EU HRC: Supply questions arise

A series of events threaten to disrupt European hot-rolled coil (HRC) supply, stimulated by a stream of news related to Luxembourg-based ArcelorMittal this week.

The company is planning to reline a blast furnace in Ghent, Belgium, temporarily take down a blast furnace at Taranto in Italy and has declared force majeure at Fos sur Mer in France. In addition, this morning there were explosions at Taranto, but it appears there is minimal to no impact on production.

It remains to be seen if other regions will see similar news. But in Spain and Poland offers at €480/t ex-works are meeting with less resistance than elsewhere because of reduced supply alternatives. Turkish HRC offers are high, and CIS supply is limited with the primary spot exporter about to undergo a revamp on one of its lines.

The daily Italian HRC index increased by €1.50/t to €445.75/t ex-works today. Argus' daily domestic northwest Europe HRC index jumped by another €5.50/t to €460.75/t ex-works. This took the monthly average of the index to €444.50/t. The spectre of increased supply disruption also pushed up Argus' February forward assessment to €467.50/t, up by €2.50/t on day. The March swap was assessed stable at €472.50/t.

Lead times across the continent are lengthening, as Italian mills have now moved to offer HRC with March and April deliveries, while northern mills are mostly offering April material.

Most producers in the north are offering €480-500/t ex-works and higher in some instances, and there is growing acceptance from service centres, with sheet prices starting to stabilise. However, some cheaper sheet sales are still being heard in southern Germany as decoilers work through cheaper inventories booked in November.

Italian mills are aiming as high as €470/t ex-works, but transactions have taken place far below this level. Other producers are still targeting €450-460/t ex-works. The sentiment appears to be less strong compared to two weeks ago, as expectations about domestic scrap prices are moving down too, after a decrease in Turkish scrap values.

But prices for processed coils are increasing in Italy, with some sellers reporting a €20-25/t rise achieved in comparison to December in tandem with the higher HRC costs.

At the same time import offers remain firm, while arrivals at European ports are lacklustre. The most competitive was for Russian material, tabled at around €470/t cfr Antwerp this week. Even this level would support higher domestic prices, with material from European mills typically commanding a premium. Prices into Italy are not far off Antwerp levels, with the lowest available heard at around €470/t cfr from Turkey.

There are still some questions about the strength of real demand, and whether the current uptick is just a blip as mills look to gain leverage for any outstanding contractual talks. But apparent demand is certainly brisker, with decoilers who held off from booking at the end of last year in the hope of lower prices being squeezed by the current uptrend.

One trader was offering into Antwerp at €480/t cfr effective S235, 2mm thick, but customers still deem this price too high. But domestic mills say some of their larger customers believe in the uptrend and are placing tonnes as a result, and because of high import offers. This is helping to extend their lead times a little and give them some breathing space.

Domestic mills are still concerned about the actions of their competitors after the battle for tonnes that lasted for most of last year. That said, further hikes are very likely for second-quarter production and deliveries, according to several sellers.