Italian coil prices are trading at an atypical premium to northwest EU prices, especially for downstream products such as cold-rolled coil (CRC) and hot-dipped galvanised (HDG) coil.
Multiple factors are playing into the current trend, which several producers say is unlikely to be sustainable given higher costs for northwestern mills — most notably, the comparatively brighter economic picture in southern Europe compared with the north, and lower steel output in Italy.
Germany manufacturing PMI data has been consistently below Italian levels since August 2022, and registered its last monthly growth nearly two years ago in June 2022. Italian manufacturing has expanded in five months over the same period, registering its last increase in March 2024. In recent years, German manufacturers have been buffeted by the loss of cheap Russian energy, a reduction in demand from key export markets, most notably China, as well as the lack of investment in infrastructure and political difficulties.
And yet, German hot-rolled coil (HRC) output increased by 5pc year on year in the first quarter of this year, partially driven by mill restocking, while Italian output slumped by just over 9pc in the same period.
Naturally, Acciaierie d'Italia halting furnaces and producing with just one asset of 1 mn t/yr capacity plays a role in the lower overall output, but it has also been running just one rolling line at low capacity. Novi Ligure has nearly stopped, and producing depending on if stocks of raw material match customer enquiry.
Financially troubled re-roller Liberty Magona has also produced intermittently and at low levels as it has struggled to obtain letters of credit, and thus only produced when able to buy HRC by paying in advance, or financed by third-parties.
Producer Arvedi has taken the decision to drastically reduce or even stop offering CRC over the past year, on its inability to compete with Asian import pricing. CRC is the only major flat steel product to have not been hit by dumping duties in recent years, and weak demand in Asia saw a shift of regional mills to the EU market. Ample quota availability for CRC also meant that safeguards were not a factor, unlike for HDG. Arvedi has continued supplying HDG, and is currently one of two constant Italian suppliers of the material.
The only regular supplier of both downstream products has become re-roller Marcegaglia. Again, the mill has mostly been selling CRC for very prompt delivery enquiries, unable to compete with Japanese, Korean and Indian import CRC, which have become the reference. Despite the lower volumes of CRC the producer has been selling, it has tried to maintain the historical €10-20/t differential between CRC and HDG offers, with varying success over the past months.
The uncertainty of the HRC import duty on "other countries" material has likely made the producer, which relies heavily on imported coils and is one of the largest spot buyers in the world, less clear on the discounts it can provide given the varied duty it has had to pay in recent quarters.
Sales opportunities in central and east Europe over the past months have also aided its order books.
Transportation costs, slim margins and regional competition, as well as weak fundamentals, have kept north EU mills more focused on closer-by markets. While some sellers have been present in Italy with both CRC and HDG, they have not been undercutting Italian producers.
In addition, demand for HDG has been relatively stable, while stringent safeguard quotas have not allowed Italian prices to fall under pressure from imports. EU car registrations in the first quarter were up by 4.4pc year on year, and although both Germany and Italy posted growth, the German increase was below the average rate for the bloc, while Italy was up by 5.7pc.
Clearly, EU producers have offloaded some volumes of both CRC and HDG in the export markets this year, with exports of the products rising dramatically in January-February. The majority of those volumes have come from northwest EU suppliers. Of late, rising import prices have also helped southern mills more, given the quicker impact imports have on domestic prices in the south.
