TIGHT SUPPLY HELPS TO STRENGTHEN EU STEEL PRICES

While stock replenishment has boosted flat product sales recently, underlying consumption remains relatively weak. Although tight supply is helping to strengthen prices in most countries, this upward pressure could quickly dissipate as producers bring idled capacity back on line. However, there will be a certain period of inertia before any effects are seen in the market place. Third country import activity remained low throughout the summer but, more recently, Chinese mills have begun to offer material, particularly in Southern Europe. This new element is starting to adversely affect the new found confidence amongst domestic market players, who fear that the flurry of activity could be the beginning of a more aggressive selling campaign by the Chinese. Certainly, buyers are watching the situation carefully.

The German scene is still quiet but business levels have improved. Stocks at service centres and warehouses are virtually empty. Auto demand has picked up as a result of government incentive schemes but there are concerns that these could spoil future car sales. Many customers paid more for September deliveries than for July/August shipments. Bookings are now being taken for the fourth quarter at much higher prices. Buyers have no choice but to accept the new figures because of a lack of interesting import offers. However, this could change if domestic values escalate further.

Prices are on the rise in France, as a result of the steelmakers' determination to improve profitability together with highly reduced production output. There are no third country imports as overseas offers are currently not competitive and nobody is prepared to wait for three months to get material. Meanwhile, end-user demand remains weak. However, inventories are not very high and distributors have had to refill their stocks, being aware that prices are on the increase. Buyers expect the achieved hikes to stick throughout period four.

The Italian producers are trying to lift values quite rapidly now that inventories are at a low level. Final demand is not strong, although there are some signs of positive movement and business confidence in general is higher. The improvement in mill orders is due, in part, to restocking. Currently, the differential between local and foreign quotations is not sufficient to justify placing tonnage with third country sources. However, Chinese suppliers have recently entered the market, causing buyers to adopt a "wait and see" attitude as they try to judge whether this will signal the start of a drop in prices.

Availability is a major issue in the UK. Selling values are climbing because of a significant imbalance between supply and demand. Companies are engaged in a restocking process at a time when capacity is vastly reduced. Domestic and other European mills have cut output to a great extent and there is a dearth of third country imports at present. Market participants complain that they have not seen such shortages in several decades. However, real consumption has changed very little.

In Belgium, the general economy is weak with recovery expected to be slow, so steel consumption is modest. Stocks are low at service centres and end-users, thus boosting demand on the mills in the short-term. Fourth quarter order books are filling up quickly. Prices have strengthened since the end of the holidays. Import competition barely exists.

We have noted some substantial price developments in Spain. Availability was very tight in July but has become easier lately. Stocks in general are under control with very little excess material in the supply chain. Traders made a number of deals during July/August but the recent arrival of new Chinese offers is creating doubt in the minds of buyers regarding the direction of selling values in the first quarter 2010.

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

Display MEPS steel news & prices on your website - click here