EU HRC: 'War' for tonnage underway

Global hot-rolled coil (HRC) sellers are competing fiercely for tonnage, leading to a slew of cheaper import offers into Europe, spooking buyers and leaving domestic sellers fighting for sales.

Argus' daily Italian index slipped by €0.50/t to €434/t ex-works as a barrage of import offers gave reluctant buyers cause for pause. Japanese material was offered at €430/t cif for small tonnages, and there were multiple confirmations of deals concluded at €420/t cif for material from different origins.

A Turkish steelmaker has agreed to a deal at $430/t fob for around 5,000t into the Iberian peninsula, and buyers expect lower levels for larger tonnages. This would equate to around €415/t cif.

One large Italian buyer was bidding at €400/t cif for imported material and was in talks with a Russian seller. There was talk that the buyer had agreed a deal for Japanese coil, but this could not be confirmed and details were slow to emerge.

Japanese mills were notably aggressive again after their southeast Asian flow was decimated by Indian rivals wrestling with bleak demand at home and oversupply. Just two weeks ago, Indian steelmakers had full October availability, which is very unusual and testimony to how weak their domestic market was. Japanese mills have even sold hot-dip galvanised into Europe of late — a rare phenomenon.

Stocks remain low, particularly in Germany, as service centres are unwilling to hold depreciating inventory when sheet sale prices are also under pressure. Buyers believe they will be able to secure replacement coil at cheaper levels as domestic mills reassess their positions in the context of increasingly competitive import offers. Offers into Antwerp were heard as low as €425/t cif, with traders soliciting bids in the face of poor buy-side demand.

One steelmaker said there was a "war" for tonnage among global sellers.

Argus' daily northwest Europe HRC index was static at €456.50/t ex-works. The forward curve continued to fall, with September assessed at €461.25/t, October at €455/t and November at €454/t.

OECD calls for fiscal stimulus

The OECD said today that monetary stimulus would be insufficient to support the European economy, and that fiscal stimulus is needed to spur investment. It said the German economy would grow by just 0.5pc this year, and by 0.6pc next year.

The US-China trade war and the UK's impending departure from the EU have reduced demand for German exports, and many manufacturers are struggling for orders and adopting short-time working. German manufacturers axed jobs at the quickest rate in over eight years during August. And the country's debt break means it is less likely to pursue fiscal stimulus than other regions, despite the low-interest rate environment.

Without these fiscal stimulus measures, and strong steel production cuts, European mills could suffer further still in 2020. Contract-focused mills have been protected from the spot-price slowdown to some extent, but will be forced to factor this into 2020 supply deals. Some agreements have already been concluded at €50/t discounts to 2019. Contracts for the second half of 2019 were signed at around €500/t ex-works for HRC in the north. Mills offered certain buyers a move to quarterly deals, priced around €480/t for July-September, but most opted to retain half-yearly pricing mechanisms, particularly where they sold on this basis.

The reduction in contract pricing next year could of course be offset by lower iron ore costs, with this year's levels heavily influenced by supply difficulties in Brazil and strong Chinese demand and production rates earlier this year.