EU HRC: Southern import price bottoms

Import competition is dissipating in the European hot-rolled coil (HRC) market and domestic mills are now fighting among themselves for business.

Argus' daily northwest Europe HRC index edged up 25¢/t to €510.25/t ex-works today.

Turkish HRC offers to southern Europe have increased by around €20/t or more from the bottom of the market, with some mills offering at €470-475/t cfr and above for delivery to Italy and Spain. Buyers claim to have purchased small volumes at around these levels.

Two coil mills in Turkey are reportedly booked out for March production, while another has limited availability and is relatively firm in its price expectations. Such lead times do not suggest that mills are desperate for immediate export opportunities, although weak domestic demand means they will continue to rely on overseas markets to a large extent. Rising scrap prices could also provide upward cost pressure in the short term.

Those mills in Europe most heavily exposed to the automotive sector have the largest holes in their rolling programmes. One northern European mill is working on an eight-nine week lead time, but another northern producer can offer for the first week of March for bookings finalised by 25 January, even for the UK. One of the largest mills in Europe is reportedly eager to conclude sales.

Automotive subcontractors have larger inventories than desired because of the slowdown in the sector, which is weighing on their suppliers. A Benelux-based stockholder said his inventory is higher than he anticipated because his automotive supplying customers are postponing deliveries. These higher cold-rolled coil and hot-dip galvanised stocks could pressure prices, but there is a perception on the buy and sell sides of the market that the EU's definitive safeguard measure will tighten supply for these products.

Buyers and sellers are also in rare agreement that prices need to rise. High stocks are weighing on outsell prices from service centres to end users, and mill increases would provide leverage for a price rise — a much needed one as service centres look to restore margins heading into the second quarter, seasonally the strongest of the year. Mills also need to restore profitability before the slower second half of the year.

Uncertainty continues around the UK's withdrawal from the EU (Brexit), which is impacting some steel buyers in the Benelux region. One mill source said a customer has cut its typical purchase from 1,000 t/month to 400 t/month as it would rather be short in this market and capture upside from any potential fall in prices. European exporters to the UK are likely to be more uncertain than UK exporters, which already have their product certified for the single market and are aware of the regulatory regime post-Brexit.

Some market participants argue that real UK demand is actually below apparent requirements, as companies are seeking to stockpile material ahead of Brexit.

The UK market has been further unsettled by a competitive Turkish offer at £455/t ddp west Midlands, but this is likely to be a base price for S235 material, which would equate to around £470/t or above for more widely used S275. Prices for this grade are closer to £475/t and above from Turkish mills, which are also less eager to sell to the UK.

As with mainland Europe, outsell prices remain under pressure in the UK, with cut sheet sold at £535/t ddp, which is insufficient compared with the cost of existing stock. And one big mill was seeking bookings from atypical buyers on a shorter lead time.

Summary of market activity heard by Argus:

• HRC, EU: Buyer estimates tradeable value at €507.50/t ex-works northwest Europe
• HRC, EU: German mill refusing bids for contractual material at €530/t ex-works, targeting €538/t plus
• HRC, EU: Large southern European buyer bidding at €450/t cfr for Turkish material
• HRC, EU: Turkish mills offering €470-475/t cfr southern Europe
• HRC, EU: Trader bought Turkish HRC close to €475/t cfr southern Europe
• HRC, UK: Trader offered Turkish S235 base at £455/t ddp west Midlands
• HRC, UK: Turkish mill offered S275 at £480/t ddp west Midlands, according to trader
• HRC, UK: Turkish mill offered S275 at £475/t ddp west Midlands, according to buyer
• HRC, UK: Buyer estimates tradeable value at £480/t ddp west Midlands
• CRC, EU: Seller estimates tradeable value at €575/t ex-works northwest Europe
• CRC, EU: Buyer estimates tradeable value at €587.50/t ex-works northwest Europe
• CRC, EU: Buyer estimates tradeable value at €610/t ex-works northwest Europe