DECLINING EU STEEL PRICES OFFSET BY FALLING MILL INPUT COSTS - MEPS
Steel prices have been under
negative pressure so far this year. The MEPS - EU Average Flat
Products Composite Steel Price decreased by almost 7 percent in the
first half of 2014, compared with the corresponding period in the
previous year. However, raw material costs have also reduced. The
price of iron ore fines (Fe 64%, FOB - Brazil) has fallen by 24
percent and coking coal has declined by 9 percent. The strengthening
of the euro against the US dollar has made the reductions even more
Customers have been able to secure the majority of, if not all, the
mills’ cost savings. However, steelmakers have managed to prevent
any further deterioration in their margins. Analysis by MEPS
indicates that the conversion margin between raw material costs and
flat product steel prices was unchanged in the first half of 2014,
on a year-on-year basis.
Steel demand is expected to rise, moderately, in 2014, following
decreases in the previous two years. A number of end-user segments
are showing better performance. According to ACEA, registrations of
passenger cars and commercial vehicles, in the first half of this
year, increased by 6.4 and 9.2 percent, respectively. The building
sector is gradually improving as financial constraints slowly ease.
Better weather conditions helped to boost activity. Data published
by Eurostat shows that production in construction grew by 6.5
percent in the first quarter of 2014, year-on-year.
European mills have seen their order intake rise. Figures from
worldsteel indicate that steelmakers increased crude steel output by
3.8 percent in the January/June 2014 period, compared with one year
earlier. MEPS foresees a slowdown in the rate of growth in the
second half - leaving the annual outturn 2.5 to 3 percent higher.
The outlook for flat product prices until the year-end is fairly
dull. Steelmakers are expected to push for increases. We believe
only modest rises will be achieved, barely covering an anticipated
slight rise in the cost of raw materials. However, the conversion
margin should hold up, assuming that the mills prevent any further
deterioration in their selling figures and input expenditure does
not rise significantly. In the latter part of 2013, steel
transaction values contracted by more than the reduction in raw
material costs, resulting in lower margins in that period.
Modest price growth is envisaged in 2015. The MEPS - EU Average Flat
Products Composite Steel Price is forecast to increase by 2.7
percent, compared with the estimated annual average in 2014. Raw
material expenditure is also expected to escalate. Significant
capacity expansion by global iron ore suppliers should keep prices
of fines suppressed but growth is projected for the cost of coking
coal and scrap. Consequently, the mills’ conversion margins are
expected to be broadly unchanged next year, relative to 2014.
European Steel Review
MEPS - EU Steel