EU STEEL PRICES DECLINE DESPITE HIGHER RAW MATERIAL COSTS

So far, there has been a dearth of third quarter orders for the European flat product producers. Customers are staying out of the market for as long as possible, citing poor demand and the approach of the summer holiday period for the lack of buying activity. The mills have backed down from their original price proposals and are now offering at more realistic figures. As a response to the impasse in the market place, steelmakers have started, or plan, to reduce output, with a number of furnaces expected to close. They hope that this move, combined with very low supply chain stocks and the seasonal effect in September, might create a bottleneck and support some price improvement in the final quarter. For now, delivery lead times remain short and producers are willing to concede discounts to anyone ordering large tonnages.

In Germany, business is very quiet. The former intentions of the mills to apply substantial hikes to basis numbers have been abandoned as customers refused to accept the higher values. The figures now being settled for third trimester deliveries are more acceptable to buyers. The steelmakers have relented because they do not have sufficient orders for August/September. Moreover, there is now more pressure from relatively cheap Indian and Chinese imports.

Buyers in the French market remain very cautious. Sources describe demand as "average" but, overall, customers prefer to put off purchasing, and, in the case of distributors, perhaps even lose some business, because they believe prices will continue to slip. Furthermore, a significant number of Spanish suppliers, not able to sell domestically, are offloading large amounts of material in France at much discounted figures. This is putting even more downward pressure on local basis values.

The lack of demand in Italy is described as "critical" by one market participant. Having held firm on their position last month, producers have now lowered their offers. Basis figures have declined significantly since our last report. However, it is felt that the domestic mills are unlikely to go any lower now, preferring to wait and see how things develop. Inventories are so depleted that steelmakers believe the market should see some activity during the second half of July as customers purchase, ahead of the August holiday, for September delivery.

UK prices have undergone a number of negative corrections since our last report and there is likely to be a period of uncertainty through the summer. The advance proposed for July was viewed as one increase too far by customers. Also, many companies were comfortable with the level of their stocks relative to current demand, which is modest at best. Consequently, they stopped purchasing, leading to very weak mill order books. In addition, third country offers from sources with acceptable delivery lead times have recently become more attractive.

The Belgian market is quiet with muted demand. Wholesalers and end-users have enough steel in stock until September, when many expect prices to be lower. The Spanish economy continues to deteriorate. Several service centres are suffering badly because sales to construction and industrial users are described as "terrible". However, those associated with the auto sector have had a much better time over the first half of 2010. Generally, stock levels are being kept under control. Ex-mill basis values are dropping relative to the state of demand. They could fall a little further through the summer but are not expected to crash, as producers realise that more discounts are unlikely to generate greater volumes of business during the holiday period. Imports are becoming more attractive from countries such as Turkey, Libya and Bulgaria whose shipment times are not too long.

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

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