The uptrend in European flat steel prices continued in January 2021 as expected, with the prices for hot-rolled coil in the North and South of the region averaging €698 and €686 ($840 and $826) per tonne respectively, within 1% of the Fastmarkets research forecasts.

With European HRC prices climbing to their highest levels since late 2008, and prices in some regions of the world starting to go down, buyers became understandably nervous, moving to the market sidelines.

And with this slowing of market activity, HRC prices trended slightly lower in the second half of January. But prices still rose by 12% on a monthly average basis.

In the middle of January, several European steel producers raised their prices, setting HRC offers near €750 per tonne. We do not expect that prices will rise to the targeted levels, but the rises seen so far are likely to have stopped any further price erosion. We expect that prices will remain close to current levels, with modest increases until the end of the first quarter of the year.

Because prices are moving in line with our expectations, our European flat steel price forecast remains virtually unchanged, but there are new downside risks to the near-term outlook.

A global shortage of semiconductors is threatening automotive production, and if carmakers start to reduce their steel orders, we could see price declines that are faster than anticipated.

Volkswagen, Daimler and Ford have all been reported to have cut their production in Europe, and although we have heard about only a minimal effect on steel orders so far, bottlenecks are expected to last for several weeks, and we might start to see consequences for steel orders and prices, if automotive production cuts deepen.

European rebar prices moved in line with our projections in January, with the average EU rebar price increasing by 14% to €633 per tonne, compared with our forecast of €628 per tonne.

But after sharp price declines in the Turkish rebar and scrap markets, the mood among European rebar buyers became more bearish, with some postponing orders in expectation of a price fall.

We have downwardly revised our European rebar forecasts for January-March 2021, but we believe that decreases will not be so steep as in the seaborne market.

The European market is still protected by safeguard measures, while inventory levels of long steel products at stockholders in Germany were at their lowest level in December since at least 2007, indicating that the market remains tight, which gives producers an upper hand in negotiations.

Indicators of long-steel demand remain strong, with Oxford Economics projecting a 2% quarter-on-quarter rise in construction output in the eurozone in the first quarter of the eyar, while increases in Italy and Spain are forecast at 4%.

On the downside, market participants will be waiting for scrap settlements, and if scrap price declines are sharper than expected, rebar prices will come under increased pressure.

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