EU HRC market strengthening as lead times advance

European hot rolled coil pricing is advancing on the back of long lead times and strong underlying demand, despite concerns over some German automotive production delays and squeezed distributor margins.

A buyer in northern Europe said the €565-570/t ($656-662/t) ex-works price at which he had previously bought hot rolled coil would no longer be available, and the next round of negotiations may be closer to €580/t.

ArcelorMittal is now quoting lead times into January, while other mills are quoting November-December.

"They are overbooked, giving lead times for new business to January, which is what is driving their pricing policy", the buyer said, suggesting they would not be achieving these levels but it would still impact sentiment.

End-demand in construction and industrial applications remains strong in the northwest European market, and is growing on last year, the buyer said.

But the new automotive testing standards have caused issues at some carmakers, meaning production has been delayed. Volkswagen has publicly stated it will see around 250,000 units scheduled to be manufactured this year being pushed back into 2019. Mills have been told to keep their steel supply volumes up, with no car production forecast to be lost yet, but a distributor said some extra spot capacity could arise as a result.

Italian mills may be more willing to lower pricing after being the first to push up at the start of summer, the buyer said. The southern European market is quieter than the north, with the ongoing Ilva saga and Italian macroeconomic situation causing some issues.

A northwest European seller concurred that lead times were stretched, with his mill offering end-October rolling and getting incremental price rises each week with buyers returning from holiday. Demand remains good, although it has tapered a touch, and stock levels are normal after an inventory overhang earlier this year, he said.

Margins at service centres are under pressure as they failed to pass on earlier price increases when stock levels were higher. But one source said margins could strengthen into September-October as bullish talk from mills enables downstream price rises.

While there has been some concern that Turkey could return to the European market with competitive pricing — given the contraction in its export destinations and economic turbulence — this has not materialised yet. Nevertheless, softening slab could hamper increases going forward, and enable lower pricing from re-rollers, one source said.

Brazil has fulfilled its US quota and is now looking to sell to re-rollers elsewhere. At the same time the sharp depreciation of the lira has eroded Turkish mills' appetite for imported CIS slab, which has filtered into softer pricing.

"We didn't get any offers last month now all of a sudden they [Brazil] are willing to offer, and are doing so at low prices to get our business again," a slab buyer said.