Market sources believe hot-rolled coil prices in the Northern European domestic market will remain on an upward trend into the second quarter despite reaching a new peak this week, with steelmakers widely seen as having in the upper hand in current market conditions that have shown no signs of easing.
In Italy, prices have also moved above the average of the 2008 peak, with the steel HRC index, domestic, exw Italy calculated at €823.33 per tonne on March 30, up by €28.33 per tonne week on week.
Market sources told Fastmarkets they believe prices will continue to rise further and will reach the latest price targeted by ArcelorMittal. At the end of last week, the steelmaker pushed up its official HRC offers across Europe to €900 per tonne ex-works.
European buyers have been squeezed between material shortages and growing demand, and many market participants anticipate reaching the targeted price during April.
Market sources said that demand from end consumers has been good and, in addition, both distributors and end buyers have been struggling to build stocks. As a result, they have to accept higher prices to secure necessary volumes.
The distribution sector is not prepared for extended lead times and material shortages after a prolonged period of destocking that started in the middle of 2019, Fastmarkets senior analyst Marina Maliushkina said. According to the latest data from the German steel stockholders federation (BDS), flat steel inventories at its members were at just over 1.1 million tonnes in February, the lowest level since at least 2007.
“We have to fight for every tonne, it is hard to find a mill in Europe that would be able to offer coil now,” a German trader said.
“No one, apart from ArcelorMittal, is offering a single tonne in Europe this week. Offers from ArcelorMittal are also limited. So €900 per tonne ex-works is the only realistic number circulating in the market and buyers will have to accept it,” an Italian distributor said.
“You can offer any price and the buyers will accept it, as they need material. I think that at this point volumes availability is way bigger problem than the price, so mills have an opportunity to increase [offers],” a producer said.
ArcelorMittal was the only European producer active in the market this week, sources said, with other steelmakers preferring to hold back from trading while they evaluated the volumes of second-half rolling material they would be able to sell in the spot market. In addition, other steelmakers have been waiting for buyers to accept ArcelorMittal prices so that when they return to the market they would be able to trade at higher prices.
“ArcelorMittal has pushed offers up three times in March, so other mills would rather wait until deals are done at new prices before they return,” a German source said.
The majority of European producers were reported to be overbooked and are, therefore, delaying orders. This was also a reason behind the unwillingness of mills to take on new transactions before they get the backlog under control, market sources said.
Market sources believe the shortage in the European flat steel market will continue until the year-end. Some sources said that mills have been offering late-fourth-quarter rolling for some downstream flat steel products.
In addition, European buyers have also been cautious to book material from some domestic mills, according to sources.
ArcelorMittal Italia was ordered to close the hot area of its Taranto plant within 60 days on February 13. The original court ruling did not have an impact on flat steel output in Italy, market sources said, but the mills was not able to follow its original plan to increase production.
ArcelorMittal Italia later appealed the ruling and on March 11, the state court in Italy ruled that the steelmaker could continue operations.
The decision to allow the plant to continue production is not final, though. The latest ruling temporarily allows the plant to produce until the Italian authorities make a final decision in mid-May so until then production rates will remain limited, participants told Fastmarkets. As a result, buyers prefer to wait until the final ruling of the court before making new orders.
In addition, Liberty Steel has been asking for payment upfront for flat steel products to secure cash flow, but buyers have been reluctant to take the risk of making such deals on concerns over the steelmaker’s financial situation.
Several sources said that the producer has been asking for early payment for material already rolled for customers who agreed deals earlier, contributing to concerns among buyers about a material shortage.
The bullish mood in the European coil market has also been supported by a lack of competitive import offers. European buyers have had no opportunity to diversify their purchases and buy sufficient coil volumes from overseas suppliers because of high prices and Europe’s anti-dumping and safeguard measures. The recent surge in seaborne freight rates has also made imports less competitive.
The supply crunch in the European flat steel market, combined with limited import opportunities and elevated global prices, is likely to ensure that the price uptrend continues through the second quarter of the year, according to Fastmarkets analysts. Prices should adjust downwards in the second half of the year as steelmakers ramp up output and buyers rebuild their depleted inventories, but much depends on how quickly the issues at production facilities at ArcelorMittal’s site in Italy and Liberty Steel are resolved and what decision the European Commission makes about the future of safeguard measures.
Fastmarkets senior analyst Marina Maliushkina in London contributed to this article.