EU HRC: Sentiment soft in quiet trade

High stocks at automotive sub-suppliers continue to dampen sentiment in the northwest European hot-rolled coil (HRC) market today, with summer demand levels exacerbating the quiet trade.

Automotive suppliers are content with their HRC stocks, but have too much finished product given the continuing issues impacting carmakers. General steel stockholders also have ample inventory and are struggling to find alternative sectors for material previously bound for the automotive sector.

This is crimping demand for replacement coil, meaning that mills are still very eager to sell tonnes. One northwest European steelmaker that was considering reducing coil prices decided to keep its offer stable, as it thought the move would fail to attract buyers.

European mills are still looking to export markets given the sluggish demand at home. A Turkish pipemaker was offered HRC at €472/t ($528/t) cfr effective from northern Europe, and €462/t cfr effective from the south. There was still talk of European material being offered to Turkish pipemakers at around $505/t cfr (€451/t) base.

The softening in iron ore costs, and China's currency depreciation, is filtering into more bearish sentiment. Fob China HRC prices dropped slightly today, as did Asean imports, while the iron ore market slipped by $8.05/t to fall below $100/dry mt. Although steel prices did not follow the run-up in raw material costs, there is concern they might drop concurrently.

While the Italian industry is now ostensibly on holiday, sentiment is less bearish than in northern Europe because of fears over potential production disruption at ArcelorMittal Italia.

Traders suggest mills cannot drop much lower given the high iron ore costs now hitting their profits, and many are preparing for price increases in the fourth quarter. Traders hope that production will be curtailed after the summer break and that buyers will scramble for tonnage, particularly if output is reduced at Taranto in Italy.

Argus' daily headline northwest Europe HRC index slipped by €0.75/t today to €467.25/t ex-works, while the Italian index was static at €447.25/t ex-works.