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STEEL PRODUCERS’ PRICING POLICY SQUEEZES DISTRIBUTORS
By the middle of January, several major European steel producers had signalled significant price rises to the market, citing increased input costs. Distributors are sceptical about the longevity of such a move. Consumer demand has yet to pick up and many believe that premature rises will stifle any demand recovery. The traditionally slow start to the year extended into the second week of the month. The return of southern European mills, after the festive break, did not result in a flurry of activity. Producers were calmly assessing forward orders and calculating the effects of raw material cost increases. Steelworks’ capacity cuts, introduced late last year, continue to restrict output. Nonetheless, mills sold volumes, in December, to fill first quarter programmes. In addition, coil producers are reserving space for contract customers, who agreed new deals above prevailing spot prices. Consequently, domestic flat product delivery lead times, for spot business, started to extend to March and beyond. Steel service centres and distributors took advantage of the attractive December discounts to secure volumes for the first quarter of 2023. They reasoned that prices would quickly return to early December levels and then rise further, if modestly. The buying risk was minimal.
The distribution sector is sitting on stocks purchased at higher than current market prices. It would welcome an upward movement to redress this imbalance. The initial expectation, for flat products, was of a €50 per tonne increase, but in gradual stages over the first trimester.
Since the Covid-induced rapid price hikes, however, the mills’ pricing philosophy has altered. Small movements are no longer deemed sufficient. Major producers consider €50 per tonne to be the minimum starting point, regardless of market conditions. Demand, however, remains fragile, and large hikes threaten new and existing projects. Some end-users still seek further price reductions, in line with late fourth quarter drops, which service centres are resisting. Despite evidence of destocking and shortages of certain products, distributors cannot afford to replenish inventory at prices higher than outsell values. Many stockists fear a short-term price bubble, with a collapse in April. Those who purchased in good time and who are receiving competitive import volumes, cleared at the start of January, will sit tight on existing orders. If the automotive industry maintains its moderate growth, mills will once again start to seek orders later in the first quarter, with the inevitable downward price correction.
Hot Rolled Coil
In Western Europe, market prices for hot rolled coil started to increase in mid/late December. The upward trend accelerated in mid-January. Producers are bullish, with further substantial price rises proposed. A combination of extending delivery lead times, rising raw material costs and reduced import competition is fuelling their optimism. In the second half of 2022, steelmakers struggled to balance their supply with a reduction in demand. However, the removal of production capacity during that period, augmented by plant maintenance shutdowns over the Christmas/New Year holidays, is finally having the desired effect. Moreover, supply has been restricted by technical problems at several facilities, including the hot strip mill at La Louvière in Belgium. NLMK has restarted this line, but limitations on rolling thicknesses persist. European mills are sold out for January and February. Some report limited availability for March, whereas others are quoting for delivery in April and May. Steelmakers’ profit margins remain narrow, despite the upturn in hot rolled coil prices. Raw material costs have risen substantially in the past few months. Benchmark iron orprices, CFR China, have increased by 50 percent, from US$80 per tonne in late October, to stand around US$120 per tonne. Chinese market sentiment turned bullish, amid hopes of economic stimulus measures and a rebound in the domestic real estate sector. Moreover, steelmakers carried out some pre-Lunar New Year restocking. Hard coking coal prices, FOB Australia, have recovered by approximately US$80 per tonne from their mid-November low point. The upturn was driven by improving relations between China and Australia, which are leading to expectations that Chinese authorities will relax import restrictions on Australian coal. Moreover, demand from Indian mills is strong and concerns about weather-related supply disruption have arisen. Hot rolled coil imports are quoted at €680/700 per tonne, CIF southern European ports, from Japan, South Korea, Taiwan and India – up more than €100 per tonne, month-on-month. Offers are for late March/April shipment, with a delivery in late May/June. Turkish mills quote at €740 per tonne, inclusive of antidumping duty, for late March/April arrival. However, most Italian and Spanish buyers have little appetite to purchase from Turkey as they regard the material as too expensive. Despite the factors exerting upward pressure, European hot rolled coil buyers question the sustainability of the mills’ price increases. Although some inventory replenishment is taking place, real demand remains subdued.
Price rises are occurring for sheets and tubes, albeit at a slower pace than those for hot rolled coils. Service centres and tubemakers in southern Europe comment that they are encountering strong resistance from their customers, as they attempt to pass on mill price increases in the sale of their processed products. Annual contracts, for 2023, with OEMs and automotive companies were settled at higher than expected levels. Many buyers initially proposed reductions of €300/400 per tonne, citing low spot prices. However, such decreases would have been lossmaking for the mills. Supply chain participants report concluding agreements at approximately €800 per tonne – down from about €1000 per tonne in the previous year. Purchasing directors that delayed negotiations may be able to obtain reductions of only €150 per tonne, amid a strengthening in the spot market.
Hot Rolled Plate
German integrated mills continue to focus on supplying high-specification plate for use in the energy industry. Demand from projects related to LNG storage terminals and offshore windfarms is strong. In contrast, a slowdown in activity is reported in the construction sector, due to the current adverse financial conditions. Several service centres report gaps in their order books and requests for discounts from their customers. Activity in the commercial grade plate market remains subdued. However, after declining in December, prices are expected to rise modestly, in the near term.
In France, competition from Italian plate producers is diminishing, as a result of expensive transport costs, extending delivery lead times and rising slab expenditure. Buyers reported heavily discounted deals in mid-December, particularly from rerollers. However, these offers have been withdrawn, as order books are now filled. Competition from traders at the port of Antwerp is also reduced, as they are still receiving expensive material, bought at higher prices in the middle of last year. A moderate amount of restocking was undertaken by French plate distributors in December, as they needed to secure supply for February/March delivery. The outlook for real consumption in the first half of 2023 is reasonable. Italian basis values bottomed out in early/mid- December. Local producers started to receive more orders, following some lossmaking sales, and subsequently raised their prices. Delivery lead times have extended to March. Rerollers are in the process of implementing further price increases, as slab costs move upwards. The availability of feedstock is reducing, amid increased steelmaking raw material expenditure and a recovery in the international flat product market. In the United Kingdom, stockholders and traders comment that the domestic plate market remains quiet. Few new enquiries are being received. Prices continued to decline in mid/late December, albeit modestly, and no upward movement was detected in early/mid-January. Low-priced offers from Korean exporters, for delivery in the second quarter, create negative pressure. Moreover, a number of users are switching from thin plate to thick coil and sheet, due to its current price advantage. Spanish stockists report an increase in import prices of €30/60 per tonne, month-on-month. Further rises are anticipated. Offers are mainly from Japanese and Indian mills. Few quotations are being received from producers in South Korea and Indonesia. Traders are encountering difficulties in raising their prices of port stock material, with buyers able to negotiate discounts.
Cold Rolled & Coated Coil
Similar market dynamics to those for hot rolled coil are being witnessed for value-added strip mill products. Western European cold rolled and galvanised coil mills are optimistic about the short-term price outlook and are implementing substantial hikes in their selling values. A combination of factors is prompting the increases. These include the rising costs of hot rolled feedstock and raw materials, reduced availability following production cuts, a surge in import prices, and anticipated inventory replenishment. Most local producers are fully booked for the first quarter, and several have only limited availability for April delivery. Many supply chain participants comment that the market for value-added coils is not quite as strong as it is for hot rolled material. Negative pressure on mill profit margins is easing slightly, as a result of a large reduction in energy costs. Moreover, end-user demand remains subdued. Nonetheless, the premium for value-added coils over hot rolled is expected to widen, once again, in the coming months. Cold rolled coil imports are quoted at €750/770 per tonne, CIF southern European ports, from mills in East and South Asia. This equates to an increase of more than €100 per tonne, month-on-month. Further rises are expected imminently, taking foreign offers to a minimum of €800 per tonne.
