EU HRC: Talk of increases intensifies

Expectations of price rises in the European hot-rolled coil (HRC) market grew today on production cuts and squeezed margins.

A market leader could soon announce a continent-wide increase of around €30/t, citing the lack of import bookings and reduced output. The move is seen by some as a signal that the seller will refuse further decreases, similarly to other attempts earlier this year.

In the import-sensitive Italian market there was talk that pricing had already started to rise, with some saying ArcelorMittal Italia offers had moved up in the last few days. Mills are looking to support spot prices before they begin difficult contractual talks with customers, and ahead of an industry event in Italy next week.

In the belief that current conditions — notably reduced supply and a lack of imports — could lead to price increases in the fourth quarter, some European steelmakers are mooting rollovers for July-December contracts. Buyers, meanwhile, are jockeying for €20-50/t reductions.

Buyers do not see price increases sticking because of the weak demand backdrop. They allude to the precipitous rundown in spot pricing, the hand-to-mouth purchasing of end customers and the retraction in demand from key sectors. Mills suggest that the lack of import arrivals over the summer months, given how competitive domestic material has been, coupled with production cuts could lead to genuine tightness in the marketplace later in the year. But at present supply in the spot market remains abundant, with import prices heard to be becoming more flexible at under €460/t cfr Italy, as scrap falls are providing more breathing room for mills.

Argus' domestic northwest European HRC index moved down by €0.25/t today to €475.50/t ex-works. The discount for Italian material was €28/t.

In its results today, ArcelorMittal said that the "firmer price environment" in China was not being reflected in Europe, where the ability to pass through rising iron ore costs was constrained. It said that European demand is likely to contract by around 1pc this year, down from its previous expectation of growth of up to 1pc. But some market participants see demand lower by at least 5-6pc so far this year.

European material has essentially been the cheapest in the world of late, which is very unusual. German coil was heard offered into Asean at around $535/t cif, as mills continue to try to export tonnes to shore up the supply and demand balance and fill their rolling programmes before contractual talks are fully under way.

While construction and general manufacturing demand is nowhere near as bad as in the automotive sector, it is not strong enough to absorb the tonnes that would have gone to the auto supply chain. On a results call today, ArcelorMittal said that a lot of commentators were anticipating that the demand environment may strengthen in the second half of the year, led by normalising demand from the automotive sector.