EU STEEL COIL PRODUCERS FACE HIGHER INPUT COSTS AS DEMAND COLLAPSES

Market sentiment has been knocked by the recent economic turmoil and sovereign debt issues in the eurozone. Strip mill product prices are fairly flat this month. Domestic producers are still keen to lift basis values significantly for the third quarter. However, most steel consumers and distributors are comfortable with their current inventory levels and are purchasing prudently. Consequently, the market is very quiet and the number of mill bookings is extremely low. The steelmakers may eventually be forced to go below their target selling figures to generate business, at least for the commodity grades. It may be easier to secure increases for the higher specifications. In recent days, the mills appear to be acknowledging the overall weakness in the market. They are said to be considering output cuts during the third quarter.

In Germany, demand is not as high as expected. The current monetary problems in the EU are having a negative influence. Although the steelmakers continue to ask for higher prices in July, a number of buyers believe their stance has already softened a little, since no significant quantities have so far been booked. Period three is traditionally a weak quarter because of the holidays. Customers purchased plenty of material in the second trimester, ahead of the proposed July hike, so they do not need any more at present. It will probably be at least the end of June before any negotiations are settled.

The French market is uncertain, as participants are not sure whether demand is going to improve in September. As a result, buyers are very cautious with their purchases and hesitant to fill up their stocks. Strip mill prices are stable for now. Negotiations are still underway, with producers looking to increase basis figures by at least €50 per tonne, compared to May levels. Steelmakers are being firm but are in a less strong position than in period two and more dependent on the actual state of the market. Buyers will probably have to accept a part of the proposed rise but not the whole amount.

The mood in Italy is very negative due to the current crisis in Europe. During the latter half of May, buyers began to adopt a "wait and see" attitude. There is very little activity throughout the supply chain and mill order intake has slowed as customers worry about the future economic climate. Real demand has not recovered in any of the major end-user sectors. Companies purchased material during the first four months of 2010 and have enough in stock to be able to resist the producers' proposals for higher prices for a few more weeks at least. Market players are expecting basis values to turn down unless the mills make significant production cuts.

In the UK, EU steelmakers including Corus are quoting higher basis figures for July business. So far, their resolve appears quite firm as they cite limited domestic availability and point to a lack of third country offers. Consequently, the standoff between producers and customers continues as buyers sit tight and refuse to order. They bought a little more than they needed in the second quarter and, with demand still relatively weak, they can afford to wait until September for new deliveries. Some of the larger traders have unsold tonnage coming in that will provide any necessary "infill" for the summer months.

Market players in Belgium believe prices for strip mill products have reached their peak. Demand is muted with stockholders and end-users waiting to see how things develop over the next few weeks. A tough second half of 2010 is envisaged.

There is a lack of confidence in Spain. Consumption shows no signs of revival and is unlikely to do so for some time. Although inventories are comparatively low, many companies have enough material to see them through the summer, given the present level of demand. The European mills are not yet discounting their target period three basis figures but a number of customers feel they are becoming more realistic in their outlook. Buyers certainly will not take forward positions on third country imports. However, overseas material is due at the ports in early September. The amounts are not huge but they should cover any shortages that may have developed at the distributors during the holidays.

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

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