EU HRC: Italian mills cut prices

Short lead times at Italian hot-rolled coil (HRC) producers are pushing prices down again, as mills continue to try and offload tonnes into third country markets.

Weak appetite from buyers given sluggish outsell demand and prices, combined with one mill having July production availability, is weighing on sentiment. A judge ordering ArcelorMittal Italia to close its operational blast furnace number 2 failed to stoke buying. The company is expected to appeal the decision.

Another Italian mill is selling August rolling, while one producer was actively soliciting orders in the UK, even for HRC — it more typically sells cold-rolled coil and hot-dip galvanised.

Offers from Italy to Algeria were heard at $525-530/t cfr, although this is likely for smaller quantities. Material was offered into Egypt around $510/t cfr, according to one buyer. A buyer in Turkey needs to procure August material, owing to supply disruption from the CIS, and it may turn to European mills as Turkish sellers have no availability until September.

The lowest available offer on the market from Turkey stood at €455-460/t cnf Italy for large orders, while market participants say sellers are asking for $500-510/t fob for smaller tonnages. Only one Turkish mill is really active in the market. Indian and Egyptian material was heard offered at €475/t cif Italy equivalent, but was not attracting much interest considering local levels. Russian HRC is available at $480/t fob St Petersburg.

The Argus daily Italian HRC index edged down by €2/t to €456.25/t ex-works today on 11 inputs, while the northwest EU index was unchanged at €475.25/t ex-works amid quiet activity. The headline northwest EU index was underpinned by 13 inputs.

In the over-the-counter swaps market the bid-offer spread for September to December was €480-487/t, up slightly from €477-487/t yesterday. A trader lifted the offer, perhaps in the belief a contango structure would be more likely for the fourth quarter.

Expectations that September pricing will improve substantially are dwindling as the production cuts announced by mills at the end of May and beginning of June have had little impact so far. Seasonally slow activity is also exacerbating weak sentiment. But there is still a belief that prices will rise into the fourth quarter, based on production cuts being fully implemented, import supply being low, and the European steel safeguard probably being amended. The settlement of contract talks for the second half of the year could also provide mills with a clearer line of sight in terms of order-books. Steelmaking margins in the EU are now lower than at any point beyond the financial crisis, suggesting they have to be close to a nadir. If not, 2020 will start off another unsustainably difficult period for mills.