EU HRC: Mixed signals stall activity

The European hot-rolled coils (HRC) market was quiet this week as participants waited for a clearer direction in prices. But some buyers in southern Europe are understood to have booked at higher prices on concerns about a potential second round of increases by mills.

The Argus northwest Europe daily index edged down by €1.25/t to €478.50/t ex-works today. The discount for Italian material narrowed to €5/t from €6.75/t yesterday.

Some mills this week pulled offers off the market and are expected to come back to attempt another increase next week. Participants estimate that many producers are making a loss at current spot prices on the back of higher costs.

Other factors including production cuts, longer maintenance periods and elevated Turkish export HRC offers have seen uneasy buyers, especially in Spain, France and Italy, recently book material — likely in smaller quantities — €10-15/t higher than previous levels.

But larger buyers are understood to not need material urgently — some in the north have put forward bids at €50/t below offers — and can afford to wait and see if downward signals will intensify. Expectations of buyers in Germany are understood to be below those in Italy.

The weakening of scrap prices, lower European production and higher slab availability with Brazilian sellers no longer able to sell slab to the US under duty-free quotas, could offset increased iron ore and other costs.

Unsteady indications from China and Southeast Asia and economic weakness in Europe with German industrial production and exports falling sharply in April have exacerbated the uncertainty.

The deciding factor on the price direction in Europe is expected to be the European Commission's review of the safeguards. If the commission succumbs to pressure from mills and tightens the HRC quota allowance, mills are increasingly likely to achieve further price hikes.

Most import prices are still unattractive for the majority of European buyers, and in the best case scenario, at parity with offers from local producers. But financing, risk and longer lead times are tipping the scales toward, procuring from local sellers.