European steel prices slide to pre-war levels

European steel coil prices continued their downward slide, in May and early June. Service centres and distributors refrained from buying, fearing further price erosion. Mills sought orders, in the face of reduced demand.

By the middle of June, coil prices in Europe had decreased to the levels reported prior to the Russian action in Ukraine. This price correction was expected, given the rapid panic-induced increases. However, the speed and extent of the declines took many market participants by surprise.

Additional tonnages were purchased, in March and April, to cover the potential shortfall arising from the war in Ukraine. These included orders placed at the peak of the market.

Once the downturn commenced, buyers delayed their procurement. Stocks throughout the supply chain were adequate to allow this pause in purchasing activity. This situation will persist until prices stabilise or inventories need replenishing.

Reduced auto demand

Steel producers continued to suffer from reduced automotive demand. Order books diminished further, in the absence of purchasing by distributors. The mills lowered their prices to attract new business. Delivery lead times contracted. These factors added to market uncertainty.

The automotive industry reports that its activity levels will recover in the second half of this year. Many participants, however, remain sceptical. In the meantime, coil basis values remain under downward pressure.

Prices for long products also underwent a downward correction. The movements, however, were less severe than those for coils. They varied considerably by product and by region. The mills are concerned about possible hikes in scrap and energy costs. They are, therefore, reluctant to concede reductions in selling prices.

Attractive import offers are being quoted for all steel products. However, interest in these is limited by long delivery lead times, the risk of tariffs, and shortages of capacity at local ports.

Uncertain outlook

In addition to uncertain demand and price directions, several other factors are influencing the market.

The traditional summer maintenance period is approaching. Producers are considering extending their outages to control output in line with market demand. Some are idling blast furnaces or delaying relighting them.

On the positive side, price reductions may stimulate pent-up steel demand, and relieve concern over the lack of construction orders for the start of next year.

The easing of Covid-related lockdown measures in China, coupled with an economic stimulus package, should increase raw material demand, thereby supporting steel prices.

Inflation in Europe, however, poses a risk to domestic consumption. High food and energy costs will reduce private demand for steel-containing products, such as white goods and cars.