STEEL PRICES DECLINE AS OVERSUPPLY BUILDS UP

End-user demand for strip mill products remains relatively good but distributors, who continue to have surplus inventories, are buying very little. This lack of activity, together with what appears to be a determination on the part of European producers to drive out imports at all costs, has created negative price pressure. However, the mills are intimating that they will seek advances at the start of 2008, to cover escalating raw material, energy and freight expenditure.

Although underlying consumption is satisfactory in Germany, we have identified a temporary pause in demand. Inventory levels are high in general. The West European mills have very little business for standard grades / sizes and are carrying huge stocks of so called 'second choice' material, which they are selling very cheaply. Third country suppliers are still offering but they are no longer influencing the market to any great extent. Buyers are discouraged from ordering by the four to five month delivery lead times and the fact that domestic producers are quoting very competitive prices for fourth quarter business. Resale values have plummeted.

In France, strip product producers have been unable to implement any period four basis rises and have even had to offer decreases. The most significant falls are for coated material. Stocks remain high and demand is weakening, except from the car industry. Moreover, there are quite a lot of imports in the system. Mills are hoping to at least stabilise values in January.

The Italian scene is quiet with weak consumption. Service centres have plenty of stock because they are selling less than expected. Despite large quantities of third country offers, customers are not booking - just waiting to see how the market progresses. Import quotations are similar to local ones and, for the moment, domestic producers are not chasing business by offering further discounts. Prices have been held at the September level.

The UK market is described as "thoroughly unexciting" with very little improvement in business activity since the end of the holidays as customers only purchase for their immediate needs. Distributors' inventories are overabundant due to a lack of demand. Consequently, resale values are down as service centres fight for orders. There are not many new third country offers, so import pressure is no longer depressing prices. Nevertheless, EU suppliers have reduced basis values for the fourth trimester.

Market sentiment is poor in Belgium. Both buyers and sellers are nervous. The large distributors are destocking because they are required to have lower inventories by the end of the year. Consequently, purchasing activity is slow and delivery lead times are shrinking, causing the mills to drop prices. Further corrections cannot be ruled out. In Spain, third country suppliers are now selling less tonnage because European producers are offering more attractive prices with much shorter lead times. Although underlying demand is strong, resale margins have fallen significantly. In general, stocks are healthy.                           

Source: MEPS - European Steel Review

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