EU HRC: Raft of factors carry prices lower

Northwest European hot-rolled coil (HRC) pricing declined on a few negative factors today, as softer contractual settlements, the likely structure of the definitive safeguard and competitive imports continue to sour sentiment.

Argus' daily northwest Europe HRC index slipped by 25 cents to €517/t ex-works.

Mills are trying to defend €520/t ex-works, which are substantially above import prices from Turkey at €470-480/t cfr Antwerp. One German mill was even heard to offer at €560/t ex-works, but this is much higher than the market price and not achievable for commodity grade material.

Buyers and sellers are dissatisfied with the level of the quotas for coil products. The quota for the first period is up by 5pc from average imports over the same periods of 2015-17, while volumes for the second period will also be up by 5pc.

Countries that have exhausted their own quota can compete for the residual quota in the fourth quarter of the period. This will incentivise exporters to fulfil their own allocations over the first nine months then look to use the "other countries" volumes, sellers said. Countries that have exhausted their own quotas in the first period will be able to compete for a residual quota from April 1, 2019.

"It counters the whole point of the safeguard," one mill source said of the structure. A buyer concurred, suggesting Turkey not getting its own country quota was problematic as it had one of the main downward influences on domestic pricing in the second half of 2018.

Turkey has been "dumping", according to some, although its domestic pricing has also been under heavy pressure given a struggling economy and fining down of export markets.

Contractual settlements for hot-dip galvanised (HDG) and HRC are also stoking bearish sentiment. One mill dropped its yearly 2019 HDG contract prices by €10-15/t, while others have agreed to reductions of around €30/t for half-yearly deals.

Galvanised prices were at inflated premiums last year after a strong run in 2017, where the premium blew out substantially compared with HRC and CRC.

A mill has settled "close to a rollover" on 2019 HRC contracts with service centres, but it is likely these are also at slightly negative levels.

The market is awaiting a trigger that will change sentiment, whether it be an increase in Asian pricing or higher raw material costs — prices for coking coal often rise steeply in the first quarter of the year as the rainy season impacts output and shipments from the Queensland production hub.

Service centre inventories remain low and some will have to buy soon, but stockists are certain this will not lead to price increases.

Summary of market activity heard by Argus

HRC, EU: Tradable value at €520/t ex-works northwest Europe, according to a steelmaker

HRC, EU: Tradable value at €520/t ex-works northwest Europe, according to a buyer

HRC, EU: Tradable value at €510/t ex-works northwest Europe, according to a steelmaker

HRC, EU: Tradable value at €470/t ex-works Italy, according to a buyer