,800 employees on ERTE.

With the volatility of energy prices, the industry is mired in uncertainty and places orders with deadlines of a week and even days without knowing if they will be able to afford the production costs. For this reason, they demand urgent measures from the Government to overcome this energy crisis and for companies to be able to reactivate their furnaces with a solid base.

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Untie the price of gas and guarantee “a minimum of certainty”

In Asturias, a group of companies “highly intensive in electricity and gas consumption” are accumulated, Alberto González, general director of the Asturian Federation of Entrepreneurs (FADE), which groups 80 business associations and more than 50,000 companies, explains to Although the rise in gas and electricity prices is affecting thousands of entities, González points out that it is “a big problem” for ArcelorMittal and Asturian Zinc, two companies that consume approximately half of all the energy in Asturias in a year.

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In this situation, Asturiana de Zinc activates its production taking advantage of off-peak hours, while Arcelor Mittal has stopped its plant in Sestao and has put 220 workers on ERTE. From the FADE they have asked the Government of Asturias to start up the Gijón regasification plant, and demand from the Government of Spain “sufficient tools” so that the companies can apply ERTE in a “clear and agile” way in the face of “an atypical and unexpected reason” as is the war in Ukraine.

According to González, the problem lies mainly in the higher cost of electricity, but it is also perceived in the arrival of supplies As the Coal and iron ore, two materials that are imported from countries like Russia. Also, there is a slowdown in demand from sectors such as car, preserves and home applianceswhich weighs down the Asturian steel industry and can be “an explosive cocktail” for the economy as a whole.

In this spiral, González calls on the European Union (EU) to stabilize energy prices and “be sensitive” to the industry. Therefore, ask decouple the price of gas from that of electricity and from there make a tax relief provided to the extraordinary impact that the war in Ukraine is having on energy prices.

As he explains, “it is very complicated to guarantee delivery times, but it is infinitely more complicated to close sale prices” because companies don’t know how much they are going to pay for supplies and electricity days after placing an order due to high volatility. So their last request is “a minimum of certainty” to be able to maintain their investments and contracts.

Aluminum asks for contained, reasonable and stable prices

Armando Mateos, president of the Spanish Association of Aluminum and Surface Treatment (AEA), assures that the rise in electricity prices is nothing new and “the war between Russia and Ukraine has accelerated some factors that came from behind“.

The issue lies in an imbalance of balances. The price of electricity is calculated based on gas despite “not being the main factor in its production” in Spain, says Mateos. From the AEA they show “high concern” because there are companies that almost triple their bill and they have gone from paying 60,000 euros in electricity to 200,000 euros per monthor from 25,000 euros to 80,000 euros per month for gas.

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But it’s not just about bills, it’s about supplies and imports. Matthew explains that Russia is the second largest producer of aluminum worldwide and produces 6% of this material, behind China. with the conflict, has been stressed supply and demand and there are already countries in Eastern Europe where Russian supplies do not arrive, such as aluminum, nickel, palladium and steel. It has also affected Spain, which has boosted its own production and has intensified imports from Turkey, the United Arab Emirates, Egypt and South American countries. This, for the moment, is covering the demand.

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According to data from the AEA, Spain manufactures 700,000 tons of aluminum and, of them, 50% export them to Germany, the United Kingdom and France, and 5% dedicate them to construction. Although the situation is complex, he assures that “aluminum is not lacking in Spain“And, according to him, in his sector there are still no production stoppages or ERTE, but it is a feared scenario in a niche that includes 400 companies that work with aluminum, 30,000 industrialists and 20,000 direct workers, according to AEA censuses.

Therefore, it ensures that there is a discontent of the industry in generalwhether they are bakers, carriers or the steel industry. Thus, he claims “immediate decisions to contain prices, make them reasonable and stable“, because without that base “I cannot accept an order today without knowing if in 15 days I will be able to assume the costs of electricity”, he explains.

The ceramic industry denounces gas price speculation

“Gas is essential for cooking tiles”says Joaquín Font de Mora, president of the National Association of Manufacturers of Frits, Enamels and Ceramic Colors (ANFFECC) located in Castellonthe province where more tiles are produced in Spain.

Spain imports 7% to 10% of Russia’s gas, but obtains it mainly from Algeria. A) Yes, 90% of the gas in Spain in principle is not so affected by the conflict. However, Font de Mora points out that there is a problem in the price speculation in the markets and the current reference value in Europe, the Dutch TTF, is contaminated by the skyrocketing price of Russian gas. In this way, “the gas from Algeria, originally cheaper, enters the stock market and is coupled to the TTF reference, which in the end makes it more expensive,” he clarifies.

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Following this chain, if gas rises, so does electricity, and this spreads to oil and raw materials, thus generating a unchecked and prolonged inflation. To curb this phenomenon, he advocates take another reference located in EU countries.

What really affects us is the gas“, he explains, and most of his associates have turned off ovens. A protective measure taken since the first week of March to be able to face the stock of orders already closed, activating production in a timely manner.

However, another problem is the lack of supplies. To make tiles you need clay imported from Ukraine, a country that has stopped its exports because of the war. Font de Mora assures that they have ukrainian stock insured for 5 or 6 monthsbut they will have to look for other formulas, substitutes or other countries where they can obtain the material.

Thus, it ensures that “we are working with daily prices” and that the stoppages in production are “measures to defend ourselves and avoid closing completely”. For this reason, he asks the Government to act to put an end to speculation and the volatility of gas with measures dealt with at a European level.

In any case, for Font de Mora the solution lies in Europe. First, by changing the gas benchmark to another European value to address the damage from the war in Ukraine. Then use the european funds to boost the ecological transition as dependence on gas is reduced: “We need the funds to arrive because it is the only way to have energy independence”.

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George Holan

George Holan is chief editor at Plainsmen Post and has articles published in many notable publications in the last decade.

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