EU HRC: Pessimism prevails

European hot-rolled coil (HRC) sellers are starting to yield to pressure from lower-priced import offers and buy-side expectations.

Argus' daily northwest Europe HRC index shed €1.25/t today to settle at €456.50/t ex-works, while the daily Italian index slipped by €3.50/t to €434.50/t ex-works.

Turkish mills are taking increasingly aggressive positions to compete with Indian material. Export offers were at $440/t fob and above, but a bid for a small quantity was accepted below this level. After UK-origin HMS 1/2 (80:20) was booked at $228/t cfr, equating to $233/t for premium material, participants expect further slippage in coil offer levels.

Exporting EU mills are also having to compete with tumbling CIS prices, and some are offering at €405/t fob. CIS prices this week are under further strain from lower slab bookings, with the latest and lowest deal concluded at $400/t cfr Indonesia.

As a result, domestic mills are becoming increasingly flexible to avoid losing orders, with some Italian offers now below €430/t ex-works.

Sentiment in the north remains weak, with buyers wary of falling import offers. Traders have been offering aggressively in a vain attempt to spur demand, and are now inviting bids to try and seal deals.

Because of the caution in the marketplace, service centres are attempting to work out whether it is the right time to buy — the gap between domestic and import prices would suggest it might be, but firms still have a tendency to destock in the belief they can procure at lower prices going forward. Mill sources admit that demand remains lacklustre, particularly apparent buying, and suggest that it might be difficult to maintain lead times without production cuts.

The sharp year-on-year fall in European car sales in August did little for sentiment, but it should be noted that sales were very strong in August 2018 as manufacturers sought to move units ahead of the introduction of a new testing regime.

Coil inventories are not high, but service centres still feel well-stocked because of weak buying and falling sales prices.

Argus' northwest European forward curve weakened today, as buyers expect increased imports to weigh on pricing in the fourth quarter. September was unchanged at €461.50/t, but October fell to €457/t and November to €456/t.