EU HRC: Market unmoved by Taranto developments

The prospect of an agreement between steelmaker ArcelorMittal and the Italian government over the firm's Taranto coil plant had little impact on the market, owing to the holiday across southern Europe.

The Italian government has proposed a new decree, which is yet to be approved by parliament, that seems to demonstrate the coalition's commitment to keeping the plant operational.

ArcelorMittal could not be reached for comment, although a source close to the company said the decree appeared to be a "helpful development". The company has been locked in talks with the government over the Crescita law, which removes its immunity from prosecution for environmental issues at the plant under previous owners.

Traders have started to take long positions in southern Europe, building up stock from India and Turkey, in anticipation of production disruption at Taranto. They suggest that the Taranto issue is not yet resolved. But there could be too much stock in the system when domestic mills ramp back up after the summer, if demand fails to strengthen.

Argus' daily Italian hot-rolled coil (HRC) index nudged a touch lower to €444.50/t ($498.16/t) ex-works today.

A large steelmaker has withdrawn all its offers to the UK, and will not be back until the end of August. Seasonal lethargy is prevailing in the market at present, meaning any price increase announcements will be meaningless. Mills expect the ground to be more fertile as buyers return from their summer breaks, having maintained low inventories or destocked before the break. All producers will seek price increases to restore their margins.

Falling costs have provided some theoretical margin relief for European steelmakers in recent days. The spread for northwest European HRC over the primary blast furnace inputs — based on inputs of 1.5t of iron ore, 0.6t of coking coal and 0.2t of scrap to produce 1t of HRC — rose to $214/t yesterday, from $165/t at the end of July. The cost of iron ore slipped from $118.25/dry metric tonne to $93.10/dmt over the same period, accounting for most of the margin expansion, while northwest European HRC prices have moved up by around $5/t in recent days as a result of exchange rate fluctuations, despite underlying euro-denominated prices not changing much.

Margins are still low, despite the uptick. And mills argue that lower iron ore costs will not have an impact on their profitability for another few months, as they are now consuming fairly high-cost stock. But the decline in costs still represents potential leverage for buyers.

A large UK decoiler has requested a reduction for October compared with the third quarter from one of its main suppliers, and is awaiting a response.

Service centres throughout Europe are still competing for sales. Outsell prices for commodity-grade cut sheet are as low as €550/t delivered customer in Germany. This leaves little margin compared with replacement cost, and is not deemed sufficient by distributors. Service centres are in no rush to buy given the seasonal demand slowdown and with raw material prices starting to ebb.

Argus' daily northwest Europe HRC index was unchanged at €467.75/t ex-works.

Import offers remain uncompetitive, with the cheapest offers coming from a Russian mill at around €450/t cif Italy and €460/t cif Antwerp. One Turkish steelmaker has pulled back its offer from $510/t fob to $500/t fob, indicating that it may dip slightly lower still. Lead times for overseas material are longer than those for domestic production.

Mills have been selling prime and secondary material to Egypt, with prime commodity grade at around $515/t cfr. One re-roller in the country has reduced its prices for finished products, and consequently lowered its bid for HRC to around $500/t cfr.