Costs at German factories will remain high until spring 2024

German steelmakers' production costs reached critical levels in the fourth quarter and will not fall for another couple of months, says Andreas Schneider of Stahlmarkt Consult.

He estimates oxygen plant costs rose by €80/t ($88) from July to October and have remained constant since then. He attributes this mainly to markedly higher coking coal prices, which rose from $237/t at the start of July to almost $317/t at the end of the year, according to the FOB Australia Coking Coal Index. This is the highest level of coking coal prices and production costs in Germany since March, Schneider said.

“With spot market steel prices falling in recent months, steel companies are unlikely to break even,” he writes in his regular blog. Schneider notes that coil mills continue to make money on annual contracts at prices well above spot prices. However, he questions whether the usual separation of contract and spot prices can be maintained.

Recent contract negotiations took place against the backdrop of spot prices raised by factories since November, at least nominally, while buying activity remained weak. Initially, automakers asked for a reduction in the annual price of at least 100 euros/ton, which in many cases would lead to a reduction in the spot price. In the end, they settled for cutting prices by about 50 euros compared to last year “because they know they need to keep the plants running if they want to have steel in the future,” as one observer put it.

Basic costs for electric furnace mills have also increased, but to a lesser extent. In winter, in particular, scrap metal prices tend to peak while electricity prices remain stagnant, Schneider notes. He assumes that costs for both routes will remain the same during the winter months, and very cautiously suggests that "they may come down somewhat come spring."