Steel coil producer Tata Steel Netherlands will increasingly differentiate between the general spot market and longer-term buyers valuing local supply, with the intention of increasing the spread between spot and contract prices.
High local costs relative to third-country supply mean that mills struggle to compete on the spot market without making losses. This is exacerbated by expensive carbon emissions allowances, a levy that overseas producers do not need to pay at present. Asian hot-rolled coil (HRC) is being offered to Europe at around €610-620/t currently, whereas domestic northern mills are trying to hold the spot line at around €700/t.
European steel producers association Eurofer is lobbying the European Commission for emergency measures against imports given the cost disparity, suggesting that Europe has become a "cost island" because of its exposure to volatile energy prices.
Steel buyers can decide whether they want spot prices or to pay a premium for longer-term guaranteed supply. Should they want spot, they can buy on that basis without volume commitments, Tata suggested.
Contract talks come at a difficult moment for European mills, given the significant depreciation in spot prices and a rapid softening in natural gas costs. Argus' daily northwest European HRC index has fallen by close to €740/t since 24 March this year, hitting €673.25/t on 28 October.
Contract prices for July-December were settled at around €1,000/t plus or minus €50/t, and mills want to secure rollovers — or even increases — to offset cost inflation. Buyers, clearly, will look to the lower spot prices for leverage.
TTF natural gas futures have fallen from around €350/MWh in August to €139/MWh on 28 October.
Natural gas costs were one driver of the price increases announced by European mills in August and September. The announcements failed to stimulate demand as expected and costs have since fallen, although energy prices could well rise into the winter.
