SSAB profit hit flags EU steel's parlous state

A steel worker of ThyssenKrupp stands amid sparks of raw iron coming from a blast furnace at a ThyssenKrupp steel factory in Duisburg, western Germany, January 30, 2020. REUTERS/Wolfgang Rattay

LONDON, July 21 (Reuters Breakingviews) - SSAB (SSABa.ST) has kicked off European steelmakers' quarterly earnings season with a profit drama. The $6 billion Swedish company, which competes head to head with ArcelorMittal (MT.LU) and Thyssenkrupp (TKAG.DE), saw its operating profit more than halve in the second quarter, while revenue slid 10% to $3 billion. Poor demand in Europe, declining steel prices and severe rises in energy and production costs are to blame. Between April 2022 and February 2023, the price of hot rolled plates dropped 49% to 959 euros per tonne. With steel consumption expected to decrease further in the second half of the year, investors sent SSAB stock down more than 15%.

To tackle the problem SSAB has pledged to reduce costs by more than $48 million on an annual basis, via temporary and permanent layoffs and restrictions on new hires and other fixed costs. The trouble for SSAB and its rivals is that Europe's construction industry is still facing headwinds with activity expected to fall in 2023-2024, before picking up slightly in 2025. Meanwhile, the European Central Bank may need to continue hiking interest rates as it predicts inflation will stay above its 2% target through the end of 2025. This is already fuelling fears of a recession and prompting steelmakers to de-stock.

One way of bringing relief to the crisis-hit industry would be to resolve the prolonged stand-off between Europe and the U.S. over tariffs on European Union steel imports. But the EU's trade chief Valdis Dombrovskis has already ruled out any compromise solution. Without a deal, trade tariffs, which have been temporarily frozen, would return in December along with retaliatory measures from the EU. For SSAB, whose heavy plate business in North America was relatively stable during the second quarter, that would take things from bad to worse. (By Pamela Barbaglia)

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(The author is a Reuters Breakingviews columnist. The opinions expressed are their own)