STEEL PRICES UNDER THREAT AS CUSTOMERS STOP BUYING
European steel prices across
the board are showing declines in March - a development that has
come as a surprise to those of us who were expecting the first few
months of 2005 to see steady market conditions.
The dips are affecting all major carbon
steel products. Every category is showing lower prices than in
February – even plate, which nevertheless remains the strongest
market and may see prices bounce back quite quickly. In our index of
transaction prices in which January 1997=100, March figures have
fallen from February levels by between two and four points for
individual flat rolled products, and by as much as ten points for
long products. This leaves the EU average flat products price at €591
per tonne, down from €602 last month.
Customers are holding off from placing
fresh orders, and less than the normal volume of agreements for new
business have been reported this month. They are living off stocks
that have been mounting since the latter part of 2004.
Buyers placed orders with local mills for
more steel than they needed during the panic-buying period of last
year, in an attempt to secure supplies at a time of shortage. They
also turned increasingly to imports in the last few months of 2004.
The tonnages that were purchased then have now arrived, and are
contributing to the overhang of unused stocks.
Suppliers seem to have misjudged the
quantity of steel in the market. Real consumption in the EU -15
appears to have gone up by less than 3 percent last year. Figures
from the producers’ organisation, Eurofer, show that EU mills
increased deliveries into their domestic market by no less than 5.7
percent in the same period - double the rate of growth in actual
consumption. Imports also expanded quite strongly in the second half
of 2004. Estimates suggest they rose by about 15 percent
year-on-year and are thought to be remaining high in the first few
months of 2005.
The consequence has been an increase in
stocks of in excess of 4 million tonnes. This will take a while to
unwind. There is no dramatic drop in price levels so far, but this
is a real danger given the poor outlook for steel consumption.
Prospects for EU -15 steel demand this year
are modest at best, though it could increase significantly in the
new member states as well as in neighbouring countries of Eastern
Europe, Russia and Turkey. GDP in the Euro area may rise by less
than 2 percent in 2005, and steel-using sectors will grow by an even
smaller amount. It is doubtful whether the mills will see any
increase at all in their rate of order intake, at least through the
first half of 2005.
The time that it takes to bring stocks down
to a more normal level will be a testing period for steel prices.
Mills have announced modest rises for quarter two – but these must
now be seen more as an attempt to avoid a decrease than to achieve
an increase. In subsequent quarters they will be looking for
opportunities to pass through real price rises to compensate for the
huge hikes in raw material costs that they have been forced to
It is often suggested that, as a result of
the consolidation that the industry has seen in the last few years,
mills will be more “disciplined” than in the past about
over-supplying the market. Traditionally they have gone for volume
before price, with disastrous consequences for their profit margins.
The present nervousness in prices will provide them with an
opportunity to show whether things have changed. That much-vaunted
self-discipline is about to be tested.