EU HRC: Sentiment continues to crumble

Competition is increasingly fierce in the northwest European hot-rolled coil (HRC) market as mills that are typically highly contract-focused compete aggressively for spot business.

The Argus daily northwest Europe HRC index slipped by €2.25/t to €492.75/t ex-works today. At least one producer was said to be offering commodity grade material at €475/t ex-works basis as it looked to sell coil previously destined for the automotive market. The discount for Italian HRC compared with northwest European HRC slipped to €31.75/t.

Weaker automotive offtake in Germany and northern Europe continues to impact mills, sub-suppliers and wider sentiment in general. Southern European suppliers have not been hit as badly as they are more exposed to car makers that are not suffering as much as their northern counterparts.

The supply situation on hot-dip galvanised (HDG) material is not helping confidence levels. Some market participants suggest there is as much as 400,000t of HDG waiting to clear customs at Antwerp — China has exhausted its quota and the other countries quota is already full for April-June. Traders bought large HDG tonnages with the quotas perceived as restrictive, but now have ample stock levels in a falling market. Some buyers may well face 25pc duties should any try to clear more automotive gauge coil from China.

Demand from the construction sector has also slipped in parts of northern Europe in the past few months, and some mills still have May production available to sell — one Italian mill is below one month for HRC, while others suggest they are around five weeks.

The constant regression in prices over the past few weeks is heightening buy-side nervousness to the extent some mills think further discounts are futile. Buyers are of the opinion they can name their price given the weak situation — one trader received a bid closer to €400/t ex-works than €490/t ex-works. Import offers of €470/t cif would not yet attract appetite given short lead times and competitive pricing at home.

Turkish offers were heard as low as $510/t fob, with some expecting lower would be possible given the slower Turkish market.

With the slower summer period approaching, it is possible maintenance will be brought forward as EU mills look to prevent further slippage. And rising raw material costs will further squeeze margins heading into the third quarter, once mills exhaust their inventories bought over recent months. The Argus daily ICX iron ore index was $96.15/dmt today, up from $72.40/dmt at the start of the year.

As a result, producers do not want to sell coil for that period despite widespread buy-side expectations the market will not see any real increases over the rest of this year. This is fuelling suggestions they may try for another cost-related price rise for third-quarter deliveries — the €60/t of hikes ArcelorMittal announced over January-February on the back of firming costs and import offers failed, with the market now lower than it was then.