EU mills criticise OEMs desired steel price cut

European automotive companies are trying to drop their contractual hot-dip galvanised (HDG) prices by €50-70/t ($58-81) for next year, steel mill executives told Argus today.

The vehicle producers are arguing the cost base for mills has reverted to 2013 levels, when auto-sheet deals were signed around €530/t, so they want similar pricing going forward.

This argument does not account for the increase in higher grade iron ore costs. Rising Chinese utilisation rates and profitability, stemming from large-scale capacity cuts, have increased demand for the higher grade material prized by European mills, and pushed up related premiums.

Other costs, such as energy and certain alloying agents, have also risen, according to market participants.

"It makes no sense to sell a tonne of galv into the automotive sector if they aren't paying up €25-30/t. If they don't pay it, we are not making a contract", one seller said. Another market participants said a rollover or slight increase may be the most likely outcome.

The seller said he had not witnessed any meaningful fall in automotive demand despite recent talk. "My major indicator of any slowdown is my stock, and there is no increase", he added.

This could be as one German vehicle producer in particular has been hit hardest by the implementation of the new testing regime, so those with lesser exposure may not have been as affected. A UK producer is also slowing, as 70pc of its cars have been diesel, and consumers are less inclined to buy such models given environmental concerns and a government desire to move to other fuels.

There has also been a broad-based fall in car sales because of the testing regime. UK registrations dropped over 20pc in September, while German registrations dropped by 31pc.

End-buyers and service centres have been alluding to the auto slowdown to try and reduce pricing and defer their purchases. They have had some success in reducing spot market levels, with prices now in a €560-570/t range on a parity point Ruhr basis, below the €580-600/t expectations of mills for the fourth quarter. Import levels have also put off buyers, with India and Turkey offering competitively, levels into southern Europe have been around €500-510/t cif, with some offers into Belgium's Antwerp in northwest Europe as low as €515-520/t.

Imports of hot-rolled coil, cold-rolled and galvanised have fallen this year compared with last year, given the safeguard and prior dumping duties, European imports of the three coil products reached 728,579t during January-July, down from 1.72mn t in the same period last year. There has been a notable drop in Chinese HDG imports, from 1.69mn t over January-July last year to 725,149t in the same period of 2018, given the duty imposed last year.

European apparent steel demand is also set to grow by around 2pc this year, meaning imports are a smaller share of the market than their volume reduction implies.

Most market participants agree the market will remain quiet until a large industry event in Germany's Hannover, where deals between mills, original equipment manufacturers (OEMs) and service centres may be signed.