Analysis: Italian HRC supported by supply deficit

The Italian hot-rolled coil (HRC) market could be on the verge of another price increase, as data confirms that consumption has remained fairly stable recently while supply has plummeted.

Italian flat steel output was down by 12pc on the year in October, which represents around 120,000t, according to Italian metals association Federacciai. September data shows a sharper year-on-year drop of 33pc.

HRC imports were down by 66pc on the year in September, the latest Eurofer data show. This is 147,211t in volume terms. October imports will certainly be stronger than in September, owing to the safeguard quota renewal, but still likely skewed by talk of retroactive anti-dumping duties on Turkey, with a large proportion of the material probably taken by traders.

Still, it confirms that supply is indeed significantly lower, amid relatively stable demand — Italian new car registrations in October were down by 0.2pc, while in September they were up by 9.5pc year on year. While there are other flat steel-consuming sectors and the Italian market does not operate in a bubble, as there is a lot of cross-border trade, it is still indicative that demand has at worst been unchanged compared to a year earlier.

With all September data available, a total of almost 350,000t of supply of Italian-produced flat steel and imported HRC was taken out of the Italian market. Assuming that the October imports volume will be the same as the monthly average of January, April and July volumes — the first months of each of the new safeguard quotas this year — it would indicate that 205,225t have been imported in October, which compares to a 2019 average for those months of 414,673t. October supply can then be estimated to be down by nearly 330,000t compared to a year earlier, when taking into account the 120,000t less of flat steel produced in Italy.

Even if it is assumed that imports in October are on the same level as October 2019 HRC — 264,151t, or at the monthly average for 2020 of 185,094t — the market will still be in a supply deficit.

Italian mills this week moved prices up, having sold out for the first quarter of 2021, which is an unusually long lead time, with most normally selling around a month ahead. Import penetration is also expected to be low in the coming months, especially from January onwards, as the European Commission will announce its decision on the anti-dumping investigation on Turkey in mid-January. The risk of a retroactive anti-dumping duty from 14 November onwards is real, after the commission started registering imports from the country. In any case, Turkish mills are quoting $600/t fob and above, which would with today's exchange rate mean a minimum of €530/t cif. Adding on a 4-8pc duty, as many buyers are calculating, it would mean €550-570/t cif Italy.

Meanwhile, Indian sellers are focused on other export destinations, while Russian prices have skyrocketed. There is small availability from other sellers, and they are likely to easily achieve the lowest price for Turkish material.

And with ArcelorMittal announcing an increase in north European prices today, with offers there pegged at €600/t ex-works, market participants see Italian prices easily surpassing €550/t ex-works soon.

Unless import prices and global steel prices crash as quickly as they rose, Italian domestic prices should indeed rise to match. Yesterday's Italian HRC index was at €507.75/t ex-works, with mills quoting €510-515/t ex-works to buyers, a level that is unlikely to be available any longer.

By Lora Stoyanova