EU HRC: Talk of production cuts intensifies

The European hot-rolled coil (HRC) complex remained under pressure today, with talk of likely output cuts growing given the depressed market situation.

The Argus daily domestic northwest Europe HRC index slipped by €0.75/t to €495/t ex-works. The discount for Italian material was unmoved at €34/t.

One European steelmaker admitted his company could well reduce production because of anaemic demand, while others may have done so already. Lead times from at least one Italian mill are now under four weeks, although another has satiated itself with export business into Turkey — a reversal of the dynamic over the fourth quarter of last year, when competitive Turkish material sold into the EU dampened domestic pricing. Italian HRC was sold into Turkey at $495/t cfr a few weeks ago.

Other mill representatives said they were not considering reducing output yet, although they were hungrily soliciting business for June. "Production cuts are our only hope. If they [mills] do not, then prices will come under further pressure," one trader said.

Material from mills' automotive divisions was still being sold into service centres and to other industrial sectors. But buyers will only place where absolutely necessary given the expectation of softer pricing and the underlying macroeconomic uncertainty.

Mills were not yet keen to take orders for the third quarter given the increased cost of iron ore. But buyers would also not be keen to buy so far out given the perception of the market softening this quarter, and are also insisting on back-to-back purchases when buying imports, refusing to take any risk.

The expectation of lower Turkish pricing going forward was not helping sentiment, although cheap European pricing on short lead times remained the overriding theme. Turkish material was offered at €480/t cif for southern Europe, but bids are considerably below this level.

UK HRC

The UK HRC market continues to suffer from widespread uncertainty over Brexit, stalling demand and the situation of Meridian Metal Trading.

The Argus weekly UK HRC assessment slipped by £7.50/t to £472.50/t ddp West Midlands amid continued availability of competitive western European material on short lead times. Some said they could still book material for end-of-May delivery.

Brexit uncertainty remained a big concern, although some were relieved a no-deal scenario had been avoided for now. Others suggested prolonged uncertainty was a bigger issue than leaving the bloc. Brexit has had a big impact on the strength/weakness of sterling, and also poses questions for UK steel demand should it leave the EU.

EU mills have been quoting carriage insurance paid, or delivered at place, rather than delivered duty paid, to ensure buyers wear tariffs in the event any are imposed once the UK leaves the EU. Given existing World Trade Organisation rules, it is unlikely that tariffs would be imposed on European material, although there has been talk of a safeguard mirroring that of the European definitive scheme being imposed in the event of a no-deal scenario.

Service centres are also concerned that pre-Brexit stockbuilding could lead to a demand hole when and if the UK leaves.

One mill selling to the automotive sector said schedules remain poor, which was impacting the whole coil suite. The hot-dip galvanised coil on order for Meridian Metal Trading, which is now in administration, as first reported by Argus, is another fly in the ointment. Traders with material on hand for the company are very eager to sell.

One trader is still interested in acquiring Meridian, with one private equity firm also reportedly in the running. A sale needs to be finalised quickly or the company may face closure, sources suggest. A letter from the administrators reportedly said material at the docks would need to be reduced in price for potential buyers to take the material forward. For suppliers with credit insurance in place, it will be the insurers that decide whether they can accept lower pricing.

A domestic UK producer does not have much stock and is trying to buy slab to fill a gap before ordered material arrives in June. The mill has had a series of issues of late, which has cut into its availability — its lack of slab may also be hampering production rates.

Summary of market activity heard by Argus

• HRC, EU: Tradeable value of S235 at €490/t ex-works Germany, according to trader
• HRC, EU: Tradeable value of S235 at €465/t ex-works Italy, according to buyer
• HRC, EU: Tradeable value of S235 at €465/t ex-works Italy, according to trader
• HRC, UK: Tradeable value of S275 at £467.50/t ddp West Midlands, according to buyer
• HRC, UK: Tradeable value of S275 at £477.50/t ddp West Midlands, according to buyer
• HRC, UK: Tradeable value of S275 at £470/t ddp West Midlands, according to trader
• HRC, UK: Tradeable value of S275 at £475/t ddp West Midlands, according to EU steelmaker