The steel market is destabilised-interview to Marco Galimberti, DP Trade SA
Interview* with Marco Galimberti, CEO of DP Trade SA, Lugano
* original interview in Italian translated on deepl.com

Short Company Portrait
DP Trade Ltd. is a Lugano-based company that is active in the international steel trade. It is a small to medium-sized company with subsidiaries in Europe, China, North Africa and South America. DP Trade intermediates steel flows between exporting and importing countries. Apart from its commercial activities, DP Trade Ltd is a financial services provider because it “pays first and receives later”, as director Marco Galimberti says. In addition to this, the company also acts as an absorber of various commercial risks in the industry for its clients.
Mr Galimberti, what weight does have the steel production sector on the worldwide commodity market?
The world produces two billion tonnes of steel annually. The metal is worth one thousand dollars a tonne, which corresponds to a total value of two trillion dollars. The world’s GDP is 85 trillion dollars, and steel contributes about two percent. That is, to a considerable extent.
How do you judge the situation of your commodity sector as a whole?
My sector is that of intermediaries, so I look at everything from that point of view. Actually, we cannot directly define steel as a commodity, but let’s simplify it and say that currently the steel market is in a dislocation, in a certain destabilisation. Before, things were going quite well.
Is this destabilisation due to the pandemic?
In 2020, with the Covid outbreak, there was a fall in prices and the producers had heavy losses. So they massively reduced production to minimise these losses and to match demand. After the lockdown, demand recovered faster than production, so we had a very strong year with steel prices reaching unprecedented levels.
Were there major logistical problems or production difficulties?
After the lockdown, first there were production problems and then, specifically in the steel sector, logistical difficulties appeared. Also after the lockdown of spring 2020, in September-October of the same year, there was a shortage of steel, and then there was a heavy reliance on Chinese steel, because the production was not up to the level of what was being consumed, so the stocks dried up.
And as a result, prices rose sharply.
First the price went up and up, then at one point it even made it possible to export the Chinese product, which is subject to duties of 20 or 25 per cent of its value in Europe. Even that price could be paid because of the lack of steel.
And logistics suffered or still do suffer from many obstacles?
At that point, with this strong demand and also with Covid 19, Chinese ports were becoming increasingly congested. Ships that used to take five days to load, now take a month and a half because everything is going so much slower. Then, when these ships arrive in European ports, the material starts to accumulate so much that the European ports become so saturated that they can no longer unload quickly. They cause a wait of a month or even a month and a half.
Are there other negative elements?
A combination of elements, including the multitude of port workers sickened by Covid, effect that the logistics chain first suffers at the origin, and then the destination ports suffer.
By the way, what is the ranking of producers of steel?
China, India, the US, the EU and then Japan. So of these two billion tonnes per year that are produced in the world, a whole billion come from China alone.
How are prices developing at the moment?
A few months ago, prices went down a bit. But now, with the Russian armed intervention in Ukraine and between the cancellation and the production of Ukrainian iron, and also because of the sanctions that prevent payment to Russian suppliers, we can say that there is a dislocation in the chain at the moment. It is really difficult to say what the market price is.
To what extent is the war in Ukraine affecting or even limiting the commodity and steel business?
Ukraine and Russia are strong exporters of steel and raw materials. They are also countries rich in iron ore as well as coal, both of which are used for steel production. Ukraine alone already produces 22 million tonnes of this worldwide. And now, with Ukraine not producing and not exporting and Russia producing but cannot sell or cannot be paid, a deficit is created; it only takes a small surplus or a small supply deficit to cause a significant change in prices.
And what are the consequences for the market?
So, right now, there is a complete destabilisation of prices in the market at international level.
It means, prices fluctuate so much.
The world outside China consumes, like China itself, a billion tonnes. Of this one billion consumed outside China, let’s say nine hundred is consumed outside Russia and Ukraine. These two countries usually export forty million tons of steel, so five percent of the world’s supply is gone. It is a very strong quantity, and for this reason the price dynamic is ascending and unpredictable. A certain price is valid for five minutes, but can quickly change considerably.
But in general, have prices been rising since the beginning of the war in Ukraine?
Yes, there is a strong increase. But to what extent exactly, we don’t know, since the conflict has just started. The price moves over time, so it is not instantaneous. Maybe in a month’s time it will be easier to say to which point the prices have come. Obviously higher prices lead to less demand. What is most noticeable at the moment is the lack of material.
Will we have to wait until the war is over and then see the consequences?
The consequences? Maybe we return to the previous status quo, but I consider that very difficult. I see a new iron curtain being erected where Russia is on one side, and at least the western world on the other.
So prices will remain quite high?
With less supply it would. And if there is no economic and political stability, prices go up and down repeatedly. But I have to point out that not only conflicts engrave a lot, like the current one that has so much impact, but is rare.
What specific factor is more frequent than an armed conflict with regard to prices?
Prices rise and fall regularly as a result of small excesses of supply and small deficits of supply or demand; it depends on the point of view. Sometimes small events are enough to cause even violent price movements, and this is a phenomenon that occurs with some regularity.
To what extent is Lugano affected as an important location for commodities business?
Our city has become a special place for steel trading due to the fact that the large Duferco company settled here in the early 1990s. Many of the Russians, who today are cut off from international business because of sanctions, have their trading company or at least a branch here. So Lugano feels the consequences of this war very strongly.
Let’s turn to the subject of sustainability. To what extent does it manifest itself in the steel business?
In our business it does not directly affect us.
Why is sustainability not an issue?
There is a tendency among steel producers, in the context of their green agendas, to reduce CO2 emissions, i.e. to transform their production processes to emit much less CO2. But these are huge investments that will only happen over time. Today, there are no two separate markets in the sense of products that are more sustainable and those that are not.
Does this mean that your industry needs more time to achieve a certain sustainability of its products?
Of the steel that companies produce all over the world, one third is produced from scrap, i.e. melted steel. The other two-thirds are produced by full cycle, i.e. from iron ore from crushed rock, which is reduced to be purified. In the first case, production from scrap is much less impactful in terms of CO2 emissions. It emits around 0.5 tonnes of CO2 per tonne of steel produced, while the blast furnace process emits two tonnes of CO2 per tonne of steel produced.
The mode of production has a big impact.
Let’s say that the production of steel, especially from raw materials through the blast furnace, is very much an emitter. There is a tendency to reduce, which means to purify, the iron ore using hydrogen or gas. And then there is a tendency to go beyond the use of coal in the blast furnace to purify the iron ore in order to get a greener steel.
So consciousness has yet to grow in the sector.
In Europe there are taxes on CO2 emissions. This means that factories have an interest in reducing emissions. There is an awareness in the industry that it costs money to emit, but on the demand side it has not yet manifested itself. We need more people to say to themselves: I’m buying a low-CO2 refrigerator, so I’m willing to pay more. It is the consumers who are not very aware of this.
How can we avoid total exploitation of the land, of the natural deposits of raw materials?
Iron ore comes mainly from Australia and Brazil, and is produced by giant companies listed on the stock exchange. Exploitation? It depends on the demand, for example the strong request for cars influences the need for iron. It all depends on the fact of supply and demand. An interesting aspect is that if the quantity of steel is too great, the price goes down, at which point production is reduced.
In your opinion, what are the future challenges in the steel and commodity sector?
One challenge is to reduce emissions during excavation and production, of course. But these are huge investments that require multi-year programmes and enormous mountains of money. Another major challenge in trade is protectionism.
Protectionism in what sense?
It means that if, for example, the United States enforces Section 232 and says that a 25% import duty would apply, there would be fewer imports and therefore less trade. Duties are really an obstacle. And in the end they force consumers to pay higher prices.
How will the steel sector evolve within 20 years?
I think that in the context of production the concentration processes will continue. We will have more and more giants. The Chinese have concentrated their industry, and I think the concentration processes will continue rapidly. The movement in the direction of lower CO2 intensity is also certain, but, as I said, it will take time.
So what is your prediction?
All in all, it is difficult to make reliable predictions, not least because of such conflicts as the war in Ukraine. These conflicts profoundly alter geopolitical balances; in the absence of Russian gas and coal, one thinks back to coal and nuclear power that already seemed to have been put aside.
