HISTORIC RISES IN EU STEEL PRICES DESPITE SLOWING DEMAND

EU steel prices are currently at record levels after meteoric advances through the first half of 2008. The MEPS hot rolled coil average transaction value has climbed by €310 per tonne since the low recorded in January of this year. This represents an increase of approximately 65 percent, or almost $US500 per tonne at the current exchange rate. MEPS estimates that the growth in raw material costs incurred by the mills is around $US350 (€225) per tonne, taking into account the new iron ore and coking coal contract prices. The local producers have recovered over and above the raw material cost rises. This, we feel, should signal the end of the large price hikes in the short term.

Demand in the European market has been somewhat subdued over the last few months, particularly for strip mill products. However, a lack of imports helped to restrict supply and push transaction values upwards. Higher prices caused problems for some customers as they struggled with credit constraints. This had a negative affect on consumption. Buyers are also limiting purchases as they fear being left with overpriced material when selling figures begin to fall.

As a result of reduced sales, flat products prices are expected to start to decrease during the final quarter of this year. The traditional Winter slowdown and year-end de-stocking trend by European distributors is likely to be exacerbated by the deteriorating economic climate. This should add further downward pressure to transaction values.

Greater reductions are forecast in the long products sector due to a softening in scrap costs. The seasonal shutdowns by the EU mills will reduce scrap demand and values are likely to fall. Due to the time lag between raw material cost changes and their impact on transaction numbers, steel prices in the fourth trimester are predicted to start dropping. Seasonally lower consumption over the winter months, coupled with a general weakening in the construction sector, is expected to extend the downward price trend into the second quarter of next year as oversupply sets in. The greatest reductions are predicted in the wire rod (mesh) and reinforcing bar categories, which would be most affected by the slowdown in the construction industry. This will result in the differential between the flat and long composite prices increasing, once again.

Plate values are predicted to record much smaller decreases over the forecast period due to healthy sales to the energy, line-pipe and wind turbine sectors. However, a substantial steel price collapse is not anticipated for strip mill categories because import volumes are expected to remain restricted and domestic supply will probably continue to be restrained.

A moderate rise in raw material costs for 2009 contracts is predicted. This, together with an upturn in consumption during the spring, is likely to lead to a modest recovery in prices for all products by the middle of next year.

Source: MEPS - European Steel Review - click here for a free sample copy

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