European steelmakers don't expect new energy contracts yet, despite oil slump

• Tuesday, March 17, 2020
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[Ferro-Alloys.com] European steelmakers don't expect any immediate renegotiations of their energy supply contracts, even though oil prices have tumbled 45% since the start of the year and energy prices are at multi-year lows in markets overshadowed by coronavirus, industry associations said.

 

European steelmakers' association Eurofer pointed out that oil is not a central component in steelmaking and that currently EU producers are making deliveries regardless of the coronavirus outbreak.

 

Still, lower oil prices should filter through in time to lower operating costs in metals and bulk commodities markets, BMO Capital Markets analyst Colin Hamilton said. "Extraction of metals is naturally an energy-intensive process, and lower oil prices tend to feed through to reported costs, with a few months of lag," he said.

 

European forward power contracts (Italian Q2, French front-month, German year-ahead) fell 4%-7% early Monday in response to that day's collapse in the oil price and recovered losses mid-week only to dip again Thursday and Friday, with the benchmark contract German Cal 21 seen at Eur39.80/MWh Friday afternoon.

 

In Spain, where energy costs have been problematic for years, the decline in power prices will only partially offset the disappearance of other mechanisms that the steel sector previously used to reduce its energy costs, such as interruptible contracts, according to Barcelo. Power demand from metal companies - Spain's largest single consuming sector - has dropped around 15% in the last year.（S&P Global Platts）

 

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