European Steel Buyers Slow To Accept Mill Price Hikes

16th December 2019

European strip mill product prices stabilised, in early December. In Italy, basis values moved up a little. Despite a background of slow economic growth, global trade conflicts and political difficulties, a small recovery in market sentiment was noted. Nonetheless, activity levels in the steel market remain relatively low. Uncertainty, surrounding the potential closure of Italy’s Ilva plant, has already resulted in mills, elsewhere, indicating an increase in order intake. European steelmakers notified customers of proposed price rises of €30/40 per tonne.

Although a lack of orders, from the auto sector, in particular, continues to have a significantly negative effect on overall demand, MEPS detects tentative signs of inventory replenishment, at the same time as the steel producers are reducing capacity. Moreover, mills, globally, are lifting their price offers, leaving European buyers with fewer alternative sources of supply.

Attempts to raise strip mill product prices were noted in the German market, but, so far, these have only served to stabilise basis figures at the level reported last month. However, confidence is improving, regarding consumption and sales volumes. Nevertheless, buyers believe that a number of domestic mills are still looking to recover shortfalls in their production schedules - mainly due to the significantly reduced activity in the automotive and machinery manufacturing industries. Moreover, eastern European suppliers continue to sell quite aggressively.

Most market participants, in France, continue to describe current activity as satisfactory. One exception is the auto sector. The steelmakers’ attempts to lift basis values appear to have provided some impetus to order intake. Large service centres started to make enquiries in early December but small/medium firms remain hesitant to place new orders. Prices reached the bottom, in November, but no significant increases are noted, so far. This may be because not all suppliers are quoting price rises, at present.

In Italy, strip mill product prices continued to fall, following MEPS’ November research. However, the uncertainty surrounding supplies from Ilva eventually led to price stabilisation and, in fact, a small recovery is now noted. Purchasing activity improved, fuelled by the Ilva issue and a rise in scrap costs. Nevertheless, demand is still below expectations. Service centre sales tonnages are lower than those recorded one year ago. Small companies continue to buy on a ‘hand-to-mouth’ basis. Resale margins are unsatisfactory.

Steel demand, in the UK, is negatively affected by a slump in auto production and continued uncertainty related to the country’s exit from the EU. A further reduction in manufacturing output was noted, in November. Although tabled prices for strip mill products are stable, this month, steelmakers are now demanding increases of £40/50 per tonne. Many service centres had already completed their deals for the first quarter of 2020, before the price hike was announced. Distributors report low sales volumes, at present. Credit limits have tightened. Profit margins are being squeezed.

In Belgium, basis values for several strip mill products continued to decline, in November, following MEPS’ research, before moving back up to their previous levels. Customers believe that the bottom has been reached and expect prices to recover, in January. Confidence is returning. However, buyers still purchase prudently. Import quotations are also higher than of late. Large service centres are keen to make sales, in order to reduce inventories, before the year-end. Intense competition in the distribution sector led to further discounting.

Spanish demand for strip mill products is, currently, stable. However, political uncertainty confuses the outlook for 2020. This serves to adversely affect investment decisions. Distributors report reasonable sales volumes but with low profit margins. Destocking is still underway as the year-end approaches. At present, service centres are reluctant to re-order but purchasing will recommence, in January/February. Meanwhile, the recent downward movement in basis values halted, in December. Steelmakers are proposing a hike of €15/20 per tonne, for February deliveries. Deals for December/January were booked at unchanged prices. Third country import quotations gained around €40 per tonne, in the last two/three weeks.

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