EU HRC: German caution dampens prices

Continuing macroeconomic uncertainty continues to dampen the northwest European hot-rolled coil (HRC) market.

Argus' northwest European HRC index slipped by €1.25/t to €506.50/t ex-works today, narrowing the discount for Italian domestic supply to €20.75/t.

Buyers are still reluctant to commit to tonnage given high imports and sufficient stocks. In Germany, where industrial output dropped by 0.8pc on the month in January because of weak automotive output, buyers are being particularly prudent.

Mills have tried to increase prices but low capacity utilisation and short lead times mean it is tough to secure stronger levels, particularly as there is still surplus inventory on the ground. EU mills have been exporting more of late to try and firm up the supply and demand balance.

A mill was reportedly offering hot-dip galvanised material below €600/t ex-works domestically, which another steelmaker said was "insufficient" to cover costs given high raw material prices. The cost of dollar-denominated iron ore and coking coal was also being increased by the weaker euro, further compressing margins. It was tough to defend €500/t ex-works for HRC in Germany given such prices for HDG, the seller said.

But some buyers and traders expect HDG prices to increase as a result of the European safeguard quota on Chinese automotive galvanised steel for February-June being exhausted.

A few larger buyers have been eyeing HRC imports, with Turkey competitive of late. But the narrow differential means some are not committing to third-country material, and are waiting for a potential softening in domestic prices. A trader said large buyers in northern Europe are targeting €500/dat, which may not work for some given the cost of stock.

EU mills are likely to maintain a narrower gap to imports to reduce penetration by third-country tonnes. A Turkish mill has reportedly upped its prices since making some larger tonnage sales at around $520/t fob last week.