ROLLER COASTER RIDE FOR EU
STEEL PRICES IN LAST TWELVE MONTHS
The last twelve months was a turbulent period
for steel purchasing in the European Union. The
MEPS - EU average
flat products composite steel selling price declined by €83 per
tonne (17.5 percent), in the second half of last year.
By December 2015, domestic transaction figures had fallen to a
twelve-year low. Substantial import pressure, both in terms of value
and volume, forced domestic mills continually to reduce their price
offers. The negative situation was compounded by falling raw
material costs, nervous buyers anticipating further price reductions
and a seasonal slowdown in demand. This created a perfect storm for
the price collapse.
Activity in the European steel market remained muted at the
beginning of 2016, with little prospect of a significant recovery in
selling figures. A dramatic “volte-face” in pricing strategy by
Chinese steelmakers brought a halt to the race to the bottom in
global steel prices and transformed the outlook across the whole
international steel scene.
Production cuts earlier in the year, low inventories throughout the
supply chain and a seasonal pickup in demand provided the backdrop
to a rapid rise in domestic Chinese steel prices. The government’s
policy of large-scale monetary easing boosted construction activity.
It also had the effect of driving up the futures market and
increasing trader speculation. This scenario encouraged Chinese
producers to hike their export offer prices.
The substantial losses previously made by the majority of the
Chinese mills could not be tolerated for a significantly longer
period of time. Furthermore, with the volume of China’s exports
rising rapidly, at prices often below domestic values, the
profitability of the policy was deteriorating over time.
Moreover, charges of dumping were bringing to the forefront claims
of unfair trading from steel suppliers in a wide range of countries.
These were undermining China’s attempts to show that it was
operating a market economy within the regulations of the World Trade
As Chinese export prices surged, many other major exporters,
including those in the CIS, South Korea and Brazil, followed China’s
lead and hiked their prices. Faced with unattractive import
quotations, many buyers in Europe returned to domestic sources for
their purchasing requirements. Consequently, European steelmakers
captured a greater share of the local market and regained a degree
of pricing power.
The mills took the opportunity to boost their profitability, after
margins fell to an unsustainably low level at the beginning of the
year. The MEPS - EU average flat products composite steel price
jumped by €124 per tonne (31 percent), in the second quarter of this
year. Selling figures then softened by €15 per tonne ahead of the
summer holidays, in July.
The negative price sentiment, witnessed immediately before the long
vacation period, has turned more positive. We have reports that
strip mill product manufacturers are planning to raise their offer
prices for September negotiations. Steelmakers hope to capitalise on
tight availability within Europe and the recent uptick in the
Chinese domestic steel market.
MEPS predicts that the short-term price trend will be stable, with
increases difficult to achieve. We forecast that selling figures
will decline in the final quarter of this year. Supply is expected
to improve, in what is traditionally a slack season for demand.
Furthermore, competitively-priced offers from overseas suppliers and
low steelmaking raw material costs are forecast to exert negative
pressure on local transaction values.
Despite the anticipated price reductions, MEPS believes that steel
selling figures will remain above the low levels recorded in late
2015 / early 2016.
Source: MEPS -
European Steel Review
- August 2016 Issue
MEPS - EU Steel
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