UK coil mills bullish despite weak outsell prices

UK hot rolled coil (HRC) sellers are bullish despite weak outsell prices, they told Argus today.

One mill representative said the biggest issue in the market was invoice discounting – where a lender will provide a company with a loan settled against an unpaid invoice.

Service centres are cutting prices in order to move material and generate invoices to get cash, he said. But with imported material offered at around £550/t ddp, there was no reason for stockholders to drop prices, he said.

HRC sales from service centres to end-users have fallen from around £585/t to around £565-570/t, meaning companies are losing money based on replacement material being booked now. A large service centre representative said the fourth quarter should be better in terms of profit margin, as outsell prices could rise from September.

One steelmaker is looking to push its offer towards £600/t ddp for the fourth quarter, but buy-side sources said the market was still in the £530-550/t ddp range.

Given the quiet outsell market, buyers are reticent to purchase tons, and hoping prices will slip into the fourth quarter. But mill sources say they are not looking for additional tonnages, though they could find some allocation for regular buyers.

Negotiations between OEMs and mills start in the fourth quarter, and sellers typically become very bullish then to avoid providing leverage to contractual buyers.

Import activity has gone quiet in recent days, with sources unclear on how the European Commission's 25pc safeguard will be administered. Confusion at customs authorities is also adding to this, and could delay existing bookings.

One source said material would be on a trader's books as soon as it has left the mill, with regard to how duties will be factored in. But tariff quotas cannot be claimed before material has cleared customs, and are made on a first come first served basis.

No allocation requests have been submitted to the European Commission by member states as of 1 August, as there was a blocking period in place from 19 July, allowing states to implement the measures.

Traders might buy heavily in the first few months before exiting to see if any duty-free quota is still available, a steelmaker said. The current tariff rate quota is only in place for 200 days from when it was imposed last month.