North European HRC market mulls gas impact on price

The north European hot-rolled coil (HRC) market is trying to understand whether reduced Russian gas supply will impact demand or production more severely, after Gazprom signalled it would not take delivery of a turbine for the key Nord Stream 1 pipeline.

One large European steelmaker told Argus today it is readying a 12-15pc drop in demand from a potential gas shortage, and is accordingly mulling a reduction in rolling capacity. Some analysts suggest steelmakers, especially in Germany, would look to produce slab for shipment to re-rollers to keep crude utilisation rates higher, while reducing downstream rolling operations that require more gas.

"Overall, I think that the negative forces on demand would be greater than the impact on production/supply, which could turn to imports if needed," one leading metals equities analyst said. "As such, I expect this dynamic to be net negative for steel prices."

Others suggest the impact on consumer sentiment and capital expenditure will offset any supply disruption.

Larger north European mills do appear to have become more aggressive in the spot market in recent days, with increasing talk — albeit unconfirmed — of commodity grade deals below €800/t from major suppliers. There have been a number of deals below this level in the past month or so, but mainly from smaller producers in the Visegrad group of countries and one Benelux-based HRC mill.

Any lower sales may be driven more by the seasonal slowdown than concerns over gas supply after summer, as demand is very low. "People are no longer for economics but cash," a steelmaking executive said.

Others suggest the inflationary impact of costlier and scarcer gas would be stronger on steelmaking capacity, and thus positive for steel prices. Another leading metals equities analyst said the potential disruption could crimp output, tighten spot steel supplies and provide some uplift to regional prices.

The CME Group's north European forward curve has marched higher this week, perhaps on the expectation of energy-driven production reductions. The first quarter of 2023 traded at €865/t this week, while the fourth quarter traded up to €855/t, and September printed at €835/t, all at premiums to spot prices; Argus' underlying northwest EU HRC index was €813.50/t on Wednesday, with the August monthly average at €809/t.

However, market participants also expect gas disruption, combined with rising interest rates, to tip the EU into recession, reducing steel demand.

By Colin Richardson