EU HRC: Mills offer contract changes

Some European steelmakers have offered customers with half-year contracts a move to quarterly supply and pricing, amid protracted term-supply talks.

The logic behind the move is that buyers could get more downside in third-quarter contract talks, but pay more for the fourth quarter.

Many in the supply chain expect rising prices in October-December as supply cuts become more established, the European definitive steel safeguard is amended and real demand becomes more of a fundamental driver following the severe destocking that has taken place for most of this year.

Automotive appetite could also rise slightly as carmakers offload the inventory built up during the transition to the Worldwide Harmonised Light Vehicle Test Procedure, some market participants say.

Nevertheless, the over-the-counter forward curve does not give this impression. The bid-offer for the fourth quarter was €477-487/t today, down from €480-490/t yesterday.

One northern European automotive sub-supplier was offered third-quarter supply at spot levels, which he estimated at €475-485/t. But the buyer refused this offer in order to remain on half-yearly pricing matching terms with his customers.

Mills wanting to move to shorter terms is an interesting development for the market, and could stoke interest in risk management from those wanting to manage this kind of price risk.

Several mill sources report finalising contractual agreements for hot-rolled coil (HRC) above €500/t ex-works for the second half of 2019. This would not be for base grade dry material, but some sellers are still relieved about the result. The most recent contract settlements have been formalised around €15-20/t down from the first half of the year, although some others who completed earlier locked in declines of up to €30/t. Buyers had been seeking €50/t declines.

"Mills are expecting a better market environment after the summer lull, [and] my gut tells me they may be right," one buyer said.

Despite this belief among some that prices will rise later in the year, sentiment remains weak, and is not being helped by the extended summer period.

Turkish material is still being offered into Italy at €455-460/t cfr, but large buyers are seeking €440/t cfr — which is unlikely to be workable given comparatively high pricing elsewhere in the world. Low lead times and domestic prices are crimping demand for imports at current offer levels. An offer for Indian material was heard today into Italy at €475/t cfr south Europe.

A Serbian mill that had been offering into Germany and Italy at a lower level is now out of the market for August production and not yet offering for September. Most Italian domestic mills are still compromising on price to move volumes. One producer was heard to have reduced to €450/t ex-works for large tonnage, substantially below its headline offer of €470/t ex-works. The mill is still able to offer discounts because it is not exposed to the high costs of most other European flats mills. It was heard to have offered into south Germany at as low as €440/t delivered last week, substantially below the spot offer of domestic mills at €480/t ex-works, although this is standard when offers are normalised with transportation costs.

Argus' headline northwest Europe HRC index nudged up by €1/t to €475.25/t ex-works today, underpinned by 13 inputs. The daily Italian index rose by €1.25/t to €458.25/t, based on 10 inputs.