A recovery in prices has now definitely
commenced in the European steel market. In the first two months of
this year, despite much talk by the mills, the market saw little
actual upward movement. But now the advance is underway.
Mills’ order books are swelling with new
business, as buyers return to the market to replenish their
inventories. Price increases of about 7 percent are being obtained
for strip products from negotiations this month - the first upward
move in prices in more than a year. Producers are intending to
follow this up with further increases. They will try to add €20-40
per tonne to flat product prices.
European mills continue to hold back their
production rates in order to keep the supply side of the market in
check. January’s crude steel output by the EU - 25 was 5.8 percent
less than in the same month the year before – and in the EU - 15
(which contains the region’s biggest steel producers) the
production cut was as high as 6.6 percent year-on-year. February
output figures have not been published at the time of writing, but
they are expected to show a similar pattern.
Evidently, steel makers are implementing
their stated intention to restrain production when necessary. A
number of unplanned output cuts have also assisted. It now seems
clear that this policy has helped to support prices during the
recent decline in demand, and it probably prevented the kind of
plunge in prices that, in previous years, would have left mills
reporting heavy losses.
In long products, prices are beginning to
reflect the normal seasonal upturn in demand. Moreover, construction
activity is forecast to grow this year in most European countries.
Supply has also been curtailed by unexpected breakdowns and output
disruptions at some plants. An absence of low-priced import offers
is one of the main factors behind the rise in long product prices.
Turkish steel makers are having to pay higher prices for scrap, so
they are unwilling to export their finished steel cheaply.
All producers – outside the EU as well as
within – are anxious to recover higher costs through escalating
selling prices. Energy costs are at the top of some mills’
concerns. Among the major raw material inputs, prices for top-grade
hard coking coal will be somewhat lower this year. Prices have come
down by between 8 percent and 16 percent (according to grade) for
Iron ore is a different story. Steelmakers
are stubbornly resisting miners’ demands for a further increase in
annual contract prices. But most independent observers believe they
will have to concede a rise in the range of 10-20 percent.
Nevertheless, European mills cannot push
their selling prices too far up without keeping a close eye on the
competition from foreign suppliers. EU imports of finished steel in
2005 were about 5 percent lower than 2004 at 17 million tonnes. So
far this year, there does not appear to have been any significant
increase – certainly not enough to imperil price levels. But there
have been some indications from import licence statistics that a
rise in third country shipments could be in the offing. While China’s
much-discussed export potential is not currently having a serious
direct impact on European markets, there are plenty of other –
nearer – sources of supply. Mills in Libya, Iran and Egypt are
looking to raise their shipments into Europe.