MEPS - EU AVERAGE STEEL PRICE UP €55 PER TONNE BUT CLOSE TO PEAK

The mills are talking up third quarter prices for strip mill products but firm negotiations are not yet underway. Their final proposals will depend on the level that iron ore values reach. Customers feel that some of the steel numbers being proposed are far too high, given current demand conditions. In which case, they would not be sustainable. Many buyers purchased sufficient material during period two, ahead of anticipated further hikes, and can now afford to adopt a "wait and see" approach. With a weak Euro, third country import penetration is likely to stay low.

In Germany, basis values continue to go up because of the mills' raw material cost increases. However, customers complain that the rises are not mirrored by real consumption. They fear that the steelmakers are ignoring market fundamentals and that the high prices will not hold. Consequently, buyers are now purchasing as little as possible, after restocking in the first and second trimesters. Many companies have enough material to allow them to refrain from ordering for the third quarter. There are no great quantities of imports because customers are loathe to take the risk of long delivery lead times in the present climate.

French basis values have risen in May as the producers face soaring input costs. Further increases are expected in the coming months. Steelmakers say that they cannot yet give firm quotes beyond July as they do not know how much they will be paying for iron ore. This poses problems for the auto industry which is asking for annual negotiations, and for projects with completions in 2011. Meanwhile, lead times are still extending. Deliveries to the processors have been delayed as a result of train strikes. Some specific sizes/specifications are in short supply.

In Italy, most of the last month was characterised by escalating prices from both domestic and overseas suppliers. However the mood has now changed, with many rumours of discounts on the way. Consequently, customers have stopped buying in expectation of reductions. They do not want to be left with high priced stock in September. Final demand has hardly improved. However, service centres are now transferring the previous mill increases to end-users.

UK purchasing has been a little heavier through the second quarter as buyers envisage that steel will be more expensive in July. Since demand remains modest and the holiday season is so close, they are unlikely to rush to order more. Many distributors have sufficient commodity grade material to see them through to September with perhaps a bit of intertrading to fill any gaps. This could result in an impasse when period three values are finally announced. Supply is much tighter for the higher specifications. Overall consumption is described as "steady at best" with the auto sector performing relatively well, yellow goods showing a small improvement and construction still poor.

The Belgian market is comparatively firm. Distributors report that activity levels in March and April were much better than at the start of the year. Nevertheless, customers are very reluctant to meet the mills' demands for higher prices in the third trimester. They doubt that the present figures can be maintained through the summer since underlying consumption has not recovered significantly. Many wholesalers are purchasing what they need until August and no further. Buyers report that third country offers are looking more competitive, despite the weak euro. Credit insurance remains problematic.

The Spanish economy is deteriorating. Consumption is not reviving, although service centres state that their April sales were better as some end-users started to order bigger quantities ahead of the upward price trend. However, distributors continue to keep stocks to a minimum. Ex-mill values for June delivery rose quite rapidly. Producers are now quoting even more inflated numbers but it is doubtful that their figures will be accepted given the state of the market.

Source: MEPS - European Steel Review - click here for a free sample copy

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