ArcelorMittal HRC contract offer spooks buyers

Some northwest European hot-rolled coil (HRC) contract buyers are increasingly eager to lock in supply for January-March after ArcelorMittal's well-timed announcement that it would target €550/t for first quarter, half-year and full-year contracts in 2021.

Buyers that primarily rely on contractual supply are struggling to get hold of material for the rest of this year, with mills citing production problems for their delivery issues. One producer is claiming it has insufficient slab to feed its mill continuously and will have to stop rolling while it builds stock. German mills are not releasing more material to contract buyers for this year, although some larger service centres with monthly allocations suggest they can get December production from one producer. ArcelorMittal took off more supply than any other mill in response to the demand depression caused by Covid-19, and the facilities it has restarted will take time to return.

Another northwest European HRC and hot-dip galvanised producer is taking its mill down in December for upgrades to coil tolerances and quality and is trying to catch up with its own backlog.

The impact of supply tightness is magnified for those selling into the strong automotive sector. Some buyers have even been threatened with fines for not fulfilling their own contracts as they have insufficient material to deliver to customers. Automotive is soaking up supply from the general industry market too, but here availability is less of an issue. And service centres that can take pure commodity-grade coil can still turn to Visegrad-based producers as a cheaper option. These mills are offering at €490-500/t delivered and still closing at lower levels. Russian material recently was sold at €465/t fca Antwerp, although this offer now has moved up by €15/t. Trading firms are entertaining more inquiries from service centres wanting to lock in supply for January-June, as buyers look for a hedge against high European offers.

While the market is undeniably tight, it is unsurprising that mills are not eager to sell material under existing contracts that were signed closer to €420-430/t than the new target level of €520-550/t. The spot market is now €60-70/t above existing contract prices, and Europe's beleaguered steelmakers are not in much of a position to leave money on the table after a brutal couple of years. Initial deals for January-March been signed at above €500/t, with spot tonnes for January still available at slightly lower levels.

By Colin Richardson