Global steelmakers, metallurgical coal miners and merchant coke producers are feeling the heat thanks to sluggish steel and coal prices coupled with the prospect of higher energy costs in the US due to regulation, participants said Tuesday at the 17th annual Met Coke World Summit in Pittsburgh, Pennsylvania.
"[Low] pricing has been a huge struggle for producers," Walt Scheller, CEO of US miner Walter Energy, said. Major producers in North America are "at best break-even," he added.
Exporters such as Walter Energy, which views the Atlantic market as a key area for its products, are also suffering because "European blast furnace utilization rates have been relatively low," Scheller added.
US-based steel producers expressed similar pessimism on their front. Cheaper steel imports and lack of investments in the struggling industry were causes of continued lackluster performance of the American steel market, according to Kirk Reich, vice president of procurement at AK Steel, and Cyril Martinand, procurement division manager at Arcelormittal USA.
Asia has also not been spared. Indian steel production has been low due to weak macroeconomic factors and poor steel demand this year, D.K. Ojha, managing director of Global Coke, a coke maker in west India.
"Steel plants [in India] are not at 50% capacity," Ojha added.
Much of the bearishness in coke prices this year has less to do with the wide availability of Chinese coke, and more to do with low steel output and, in turn, demand for coke from steelmakers, Ojha told Platts.
Further environmental regulatory scrutiny in the US has also not helped struggling industry players. Recent proposals from the Environmental Protection Agency to cut carbon pollution at new US power plants would increase the costs of doing business in an energy-intensive steel sector, according to US Representative Tim Murphy, who also is chair of the Congressional Steel Caucus.
"Environmental policies at hand are not based on science, or jobs, but ideology," he added. Higher prices for energy coals "would decrease already slim margins for the steel markets," he said.
VERTICAL INTEGRATION
Most participants generally agreed that vertical integration for steel and coke makers, in terms of acquiring coking coal mines or getting offtake agreements from suppliers, could help to resolve the issue of depressed profit margins, though it was uncertain whether any of the existing participants would further expand within this segment.
AK Steel and Arcelormittal, which are already vertically integrated, see benefits in such a model.
"I think that is the right thing to do....so we can hedge our bets," Reich from AK Steel said. "We won't be subject to the volatility in the market."
Scheller agreed. "Vertical integration is more of a hedge."
Steel producers don't necessarily want all of their coal supplies from just one mine, hence having stakes or offtake agreements in mines is more for supply diversification purposes.
Standalone cokemakers, without any stakes in any met coal mines, are not viable in India, Ojha said, since having steady and constant supply of coke raw materials would help address supply security concerns.
Arcelormittal's Martinand similarly agreed with such benefits -- though he said that he is unaware whether the company has any new plans to expand further.
