EU HRC: Stuttering north EU momentum could be fading

Recent fragile upward momentum in the northwest European hot-rolled coil (HRC) market looks like it may be short-lived, with buyers spooked by Turkish mills' willingness to negotiate.

Argus' daily northwest Europe HRC index was stable today at €508.50/t ex-works. The ex-works Italy discount to northwest Europe moved up a touch to €28/t.

Turkish offers have moved to €500/t cif Italy and above, but mills are happy to sell at around €490/t — which is still not attractive enough to entice demand.

"This morning we got a phone call from Turkey and [the mill] showed some flexibility. If they really want to have a firm bid and meet our ideas we could have a problem [of prices falling again]", a large north European buyer said.

Traders are concerned Turkish mills will cut offers if they fail to entice buyers, which would have a big psychological impact on the market after the vertiginous declines seen over the last quarter of 2018.

A Russian mill was offering into north Africa at €535/t cfr for 1mm thick HRC, which suggests it is not getting much appetite from the closer European market or Turkey, where market participants suggest buyers have now concluded necessary purchases.

Coil buyers in the north are also not in a rush to buy given sufficient stock levels, and some mills in the region with skinny lead times are happy to sell at "old" levels to fill their orderbooks. Southern European sales at €500/t ddp have disappeared for the moment, however, because of the recent increases, and as Italian mills have hardened their stance on firmer import quotations.

The much-hyped cost push mills used as justification for their higher offers has also failed to materialise as anticipated. Argus' benchmark 62pc ICX fines index was $87.25/dry metric tonne (dmt) today, down from $90.75/dmt at the start of this week. An orange pollution warning was announced in the production hub of Hebei today, meaning mills need to reduce output by 30pc.

Imported scrap prices into Turkey have also started to trend lower, while dockside prices in key export markets — such as the Netherlands — are slipping as a result.

Summary of market activity heard by Argus:

• HRC, EU: Large buyer estimates tradable value at €510/t ex-works northwest Europe
• HRC, EU: Large seller estimates tradable value at €520/t ex-works northwest Europe
• HRC, EU: Seller estimates tradable value at €472.50/t ex-works Italy
• HRC, EU: Trader estimates tradable value at €487.50/t ex-works Italy
• HRC, EU: Trader selling at €495/t ex-works Italy
• HRC, EU: Trader estimates tradable value at €505/t cif south Europe
• HRC, EU: Import offers at €510-515/t cif south Europe