Covid-19 resurgence causing concern for EU steel buyers

The resurgence in Covid cases across Europe is a growing concern for steel buyers. Market participants are either delaying their purchases or increasing them, depending on their outlook and sentiment. The position is becoming increasingly divided. Uncertainty surrounding future demand, particularly in the final two months of 2020, is creating disagreement on the future price direction in the European steel sector.

Some customers have placed their purchase requirements for the final quarter of 2020. In contrast, other buyers are ordering only small quantities as they anticipate price reductions in the coming months. Doubt exists about whether the recent increases in mill sales volumes are the result of growth in real consumption or a release of pent-up demand, following coronavirus-related inventory drawdown. There will, undoubtedly, be winners and losers in this steel market gamble.

Panic has set in as numerous service centres are restocking due to growing shortages across the European steel sector. This is particularly the case for hot dipped galvanised products, where domestic mills are said to be focussing their production on their automotive customers – much to the dismay of buyers in other end-user segments.

Several local steelmakers are, reportedly, completely booked up until March 2021. However, capacity due to come back on stream during the fourth quarter should help to alleviate some of the supply tightness by the end of this year.

Will raw material costs fall?

Potential exists for raw material costs to reduce, in the short term. Booming demand in China, the main cause of the upsurge in iron ore costs, has been cooling, of late. China is estimated to have remained a net importing nation for steel in September, including trade in semi-finished products. However, we have reports that this has changed, so far in October, as demand has slowed in the country. This is likely to have a knock-on effect in global steel markets, in the coming months.

The European steel market could change drastically if Covid-related restrictions intensify, towards the end of 2020. The escalation in the coronavirus pandemic, coupled with the re-introduction of measures to limit the spread of the disease, could restrict the economic recovery in many EU countries. Nevertheless, local mills are expected to remain firm in their pricing policies. The potential for negative price movements is expected to be restricted, in the near term.