EU HRC: Soft demand, Turkey hammer southern market

Slack demand, sufficient stock levels and competitive import quotes continue to batter the south European coil market.

Italian buyers have suggested they have purchased hot-rolled coil (HRC) domestically at €470/t ex-works, down by around €10/t from the latest bookings. Imported Turkish material is heard available at around €470/t cfr Italian port, with cold-rolled coil (CRC) offered at €565-570/t cfr. HRC was booked last week at around €480-490/t cfr Italy, according to traders.

Service centres are in no rush to buy, given adequate stocks, the expectation of more near-term price erosion and uncertainty surrounding the battle between the Italian government and the European Commission.

At the same time, the Turkish domestic market is being hit by competitive import offers from the Asean region, particularly for galvanised and CRC material, which could lead to a further reduction in Turkish pricing into Europe. But some question how much lower Turkey can go.

"The Turks cannot get cheaper because of their cost base and imports from elsewhere are a problem, but [the] difference [is] not too high and risk for buyers is there because of safeguard measures," a southern European mill representative said.

As a result of soft domestic and import pricing in Italy, there is an increasingly yawning and unsustainable gap between southern and northern European levels.

With freight of around €30/t, some Italians can sell into the north at €500-510/t delivered.

Mills in the north have been trying to support prices of around €550/t ex-works, although even the most bullish now admit lower levels are possible. One southern seller is targeting €535-540/t ex-works in the German market, while others have reportedly sold at around €520/t delivered Benelux.

A northern mill has been atypically aggressive in the spot market because of its exposure to one carmaker badly impacted by the new testing regime. The automotive slowdown in the north and south is leading to material previously destined for that sector being sold into other end-markets. Despite the automotive issues, mills suggest that the volumes they have on order from carmakers for next year have not materially changed.

The global slowdown in HRC pricing is feeding into bearish sentiment within Europe. But there is consensus that the definitive European safeguards could be a game-changer, with the country-by-country element tightening supply up more than the preliminary safeguard. The commission is expected to make an announcement on the nature of the quota before the end of this year.

Coupled with continuing mergers and acquisitions in the sector — notably ArcelorMittal taking over Ilva and trying to increase southern prices, and ThyssenKrupp and Tata Steel — availability is likely be more of an issue in the second quarter of 2019 than it has been of late.

The Argus northwest Europe HRC index rose by €1/t to €535.25/t ex-works today.

Summary of market activity heard by Argus

• HRC-EU: Trader estimates tradeable value of northwest European material at €545/t ex-works
• HRC-EU: Buyer purchased Italian material at €470/t ex-works
• HRC-EU: Trader sold Turkish material into Italy at €490/t cfr last week
• HRC-EU: Buyer estimates Turkish material tradeable at €470/t cfr
• HRC-EU: Indian material offered at €490/t cfr Italy
• HRC-EU: Southern mill estimates tradeable value at €535-540/t ex-works in northwest Europe
• HRC-EU: Southern European sellers targeting €500-510/t delivered south Germany, according to trader