EU HRC: Deadlock on lack of direction

The deceleration in the European hot-rolled coils (HRC) sector is becoming more tangible amid the ongoing weakness in Chinese and global steel and ferrous input prices.

The Argus daily northwest European and Italian indexes both decreased by €1/t to €467/t ex-works and €441.75/t ex-works, respectively.

Amid the heightened risk of further decreases, some expect to see numerous transactions for small lots in Europe rather than large one-time purchases, as buyers only procure what they need. Some mills prefer and can afford to wait longer in case sentiment in Asia improves, as their order books are in a considerably stronger position than they were during 2019. Certain buyers, especially in distribution, are postponing purchases, while service centres in southern Europe are pushing for discounts. Only the largest of buyers are in active discussions.

Sentiment in Asia has been roiled by the coronavirus and its impact on raw materials markets. Argus' fob China HRC index shed $12/t today to reach $467/t. Market outlook has been clouded by numerous factors — the cyclone approaching the Pilbara could push up iron ore prices, but the virus is dampening sentiment and weighing on the market at the same time.

Automotive supply chains are being hit, with talk that some European carmakers could be forced to close should Chinese exports be disrupted. This could clearly weigh on European coil buying when real demand is already uncertain. Apparent buying has clearly been stronger so far this year than in the fourth quarter of 2019, but real fundamentals are unclear.

Imports remain unattainable for most of Italy. An offer for Russian-origin HRC was reported today at €435/t fob St Petersburg for April, which market participants said would be more or less on par with Turkish offers when the anti-dumping duty and freight is factored in.

An Italian buyer purchased large amounts of Russian HRC at the beginning of the week, according to a sell-side source. A trader reported small sales of Russian HRC into Antwerp at €480/t fca including duty, although these could not be confirmed. Other traders have been struggling to sell larger cargoes at much cheaper prices, although buyers appear to be warming up to business around €450/t cfr Antwerp.

The lowest offer for Turkish HRC this week heard was $490/t fob, but bids appear to have now fallen from $480/t earlier in the week to $470/t fob and below. Argus' weekly fob Turkey assessment slipped to $485/t fob.

Scrap prices have been exceptionally volatile this week, confusing matters further. Prices fell by $16.50/t in one day but are only down by $8.80/t on the week after recovering over the last two days. Considering this, buyers appear to be testing Turkish mills — who they hoped would become a source of more competitive coil again — in what some described as a ‘chess game'.