EU HRC: Market slips in NWE

The northwest European hot-rolled coil (HRC) market could be near an inflection point, with some believing prices have bottomed out, despite lingering uncertainty.

Argus' daily NWE HRC index fell by €1.25/t to €510/t ex-works today.

Questions over underlying demand, the wider economy and the impact of the UK's withdrawal from the EU continue. Inventories in northern Europe are not as low as in the south, but most service centres have to buy for the second quarter. Few seem to be in a hurry.

If mills fail to raise prices heading into the second quarter, typically the strongest period, it might not bode well for the remainder of this year — mill margins have been squeezed by rising raw material costs and by mills' inability to realise expected gains in annual and half-yearly contracts.

HRC contracts have seen slight declines, while hot-dip galvanised accords have corrected more strongly.

Some northern mills are quoting HRC lead times into April and refuse to cut spot prices further, but others are hungry for business and close to €500/t ex-works for acceptable tonnages.

Traders suggest import pressure is easing, with Russian mills well-booked, Turkish lead times extending into April-May and pockets of demand emerging for certain products. As a result, southern European pricing could be close to a nadir, which would support sentiment in the north. Large Italian buyers are targeting Turkish HRC at €450/t cfr, up from around €440/t cfr recently.

While the softening in slab — on increased Brazilian competition — means less of a cost-push, it is also providing an acceptable margin for re-rollers and others. One Italian steelmaker with crude steel capabilities booked slab at $430/t cfr (€377/t) recently, providing an acceptable margin given its base HRC price is around €470/t ex-works.

Northern EU mill sources have been hoping for an increase in Chinese pricing amid the typical pre-lunar new year restocking. And these hopes are being realised, aided by fresh stimulus announcements. China's central planning agency, the National Development and Reform Commission, approved construction of three new airports this week.

Fob China HRC prices moved up by $1/t to $483/t today, against $476/t on 9 January, according to Argus' index, which is to be the settlement basis for the London Metal Exchange's impending futures contract.

China is trying to avoid a trade-war induced economic slowdown through such stimulus measures. Although the prospect of stimuli could stoke further concerns over the country's giant debt-burden, the US Federal Reserve's more conciliatory tone on interest rate increases could alleviate fears over capital flight.

Summary of market activity heard by Argus

• HRC, EU: Tradable value at €510/t ex-works in north Europe, according to seller
• HRC, EU: Tradable value at €515/t ex-works in north Europe, according to seller
• HRC, EU: Southern European bid for Turkish HRC heard at €450/t cfr
• HRC, EU: Southern European steelmaker offering at €470/t base ex-works
• HRC, EU: Turkish offers into Antwerp heard at €460-465/t cfr
• HRC, EU: Turkish offer into Antwerp heard at €490/t cfr