EU HRC: Domestic order books thin

European hot-rolled coil (HRC) sellers are struggling to move material under increased competition from importers.

Argus' daily Italian HRC index slipped by €1.50/t today to €432.50/t ex-works, while the daily northwest Europe HRC index slumped by €3.75/t to €452.75/t ex-works.

European mills still have October production available given the dearth of sales since the market's slow restart from the summer holiday period. Italian mills have barely sold any coil so far this month, according to buy and sell-side sources.

An Italian mill was heard offering to pipe-makers at as low as €430/t delivered for S235 grade material. Large Italian buyers are bidding for imported supply at €400/t cfr effective, and there was talk of deals for Japanese and Indian material being concluded at around €410/t cfr effective. Italian mills have offered into Turkey at $460-470/t fob, but cannot compete with CIS offers closer to $430-440/t cfr.

Japanese mills appear particularly aggressive at the moment, with some talk of offers into Antwerp at €420-425/t cfr and perhaps even lower. Traders said they would book below this price in expectation of further softening in prices from Asian and Turkish sellers. One Turkish mill is offering around $430/t fob, although others are trying to hold off for now.

Northwest European buyers were interested in €420/t cfr Antwerp prices last week, but have now withdrawn given the obvious downward trajectory domestically and further softening in third-country prices.

While stocks are not high, some service centres continue to destock ahead of the year end and as they foresee prices slipping more. Others are happy to slow their sales and make inventories last a little longer, as they do not want to risk sourcing just yet.

The negativity afflicting all parts of the supply chain has impacted credit insurance limits and some credit lines — this is most acutely felt in Germany, where much of the industry is exposed to the automotive sector.

Imports are increasingly competitive, but some buyers are being put off by longer lead times compared with domestic material. The amount of offers on the table from traders and mills is also causing them to hold off as availability is obviously plentiful.

Given the weakness in the marketplace, some buyers are asking mills if they can sign annual and half-yearly deals for 2020 now. But most steelmakers are reticent given the weak market and lack of visibility over raw material costs headed into next year.

Those contractual buyers that have been buying fixed-price material with raw material-linked clauses in place may try to move away from such terms. The increase in iron ore costs over this year would mean such contracts could rise in 2020, but the development of spot coil pricing this year makes it very unlikely that buyers would agree to this. Some are already talking of declines of up to €70/t in 2020 annual agreements, a huge fall that would place mills in a highly precarious position.