EU HRC: Inflection point seemingly close

European coil producers have walked away from contractual negotiations for the second half of the year in anticipation of firmer spot prices, with more mills pushing up offers.

Mills are being emboldened by strong iron ore costs and because the market seems to be at an inflection point — the Spanish market is firmer than the northwest at present, and what occurs in the south typically filters into the north with a lag. The discount for Italian hot-rolled coil (HRC) relative to northwest is just €17.25/t, according to Argus data. The gap is normally closer to €30/t and above.

The northwest market nudged up by €0.25/t today to €468.75/t ex-works. Deals from German mills are circulating at €450/t ex-works and below, but some of these are likely for heavier-gauge material with higher extras. They were also done in the last few weeks and are not fresh. Levels of around €460/t ex-works are still available from certain tier-two players, but not the larger sellers.

One German mill has now tried to increase its price by €20-30/t, while a large Benelux-based mill is targeting €490-500/t ex-works from buyers that have not placed yet. Some traders are getting more inquiries from northern buyers eager to discuss pricing and quantities, which has not been the case for the last few months. Offers into Antwerp have risen to €490-500/t cif from Taiwan and Turkey, although there is still a fairly big bid-offer spread, with buyers eyeing €470-475/t cif. At these offer levels imports remain uninteresting, unless domestic mills suddenly gain traction with their targeted increases.

Turkish mills are targeting $520-530/t fob. One producer has experienced furnace issues in the last week or so and has been buying slab to mitigate the situation, but market talk suggests it could remove 100,000t of production. An Indian steelmaker is also conducting maintenance, which could take a similar chunk out of the market. Nevertheless, the spectre of softening Chinese HRC prices, which are down by $20/t this month, is leading some to believe that import pricing has to slip. The gap between domestic EU and third-country material is also too high.

A price-sensitive Spanish buyer that was holding off during negotiations recently committed to purchasing. And the severe destocking phase that has afflicted the automotive sector this year appears to be drawing to a close, meaning real demand may be more of a driver in the second half: over the first five months there has been too much stock at service centres and automotive sub-suppliers as their budgeted volume exceeded needs, meaning apparent demand has been substantially below the 10-20pc drop in real buying. Certain carmakers, particularly those in Germany, have been hit harder by the automotive slowdown and turn away from diesel than others. One UK carmaker has also been particularly hard hit by the combination of the political move away from diesel and a slowing Chinese market.