European steel mills consider shorter contracts

European steel producers are contemplating a move to shorter terms with fixed price contract customers, especially auto manufacturers, given the intensifying price volatility.

Original equipment manufacturers, which typically buy on yearly fixed price deals, are considering spot prices of €700/t and below for 2023 deals, a level mills deem unworkable because of negative margins.

Producers have started some half-yearly talks with service centres slightly above €800/t, market participants at the Euroblech trade fair in Hannover, Germany told Argus. While this appears high relative to underlying spot prices, it is €150-200/t below agreements for July-December depending on the buyer and seller.

Service centres at the event reported greater interest in indexation from their customers, again citing the huge volatility of recent years. Those that have been slower turning over their stock are selling sheet at €800/t based on coil bought at the peak of the market, around €1,400-1,500/t, meaning they are locking in windfall losses.

Argus' northwest EU hot-rolled coil benchmark has fallen over €700/t from its peak of €1,406.50/t reached in April to €669.50/t on 25 October.

Well-stocked service centres in Germany cite spot prices around €700/t, although some sellers have openly admitted dropping below such levels.

Euroblech is typically an important event for the European coil sector, as market leader ArcelorMittal often announces price increases around the integral trade fair. It has not taken any action as yet.

Mills have tried to harden their stance as they are making losses, participants said. Mills are asking buyers for firm bids with tonnage and specifications attached, costing up the enquiry to decide whether they can take the business.

Mills are also showing interest in tonnage. Buyers that have ordered December delivery HRC said the material is already available, with lead times as low as two weeks from a number of mills. One service centre said pre-paint lead times were also as low as two weeks.

Mills must have substantial slab inventories in-house to be operating on such a razor-thin delivery window. They have been maintaining blast furnace and basic oxygen furnace output to produce off-gases that can be reused or sold into the market, meaning they have excess inventories.

Participants hope the tumble in natural gas prices will lead to more capacity curbs, although the whole supply chain is wary of further cost escalations as the northern hemisphere winter progresses.

By Colin Richardson