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October 22, 2021 – At Italian thyssenkrupp subsidiary Acciai Speciali Terni (AST), the signs are currently pointing to a storm. AST apparently wants to impose a high energy cost surcharge – especially for large customers. This has led to massive disgruntlement in the Italian stainless steel market. In China, coal producers have announced that they will cap prices for thermal coal. The Asian markets are reacting. But is China’s coal problem really solved with this? And Evergrande is giving way as a spectre.

Stainless Espresso: Big trouble at Italian stainless steel manufacturer
Stainless Espresso: Big trouble at Italian stainless steel manufacturer

China’s energy problems solved?

The four largest Chinese coal producers announced yesterday (Thursday) that they will secure supplies in the heating season and that they will not exceed prices for thermal coal ranging from about 188 to 313 USD per tonne, depending on the calorific value.

This announcement does not really come as a surprise, as the Chinese government had already announced this week that it would take a closer look at the overheated coal market.

Turbulent Asian commodity markets

Already at the time of the government’s announcement, the Asian commodity market in particular had made some downward corrections, only to reverse course the next day due to poor production figures for nickel. The announcement by Chinese coal producers to cap prices then caused values to correct again – especially on the SHFE. On the western commodity markets, especially the LME, the situation is more stable.

Thermal coal prices remain high

Even though thermal coal prices on the Zhengzhou Commodity Exchange (ZCE) have currently fallen by around 10%, they are still between 3.4 and 3.8 times higher compared to October 2019 and 2020.

China must import coal

China has to import a weighty portion of its coal. The rebounding economy after the Corona crisis and an import ban on Australian coal have also contributed to the current energy crisis taking on such dramatic features in the Asian country.

With energy rationing and production cuts – especially for steel and aluminium – attempts have been made to deal with the problem, but this seems to have had only moderate success so far. Nevertheless, there is still a lack of sufficient coal supply in China.

World market prices for coal explode

The world market prices for coal really exploded in 2021. The high demand has increased the prices for coal futures worldwide fivefold on average compared to 2020. Coal-dependent countries, such as India, are facing similar problems as China. There is not enough coal available. In India, many coal-fired power plants have not even reached a week’s supply. The aluminium industry there is already threatening to run cold.

Is China’s coal problem now solved?

But if coal prices are now capped by the producers, this will make importing coal to China less attractive. Australian coal, which was resorted to in times of need despite the import ban, could now be diverted to more attractively priced places. The same applies to other coal exporters.

Not that China will end up with supposedly cheaper prices for non-existent thermal coal. At the moment, the measures announced by the four big Chinese coal producers still look like a fig leaf.

Evergrande pays overdue debts

The spectre of Evergrande, which the media like to use, has had its day for the moment. Chinese media report that Evergrande has settled an overdue interest payment. Chinese bank regulators also do not see a possible Evergrande bankruptcy as a major threat to the overall market.

This positive news has led to a rebound in property values in China. This takes Evergrande off the table, at least for the moment.

Italy: Major customers of Acciai Speciali Terni massively annoyed

We have been told that the Italian still-subsidiary of German steel giant thyssenkrupp, Acciai Speciali Terni (AST) is planning to impose a high energy cost surcharge on stainless steel products already ordered and on future orders.

Unrest in the Italian stainless steel market

According to market sources, this clearly deliberate step, which is obviously controlled from the group headquarters in Essen, has led to massive annoyance among AST customers, especially some major customers. Overall, this has led to considerable unrest in the Italian stainless steel market.

Even customers who are supposed to take over the role of shareholder in the Italian stainless steel producer later on would currently be forced to pay this surcharge. A not inconsiderable sum, since this customer buys significant quantities of stainless steel from AST.

What plan is thyssenkrupp pursuing here?

We wonder whether thyssenkrupp and AST have thought this step through to the end. What would be the worst case scenario if someone who is so disgruntled withdraws from a deal? Who wins? Who loses?

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