EUROPE FLAT STEEL OUTLOOK: Domestic HRC prices to rise in Q3 on safeguard case fallout

Domestic transaction prices for hot rolled coil (HRC) in the EU are expected to rise after the seasonal summer market slowdown, according to market sources.

In addition, prices are expected to remain largely stable in July-August, despite a traditional downtrend in the EU flat steel market during the summer.

The positive outlook is based on the likely effects of a preliminary decision in an EU safeguard case, which is expected to be announced in the first half of July, according to market sources.

The European Commission (EC) opened an investigation into 26 steel products in late March, in an attempt to prevent steel shipments being redirected to the EU market as a result of the United States imposing import tariffs under Section 232.

Imported HRC, cold rolled coil (CRC) and hot dipped galvanized coil (HDG) are among the products included in the trade case.

European flat steel producers increased their domestic prices by about €20 ($23) per tonne in the second half of June.

“[European] mills are trying to push up prices, although at this time [of the year] prices usually slide,” an Italian trader said.

“This is the standard move by steelmakers before the announcement of a decision in any trade case. And most likely they will achieve some price rise, or prices will remain stable during summer. And depending on the availability of imports after the preliminary finding, prices might rise [again] when activity recovers [in September],” he added.

Metal Bulletin’s weekly price assessment for domestic HRC in Northern Europe was €550-565 ($642-660) per tonne ex-works on Wednesday June 27, reflecting the latest transactions. Some mills in the region have put official prices up by €20-30 per tonne, according to market sources.

“A few mills [in Northern Europe] want to increase coil prices by €20-30 per tonne. Our negotiations with customers are going smoothly and most of them will accept a slight increase,” a Northern European trader said.

“I believe that most mills will accept prices similar to those in the second quarter, but they are not prepared to give any discounts,” he added. “The safeguard preliminary measures will be announced soon, and their order books are well filled, so they have no reason to decrease prices [despite the seasonal market slowdown].”

Metal Bulletin’s price assessment for domestic HRC in Southern Europe was €520-540 per tonne ex-works on June 27, up by about €10-20 per tonne since the end of the previous month.

This increase, however, was explained by the absence of lower offers from Italian steelmaker Ilva, according to market sources.

The Italian authorities have postponed until September the acquisition of Ilva by ArcelorMittal, a transaction which was originally expected to be finalized by the end of the second quarter of this year.

The steelmaker needed to secure order volumes for the June-September period, and to achieve these it had been offering HRC at low prices and dragging down the domestic prices in Southern Europe, according to market sources.

“Ilva was pushing prices down for a couple of weeks [in June] and other mills had to follow, because it needed to get good order books to [make it easier to] deal with banks for a couple of months before it is sold,” a Southern European source said.

Because Ilva has now been reported to have achieved the required order volumes, and has stopped stressing the market, domestic prices in the region are likely to stabilize or move upward, according to market sources.

In the safeguard case, when making its preliminary decision, the EC is expected to choose to set import quotas for each product based on average import volumes over the past three years, according to market sources.

As a result, overseas suppliers might be able to sell more material to Europe before the EC comes up with a definitive finding in the case, they added.

Non-EU steelmakers, however, are unlikely to add much pressure on domestic prices because import coil offer prices moved up in June and suppliers from outside the EU will not do anything to drag prices down, to avoid becoming subject to tougher measures from the EC, market participants said.

“There is no interest in importing because lead times are too long. Plus, [any] safeguard measures could be valid for three months back[dated],” a Northern European source said.

In addition, European buyers have been booking more HRC within the EU to avoid risks related to the safeguard case, according to sources. This situation is unlikely to change significantly, which means that domestic prices will continue to be supported.

The domestic price increase, however, is unlikely to be significant during the summer, due to the summer slowdown and to the fact that distributors have sufficient stocks of material and steelmakers have good order books.

“The buyers are in no hurry to make significant orders, and the mills do not need to give any discounts because they have good order books,” a Southern European distributor said. “So the market will be in wait-and-see mode for about a month until prices start to move up.”