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European Steel Price Rises Thwarted by Lacklustre Demand

Date: 2019-03-22
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Price hikes of €30 per tonne were proposed, in mid-February, for domestic sales of strip mill products. This followed a similar announcement, in late January. The steelmakers cited strengthening raw material costs, and the limited availability and increased price of imported steel. However, European basis values were largely static in Northern Europe, in March. The producers secured small rises in Italy and Spain - reducing the differential between selling values in the north and south of the region.

The implementation of the price initiative was constrained by a number of factors. Business confidence remains weak, due to economic and political uncertainty. Service centre buyers are reluctant to commit to forward orders, given plentiful inventories and reduced levels of downstream demand. Moreover, regional mills have spare capacity, due to a substantial reduction in orders from vehicle manufacturers. Domestic delivery lead times are relatively short.

German demand remains slow, at present. With the auto sector still weak and the machine building segment sluggish, it is difficult to envisage any immediate pickup in activity. Local mills, despite their price hike announcements, are keen to secure orders. Consequently, they are prepared to be flexible during price negotiations, especially when high volume bookings are available. Import opportunities are limited. Turkish producers are uncompetitive. Indian suppliers are not offering.

Market fundamentals, for 2019, are quite weak, in France. However, activity in the steel sector, in March, looks more promising than in the previous month. Many buyers are able to negotiate stable selling values, for April delivery. Customers are reluctant to finalise orders despite price rise proposals from the mills. Those local service centres supplying the auto industry still reported strong sales, in the first two months of the year, despite forecasts for 2019 indicating a slowdown.

In Italy, the economy is entering a period of negative growth. Downstream steel demand is extremely weak. However, import price offers increased, due to cost pressures in supplying countries. This enabled Italian steelmakers to lift their domestic basis numbers, in March - thus shrinking the price differential between north and south Europe. Nevertheless, the number of actual transactions is quite low as service centres struggle to maintain their resale values. Consequently, the implementation of the mills’ target increases of €30/35 per tonne was only partially successful.

UK distributors report that demand, with the exception of auto-related sectors, is holding up, despite the uncertainties associated with Brexit. Their resale margins are tighter than of late but still acceptable. Despite steelmakers’ price hike ambitions, selling values are unchanged, this month. The pound sterling strengthened, in early March, reducing the cost of imported material. Little stock building, to ensure supply beyond Brexit, was noted.

Uncertainty persists in the Belgian market. Economic growth forecasts for 2019 are lower than previously announced. The steel sector remains rather quiet. Large service centres are carrying higher inventories than are necessary for today’s demand. Their resale margins are under pressure. No further downward movements were noted for strip mill product basis prices, this month. Buyers believe that the bottom has been reached, as domestic suppliers push for price increases.

Rising price offers from overseas mills led to reduced import competition, in Spain. This enabled domestic steelmakers to propose increases on basis values for strip mill products. Buyers confirm that they had little choice but to accept rises of €10/15 per tonne, for April/early May delivery. The steelmakers continue to push for further hikes. Service centre activity is more lively than earlier in the year. However, resale values do not reflect replacement costs. Distributors hope that the mill increases will help them to recover lost margins.

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