EU
FLAT PRODUCT STEEL PRICE RISES ARE NOT A CERTAINTY
In times of weakening steel prices,
producers sometimes announce plans to raise their selling values
simply with the aim of stabilising the market, and with only faint
hopes of actually reversing the downward trend. Certainly, they do
not always achieve the full published price increase from day one.
The first to move in the latest round of
attempted strip product price hikes was US Steel Europe. It
announced a €40 per tonne price increase on coated and uncoated
products from its Slovakian and Serbian works to come into effect on
August 16 – a day when we suspect more of its customers were on
the beach than in the office. Nevertheless, the company is backing
up its price rise effort with further production cuts at its Kosice
works.
German mills, ThyssenKrupp and Salzgitter,
are proposing fourth quarter increases on strip products amounting
to €20/30 per tonne. Arcelor is hinting at €10/50 per tonne.
Other mills are likely to follow these moves. Finland’s
Rautaruukki has said it will lift prices in the final trimester but
has given no details. Mittal Steel’s strip product works also
expect to try for a fourth quarter increase of perhaps €20 per
tonne. Corus is raising prices on structural sections, but has not
yet determined whether to go for an advance on strip products too.
Some Italian coil producers and re-rollers are also indicating they
will attempt price improvements soon.
Producers have restrained their output and
import tonnages have fallen in recent months. We estimate that EU25
inventories of flat products rose by at least 6 million tonnes, year
on year, in the twelve month period to June 2005. Since then, 1.5
million tonnes may have been taken out of the system - but this
still leaves a large excess. Evidence from buyers also suggests
there is still a lot of steel in many customers’ factories and
warehouses. Moreover, mill stocks have not yet been totally
eliminated.
Some factors are moving in the steelmakers’
favour. Import pressure has been significantly reduced, with fewer
low-priced offers from countries such as China, India and Iran.
There are small signs of a rise in underlying steel consumption. But
the producers are feeling the full impact of increased costs for
inputs such as iron ore, coal, scrap and energy. This makes them
anxious to secure counterbalancing price hikes from their customers.
However, many stockholders and other market
players say price escalations of the scale mills are seeking have
yet to find general acceptance. Some buyers do see room for price
rises from October, but only perhaps €5/10 per tonne. It may be
only those purchasing managers needing urgent supplies who are
prepared to pay more. Those who can wait may hold off - putting more
pressure on the mills to relax their current stance.
If prices do start moving up again in the
final quarter, it would be one of the shortest cyclical downturns on
record. The European steel market left behind the five-year and
four-year cycles in the 1990's. The normal span from peak-to-peak
has reduced to 2¼ or 2½ years.
In the current cycle, flat product prices
in most European countries started to fall in March or April. It
would therefore be very unusual for them to begin rebounding as
early as October. This would indicate a downward leg of the cycle
lasting only some 5/6 months, and it would be quite a dramatic
development if the trough really has been reached already.
ThyssenKrupp followed up its period four
price rise with a comment that a further increase is under
consideration for the first quarter 2006. It seems much more
probable that the mills would succeed in securing the higher prices
in January than in October.
