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German automotive demand supports steel prices

22 Jan 2018, 4.02 pm GMT

German automotive demand supports steel prices

London, 22 January (Argus) — A rise in new motor vehicle orders in Germany in the last months of 2017 could bolster flat steel prices across Europe in the short term, lending support to the price of scrap and other raw materials.

Highest car production since 2011

The unadjusted new orders index for the motor vehicle manufacturing industry rose in November — on the month October and year — as a result of rising orders from outside of the EU, according to the German federal statistical office (see chart). The index has now risen for five consecutive months.

Passenger car manufacturing in November was at its highest since March 2011, reaching 581,194 units, up by 8.6pc on the year, although there was sharp drop in December to 361,700, because of the holidays, according to the automotive industry association VDA. The December tally was down by 1.8pc on the year, although this might be partly explained by the two extra working days in December 2016.

But VDA estimates that domestic passenger car orders increased by 11pc on the year in December, while export orders were up by 9pc, and says this will support January-March output. In the first quarter of last year, production totalled 1.51mn units, and and exports 1.16mn units.

The expected rise in passenger car manufacturing in January-February has already driven up prices for flat steel products. German steelmakers have increased prices for hot-rolled coil (HRC) by at least €10/t since the start of January to around €550/t ex-works in the second week of January. Cold-rolled coil (CRC) prices rose by a similar amount and remain around €100/t above HRC levels. Steelmakers are expected to keep increasing their prices in the coming weeks, with their order books for February-March nearly full, market participants said.

High steel demand supports scrap prices

With the automotive industry consuming around a quarter of German steel output, ferrous scrap suppliers in Germany believe demand and prices for scrap will remain supported in January-February. In fact, most mills in Germany have already settled January purchase prices at €5-10/t above December, despite early indications and initial offers from suppliers being closer to €20/t higher than December prices.

The availability of large volumes of stock held back by suppliers in December — coupled with lower than expected demand from mills because of delays to December shipments — allowed mills to bid lower and still secure sufficient volumes for their requirements.

The Argus weekly northern Europe delivered to mill assessment for shredded ferrous scrap settled at €281.40/t on 19 January, up from €253.10/t on 17 November 2017.

Chinese flat steel capacity cuts

German steelmakers' confidence has been further boosted by the China Iron and Steel Association's expectations that the next phase of China's steel capacity cut could centre on flat steel. Beijing has to date prioritised cuts to long steel output, as flat steel producers tend to use newer technology and equipment.

China is no longer a major supplier of flat steel products to Europe since the European Commission imposed an anti-dumping duty on Chinese steel products in April 2017. But if China imposes a flat steel capacity reduction programme this year, Europe's other major suppliers, such as India and Turkey, could divert supplies to fill the gap left by China on other markets, including in southeast Asia.

Europe's Chinese flat steel imports fell to just 316,000t in January-October 2017 from 1.25mn t in the same period of 2016, according to industry association Eurofer.

Car exports

Around 77pc of German car manufacturing in 2016-17 was for export.

Demand in most key export destinations was higher last year, but it is expected to be stable at best this year, while the VDA expects the domestic market to contract.

Sales of cars and light trucks to the US, which accounted for 14pc of German car exports in 2017, increased by 1pc to 1.35mn, but VDA forecasts that exports to this market will fall by 2pc in 2018.

Total car sales in China — which accounted for around 5pc of German exports — rose by 1.5pc to 24.7mn units last year. VDA expects Chinese market to grow by around 2pc this year, but warned that growing protectionism in Chinese trade policy adds uncertainty and risk.

New car registrations in the EU increased by 3.4pc to 15mn units last year, data from European Automobile Manufacturers Association ACEA show, despite a drop in registrations in the UK — Germany's largest export market — by 5.6pc to 2.5mn, according to the UK's SMMT motor manufacturers and traders society.

The European car market is expected to be stable this year, with the contraction in sales in western Europe offset by higher sales to eastern Europe. But exports to the UK, which accounted for 18.4pc of German exports last year, could fall significantly.

UK registrations of new cars assembled in Germany fell by 3.9pc to 859,008 units last year, and given VDA's expectations that the UK market will contract by another 5pc this year, there could be a similar decline in German exports to the UK.

Some German scrap suppliers have already warned that steel and scrap prices could fall in the second quarter if new export orders start falling, particularly as Chinese production is expected to come back in force after the expiry of the winter output reduction order in mid-March.

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Index of new orders in manufacturing of motor vehicles
TotalDomestic territoryForeign countries
Nov-16114.2111.4115.8
Dec-16126.2123.9127.4
Jan-17133.3129.4135.5
Feb-17122.9121.8123.6
Mar-17120.6113.6124.6
Apr-17132.1125.8135.6
May-17112.3106.4115.7
Jun-17107.9105.4109.2
Jul-17124.5121.7126.2
Aug-17129.3120.8134.2
Sep-17129.2123.4132.6
Oct-17118.9111.5123.1
Nov-17122.0115.0126.0
Dec-17124.1121.8125.3
Volume index (2010=100) Unadjusted values

Germany car production vs new orders '000 cars

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