The conflict in the Middle East is affecting Asian competitors

Steel producers in the European Union are preparing for a recovery after several seasons of subdued profits, Reuters reports.

Although demand in the European market has not returned to 2022 levels, steel prices have recently risen faster than expected due to higher energy costs and a reduction in imports from outside the bloc caused by new EU protective measures.

According to Oddo BHF analyst Maxim Kogge, conditions for the steel industry are currently more or less favorable—with the exception of demand. He noted that, unlike the one-off anti-import measures of the past, the EU has now structurally strengthened the system (referring to the CBAM and the proposed new trade policy with reduced quotas).

Higher steel prices will help support EU steel producers—almost all are expected to report better profits for the first quarter, according to data compiled by LSEG.

The conflict in the Middle East also offers certain advantages to European steelmakers, despite increased uncertainty, threats to future investments and procurement, and a decline in business activity in the eurozone. At the same time, the conflict with Iran is improving the competitiveness of EU steel producers.

Hansjörg Pack, senior equity portfolio manager at Germany’s DWS, notes that Asian companies have been hit harder than their European counterparts, particularly in the commodities and specialty chemicals sectors, as their dependence on energy resources from the Middle East is much higher.

In a note to investors in early April, Bank of America analysts noted that higher shipping costs have helped “regionalize” the European steel market, with customers shifting their purchases to domestic producers due to concerns about supply disruptions.

It should be recalled that Italian and German steelmakers recently signaled to buyers that prices for long products would rise. Steel mills are under pressure from rising energy prices. At the same time, mills’ margins have increased following the recent price hikes, and this trend is likely to continue amid tighter import restrictions.