Steel prices for both flat and
long products are in decline across the whole of Europe. The
downward movement is proving to be stronger than most observers –
and steel producers – anticipated even a few months ago.
Many mills have announced cutbacks in
production in an attempt to bring supply into line with demand. They
have also taken steel off the EU market by stepping up their export
shipments. To the extent that the announced production cuts have in
fact been implemented, these measures have failed adequately to deal
with the problem. The market has continued to be over-supplied.
One of the reasons for this is that import
volumes have ballooned. In the first quarter of this year, imports
of finished steel products into the EU-25 soared by almost 60
percent compared with the same period last year – to 1.8 million
tonnes per month.
Imports of hot rolled coil jumped by 145
percent, and there was also a sharp rise for coated coil – the
product that has borne the brunt of the EU mill production cuts.
Third country supplies of beams and wire rods also showed
substantial increases year-on-year.
MEPS’ average European flat product price
– a weighted average of transaction prices for all flat products -
fell by 4.2 percent from May to stand at Euro 531 per tonne in June.
This means it has dropped by 12 percent since February. Our long
product weighted average price has also come down - by 7 percent
from May.
In dollar terms, however, the price
development has been even more dramatic. From May to June, the EU
average flat product price dropped 9.4 percent, while long products
fell more than 12 percent.
The weakening of the Euro against the US
currency has had a significant impact. Weaker prospects for economic
growth in the Euro-zone - particularly in Italy and Germany –
along with uncertainty caused by the political fallout from the
demise of the EU’s constitutional treaty, suggest the Euro is
unlikely to bounce back in the near future.
This should be largely helpful to EU steel
producers. Although it will make their raw materials more expensive,
it will also make the EU market less attractive to imports. A weaker
Euro will also improve the international competitiveness both of
steelmakers and of their customers in manufacturing industry. It is
a chink of light in an otherwise gloomy picture.
If the threat from imports is reduced,
European mills may feel better able to keep a tighter grip on
supply. Nevertheless, their leverage is limited, and any drastic
production cuts may simply create a vacuum that sucks in more
foreign tonnage – regardless of exchange rate movements.
Mills continue to talk about their need to
recover the rising cost of raw materials through higher selling
prices. Their attempt to lift prices in the second quarter has
clearly had no impact. Given the steep increase in iron ore and
coking coal prices, producers’ margins must be narrowing –
though they probably remain still quite healthy after last year’s
boom. Any further effort by the steelmakers to raise prices cannot
now take place until after the summer holidays at the earliest –
and maybe not before the end of this year.
