EU HRC: Service centres feeling bloated

Quick deliveries from European hot-rolled coil (HRC) mills and limited demand means that service centres are carrying too much inventory. As a result they are fighting with each other to sell tonnage and experiencing further margin compression.

Argus' daily northwest Europe HRC index fell by €1/t to reach €491.75/t ($554.85/t) ex-works today. The discount for Italian material rose to €33.25/t.

Some southern European suppliers can still sell into the north for May arrival, while a central European steelmaker is able to offer competitive end-of-May deliveries. A leading northern mill has been delivering a few weeks ahead of schedule, which has filled service centre books and is contributing to a destock ahead of the quieter Easter period. Some buyers have also reduced open orders with mills to try and manage their stocks. Consumers are aware of the pressure on service centres and are shopping around to secure the lowest prices, which is perpetuating the struggle for orders and the margin compression.

Service centres that need to buy to fulfil contractual requirements with consumers will procure only what they need, rather than positioning for potential increases in the third quarter. If all buyers take this approach, it could play into mills' hands as they look to pass off firmer raw material costs during the period.

Turkish offers of around $520-530/t cif Italy are unattractive because of lead times and competitive domestic prices, although a sale concluded late last week for a mid-size cargo at $520/t cif. Turkish mills are well booked, so some expect offers to rise as a result, but it is unclear if this will affect sentiment in southern Europe, where lead times continue to be as low as one month.

Demand from the construction sector has ebbed lower. And automotive sector woes continue. Consumers are still not buying into the move to electric vehicles, given the insufficient infrastructure to facilitate a mass move, and are postponing their purchases or opting for more cost-competitive diesel engines. This is leading some to believe that the automotive situation will not recover this year, and that the reduction in demand is a new normal rather than a temporary blip.

The potential US Section 232 tariff on automotive vehicles and components remains a big issue for the sector, and for European mills — much bigger than the existing tariff on steel.

And coil imports continue to increase, meaning that there is still sufficient material at ports for buyers. The EU 28 imported 612,595t of wide HRC in February, up by 21pc on the year. This brought total imports in January-February to 1.57mn t, also up by 21pc on the year. Turkey accounted for 256,971t, or 41pc of the total import market, down from over 51pc in January.

There is a balance of 1.59mn t left in the April-June HRC quota from the original 2.05mn t.

Turkish cold-rolled coil imports into the EU rose by over 1,000pc on the year in January, to 50,853t, and by another 589pc in February to 55,398t.