MEPS insight: slow market weakens Italy’s steel prices
The price growth prompted by steelmakers’ increased quotations on either side of the New Year period appears to be slowing in Italy's flat product market.
Owing to a rise in raw material expenditure and limited supply during the recent holiday period, regional steel producers have been able to implement price hikes in each of the last three months. The January edition of MEPS International’s European Steel Review confirmed that Italian hot rolled coil ex-works basis prices had risen by almost 19% since October.
Buoyed by its pricing successes and the oversubscription of the EU HRC ‘other countries’ quota in the first few days of January, ArcelorMittal stated its intention to increase its European-wide basis prices to EUR800 per tonne, delivered, for second quarter deliveries. The move was soon followed by other continental producers, including Arvedi.
Nevertheless, the consensus view of MEPS’s Italian contacts was that, while the recent pricing proposal may help sustain price growth through February and March, it will be on a more modest scale. Many purchasing managers doubt whether the full extent of the proposed increases will be achieved, claiming they will prove to be “a step too far”.
‘Disconnect’ in price expectations
There are a number of reasons for the apparent disconnect between the mills’ new asking prices and what buyers are prepared to pay.
Hot rolled coil consumers are struggling to implement similar price rises with their customers. Resale values for sheets and hollow sections are moving up, but at a slower pace. Many steel users – reliant on HRC for their raw materials – are having to contend with tighter margins as a result. Italian participants report that the cost of replacement coil stocks from the mills is currently above the selling prices that they can achieve.
Italian service centres and tube makers – who are likely to have bought heavily when prices were at the bottom of the cycle in quarter four, 2023 – can afford to keep their future procurement needs light.
One MEPS respondent, commenting in January, claimed that they were “staying at the window” and would not be making any immediate purchases, given the sheer scale of the mills’ pricing ambitions. It proved to be a common theme.
Supply aligning with demand
Demand from carmakers, for automotive-related products such as hot dipped galvanised coil, is mixed. Italian car plants curbed their activities for a fortnight during the Christmas and New Year holidays. There has been an uptick in restocking activity in the subsequent period.
This could prove to be a false dawn, however. The long-term switch to electric vehicles is proving problematic, given the lack of necessary infrastructure. Furthermore, restricted access to finance – owing to interest rate hikes by the European Central Bank – will weigh down heavily on future car sales. Demand related to the white goods segment is unlikely to recover, any time soon, for similar reasons.
It is not all bad news for European steel manufacturers, though.
A lack of steel supply, both regionally and from non-European Union origins, is largely offsetting the poor level of demand in end-user markets.
Purchasing options are increasingly limited for Italian buyers. Production issues at local producer Acciaierie d’Italia mean that it is producing at a reduced capacity. Other European mills, including those of the Liberty Steel Group, have also either idled or scaled down their operations.
Subsequently, mill delivery lead times, from continental suppliers, have extended slightly following Christmas and New Year stoppages.
Reduced import pressure to support prices
Sales of cold rolled coil remain low in Italy. Only a small proportion of local production is used for domestic consumption. Moreover, Italian production of cold rolled coil has been significantly reduced of late.
Large quantities of East Asian-sourced material continue to flow into Italy’s traditionally import-dominated cold rolled coil market at competitive prices. This material was bought at the end of last year, while still within the EU safeguarding measures’ import quota allowances. Offer prices have risen since then.
Import pressure is also expected to wane in the coming months. Domestic steel producers will benefit from a shortage of foreign alternatives, particularly for hot rolled coil. The oversubscription of the EU safeguard measures’ ‘other countries’ category in January, and the high likelihood of a similar scenario at the start of April will support the pricing ambitions of European producers.
In January, Italian buyers who bought hot rolled coil from countries including Japan, Taiwan and Egypt, for quarter one, faced a tariff of around EUR35 per tonne for material customs cleared before the quota was quickly filled. Port demurrage charges may also be incurred.
The current geopolitical crisis in the Red Sea will not help future shipments. Increased insurance costs, as well as transit delays, will make imports from Asia into Europe less viable.
A rise in import price quotations – from Turkish and Indian suppliers – was confirmed in recent negotiations.
Many Italian buyers report that the start of 2024 has many similarities to the equivalent period of last year, when hot rolled coil values moved up quickly. Basis prices reached a peak of EUR830-860 per tonne, last April, before falling for much of the year.
MEPS predicts that Italian flat product prices will not reach the same heights in 2024. Steel producers may point out that imported volumes, from outside of Europe, may not be as influential. However, it is expected that weak trading conditions are likely to continue. This will undermine the support behind the mills’ pricing proposals and put further increases in considerable doubt.
- Monthly insight into the Italian carbon steel market is published in MEPS International's European Steel Review. The monthly report provides subscribers with steel prices, indices, market commentary and forecasts from Europe's key steel producing countries.