Exports to support German domestic steel scrap prices

Negotiations for November domestic ferrous scrap supply contracts are about to start in Germany.

Suppliers are likely to resist pressure for lower prices from mills after a rebound in the global seaborne market began to draw product towards export docks.

Two German mills that traditionally enter monthly contract negotiations ahead of other mills were confirmed to have achieved €15/t decreases from October levels for scrap with November delivery. Other mills indicated that they will attempt to achieve similar reductions when they begin negotiations next week.

But it is possible that these mills will settle negotiations with rollovers, or even with increases of €5-10/t from last month, following a recent rebound in export prices that pushed delivered to dock prices in the Netherlands and Belgium to a significant premium over delivered to mill prices in Germany. Some scrap suppliers in Spain and Italy were able to achieve increases of around €10/t for deliveries in November in the past week.

Many German mills are likely to be cautious about accepting higher scrap prices as steel demand and prices remain weak. Argus' headline daily northwest Europe hot-rolled coil (HRC) ex-works index fell by another €33/t between 30 September and 30 October. The fob Turkey rebar assessment rose by $14/t during the same period, failing to keep pace with the rebound in the cfr Turkey HMS 1/2 80:20 scrap import price, which rose by $31.80/t.

When steel demand in Europe was strong in 2017 and 2018, mills tended to argue that domestic fundamentals were the main driver behind domestic scrap prices. But European domestic scrap prices have become increasingly influenced by export demand and detached from crude steel production figures since the beginning of this year, as domestic steel demand has waned.

This dynamic is likely to be particularly evident in November, as the premium of delivered to Amsterdam-Rotterdam-Antwerp-Ghent (ARAG) dock prices for HMS 1/2 over E1 delivered to mill in Germany has risen to its highest since Argus launched these assessments in May and August 2018, respectively. The premium was at €20.03/t on 31 October.

Argus launched its ARAG delivered to dock assessment for HMS 1 in April and its premium over Germany's E1 delivered to mill price was at €30.03/t on 31 October.

Monthly delta €/t, $/t

Month-on-month percentage change