Steel buyers in Europe should be taking an early summer holiday – or perhaps a 12 month sabbatical would be more suitable. Buying skills are redundant in the current European scene. Users are simply taking what they can get.

The pace of price increases has been frenetic over the last few weeks. Our analysis reveals that basis prices tell only part of the story. Investigation of actual transaction prices (including extras and surcharges) shows that long product prices have recently been leaping ahead even faster than those for flat rolled. Transaction prices for hot rolled long products are higher than for flat. It is a long time since that has been the case.

The EU average low transaction price for hot rolled coil in March is €357 per tonne. This has increased from €262 per tonne two years ago – a rise of 36 percent. The equivalent price for rebar has absolutely rocketed over that period – by over 70 percent – from €248 to €429 per tonne.

The real acceleration in rebar prices has taken place in the last few months. Measuring them on an index where January 1997 prices = 100, rebar went from 126 in December to 189 in March – a leap of 50 percent. Hot Rolled coil prices, indexed over the same period, rose more modestly, from 116 to almost 137.

A lack of imports is partly responsible for the rebar price surge. Exporters in Turkey and elsewhere have been diverting their shipments to Asia, Iran and other markets where better prices are available. For the same reason, billets are scarce and expensive. In addition, some European producers have curtailed their operating rates owing to the scrap shortage.

Recent cost increases have hit electric furnace operators hard. Annual contracts for iron ore went up by around 20 percent this year, and coking coal by even more. Freight costs for both commodities have also risen sharply – although most large-scale bulk shippers have long-term agreements that protect them from short-term fluctuations in the spot market.

Compared to iron ore, scrap prices have moved by an altogether different order of magnitude. The USA is the world’s largest scrap exporting country. Quotations for US east coast exports of No1 heavy melting scrap have increased by more than 50 percent in the last few months. Since the end of 2002, they have more than doubled. In Europe, prices for some grades have gone up by over 50 percent since last November and now stand at levels that are unprecedentedly high. However, a recent fall-off in buying by Asian mills has led to a slowdown in the upward trend.

Scrap substitute materials are hard to find. Brazilian pig iron producers are reported to be largely sold out for the rest of this year. Only minor tonnages are still available from India, Japan and some other exporters. Producers of DRI/HBI, notably those in Venezuela, have cranked up their operating rates and are doing a roaring trade despite higher costs for ore and gas.

The shortage of scrap cannot be readily overcome. Unlike iron ore – which is plentiful in absolute terms, even if mine capacity is currently stretched – scrap is a more finite resource. Raw material scarcity seems likely to continue driving bar and rod prices.

 Source: MEPS - European Steel Review