<article><p class="lead">European steelmakers and some service centres and cold-rollers have agreed January-June hot-rolled coil (HRC) contracts at increases of around €90-110/t on July-December 2020 levels.</p><p>One mill reported closing a chunky 35,000t deal for the period at €545/t base, and some buyers confirmed procuring in the €540-550/t base range too. One producer is negotiating at higher levels having hiked its offer to €600/t recently. </p><p>These accords are a massively positive result for steelmakers, which are riding the price wave caused by tight supply, an almost total lack of import offers and brisk automotive demand. Most major mills pointed to rising automotive volumes in the fourth quarter, compared with July-September, and many of the contracts indirectly filter into the supply chain.</p><p>Nevertheless, the deals are at a discount to the CME forward curve for northern European HRC. February traded at €560/t today, at a €5/t premium to March. The curve averaged €558/t for the first six months of next year, with January at €575/t and the market backwardated to June at €536/t.</p><p>The contract deals done so far are more or less in line with the current spot market. <i>Argus</i>' daily benchmark northwest EU HRC index was €546.25/t yesterday, meaning spreads over primary blast furnace raw materials reached $336/t, <i>Argus</i> data show, levels seen only a handful of times at best over the past decade. The market leader's hike to €600/t alongside its lack of first-quarter availability, could potentially see some deals concluded at higher levels depending on spot market developments. </p><p>With this in mind, some form of index-linked agreement or fixed price escalator clause might make more sense for buyers, as many expect price strength to dissipate at some point. The price volatility of recent years also makes indexing a plausible alternative to fixed price negotiations — the <i>Argus</i> index fell from €535/t on 12 November 2018 to €412.25/t on 15 November 2019, before recovering to €484.75/t on 27 February 2020. The Covid-19 induced demand depression saw the market recede to a nadir of €384.50/t on 26 June, since when it has jumped by €161.75/t.</p><p class="bylines">By Colin Richardson</p></article>
