EU HRC: Weak sentiment dampens prices

The European coil market is becoming increasingly gloomy, with plentiful stocks and static demand weighing on already weak sentiment.

Argus' daily northwest European hot-rolled coil (HRC) index slipped by €1/t to €507.50/t ex-works today. The discount for Italian material to northwest Europe increased to €31.75/t from €29.50/t, as some buyers reported that they had purchased as low as €460/t delivered from large mills.

Southern buyers have slowed their procurement activities to watch import prices, after some slippage in third-country offers. In Italy, some were bidding as low as €460-465/t cif for imported HRC. Offers were still around €490/t cif to Italy, although there was no demand at this level. An offer for Asian cold-rolled coil was also heard at €580/t cif Italy, down by €40/t from a few weeks ago.

In the north, lead times were as low as four weeks from some mills and nobody professed a genuine belief that the market will rebound soon. Several hoped it might increase from April-May into the second half, should automotive steel requirements return to more "normal" levels — the 10-15pc drop in automotive demand, which could be higher from automakers more exposed to flagging diesel sales, feels greater because of weak sentiment and wider economic concerns in Germany.

The automotive supply chain is also eagerly awaiting the conclusion of trade talks between Europe and the US. Any Section 232 tariff on EU carmakers would be disastrous for original equipment manufacturers (OEMs) and their steel suppliers. The trade talks have reached a hiatus because of contrasting views on agricultural products.

One mill said real demand is not as bad as sentiment would suggest and could rebound should automotive buying normalise somewhat. Comparatively expensive import offers could also play into the hands of domestic mills, although the near 1mn t that arrived in January will take time to work its way through the system.

Despite short lead times and being in need of tonnage, mills were reluctant to agree to significant discounts because of their higher cost base.

Service centre margins are being squeezed further by rising transport costs. A shortage of drivers and trucks is pushing up inland freight, with one Benelux-based service centre source saying his transport cost has risen by 6pc on average as a result. With no chance of passing this on to consumers in higher sheet prices it is eating into profitability, and making it difficult to guarantee on-time delivery.

Given the automotive slowdown and wider malaise, service centres are increasingly competing for business, particularly in Germany and to an extent in the Netherlands.

Summary of market activity heard by Argus

• HRC, EU: Market at €507.5/t ex-works in northwest, according to steelmaker
• HRC, EU: Market at €505/t ex-works in northwest, according to service centre
• HRC, EU: Market at €505/t ex-works in northwest, according to automotive sub-supplier
• HRC, EU: Offer to Italy at €490/t cif Italy, according to trader
• HRC, EU: Domestic Italian offers at €470/t ex-works, according to trader
• HRC, EU: Domestic Italian material sold at €460-470/t ex-works and delivered, depending on buyer, according to service centre
• HRC, EU: Market at €485/t ex-works in Italy, according to steelmaker