EUROPEAN STEEL MARKET ROUNDUP FROM MEPS

The West European flat products market is very quiet in the run up to Christmas. Demand is weak and activity levels low. End-users are buying ‘hand to mouth’. However, distributors and service centres have started cautiously to place orders for first quarter delivery, to avoid possible shortages following the mills’ end of year production stoppages and capacity cuts. Those deals that have been concluded have resulted in basis figures lower than those reported in November. In some instances, these numbers only cover January/February production, as steelmakers would like to implement increases before the end of period one.

Many German buyers are in the middle of their first trimester negotiations with the mills but some business has been settled. Producers are reluctant to confirm a price for the whole of the quarter, as they are determined to lift basis values for March. For the moment, demand is low but it is possible that purchasing will pick up in January. Service centres are trying to offload any expensive stock before the year-end, which is pushing resale values below purchase prices in some instances. End-users are also carefully watching their inventory levels.

There has been some softening of real demand in France, where activity remains weak and OEMs are not very optimistic for the first half of 2012. Mills, however, expect their order books for the first three months to be stable compared with 2011 because customers need to restock. Some industrial sectors have a fairly reasonable level of activity but forecasts for next year’s demand from the construction industry have been revised downwards. In this context, steel prices have continued to fall. Deals have been made for January production at prices lower than in period four.

In Italy, steel consumption is suffering along with the economy. The situation is described by some market participants as ‘critical’. Credit issues and the high cost of borrowing are also adversely affecting the market. Domestic producers are attempting to make up for exceptionally weak local demand by exporting to other parts of Europe at very competitive prices. The gap between third country offers and domestic ones is too wide to allow any import business to be concluded. All companies are keeping tight control over their stocks.

The turmoil in the eurozone financial market is badly affecting confidence in the UK, where steel demand has failed to improve. Distributors’ stocks are just about as low as they can be and, because there are no interesting offers from outside, buyers are ordering from European sources on short delivery lead times. The downward trend in resale values looks as if it might have finally stalled. Margins should start to improve, since expensive stock is now out of the system and cheaper steel is arriving. Ex-mill basis figures have continued to slip over the last month.

In Spain, producers have axed basis figures for January production. Buyers believe prices are now close to the bottom but may have another €10 per tonne to lose for February business, which is likely to be discussed just prior to the Christmas break. Suppliers in Italy are, reportedly, even more aggressive than the local mills. Service centres envisage no improvement in sales or prices until March, when they think that the capacity cuts will start to be felt in the market place.

Source: MEPS - European Steel Review November Edition - Also See: EU Steel Prices Online