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Confusion Reigns in EU Steel Market

Date: 2019-02-21
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European strip mill product prices declined for the fifth consecutive month, in February. Buyers remain extremely cautious. Market sentiment is gloomy, due to numerous economic and political uncertainties. Moreover, customers perceive a lack of clarity regarding steel imports, particularly with reference to the EC definitive safeguard measures and their potential impact on the market. Regional mills have spare capacity, due to a substantial reduction in orders from vehicle manufacturers. Inventories, especially at the service centres, remain adequate, for current requirements, allowing customers to wait and assess how the market develops.

Nevertheless, a number of factors could bring a new dimension to future pricing. Price hikes have been proposed for strip mill products, with immediate effect. Import quotations from third country suppliers are also higher than those one month ago. Mill input costs are rising rapidly, following the dam collapse at Brazilian iron ore producer, Vale. Floods in Queensland, Australia, which caused the temporary closure of Abbot Point coking coal export terminal, added to the rising expenditure.

Conditions in the German manufacturing sector deteriorated, at the start of 2019. Trade tensions and a slowing auto sector undermined steel demand. Order intake at the steelmakers remains weak. Strip mill product prices continued to slide, in February. Service centre inventories are medium to high. Their sales are below expectations. Buyers are wary – ordering only for their immediate requirements. Offers from overseas sources are more expensive than one month ago.

In France, distributors report good activity, but resale prices remain under negative pressure. Purchase volumes from the auto industry are better than anticipated, after the market slowdown in the last two months of 2018. Nevertheless, strip mills continued to make price concessions, in February. With rising raw material costs, plus the new EC definitive quotas taking effect, several buyers believe that conditions are now more favourable for price rises.

Manufacturing output declined sharply, in Italy, in January. The downstream steel market is extremely weak. As a result, strip mill product demand and prices are suffering. Delivery lead times from local mills are very short. Despite proposed increases, basis values continued to move down, in late January/early February. As service centres’ inventories remain on the high side, MEPS detects little reason for them to purchase large volumes. Resale margins continue to be squeezed.

UK manufacturing activity slowed, in January. Ex-mill basis values were largely unchanged, in February. European mills announced their intention to increase prices for the second quarter, but some deals for April/May are already concluded at current levels. Overseas suppliers are also raising their quotations. However, traders’ prices for port stocks are quite reasonable. Inventories are relatively high at auto-related service centres because of the downturn in the carmaking industry. Distributors’ margins are tighter than of late but still acceptable.

In Belgium, economic growth is lower than previously expected. Some large investment decisions have been postponed. In the steel market, both end-users and stockholders are in ‘wait and see’ mode, as uncertainty persists. Further downward price pressure, on strip mill products, was noted, in February. A number of buyers believe that the bottom is now reached, since the EC announced new duties on some imports.

A positive start to 2019 was registered in Spain’s manufacturing sector. Meanwhile, steel buyers continue to push for discounts and local producers adjust basis values downwards, for March deliveries. However, customers do not expect further decreases. They anticipate that steelmakers will achieve, at least, a portion of their €30 per tonne price hike proposal. Service centre sales picked up, in terms of volume, in February. However, resale values do not reflect replacement costs. Distributors hope that planned mill price increases will help them to recover lost margins.

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