Concerns mount over EU price sustainability: Kirps

Georges Kirps, a senior European market analyst, believes concerns are mounting over the sustainability of EU steel prices, particularly for coil products.

In a recent analysis sent to Kallanish, Kirps notes that the latest coil price rally in Europe is mainly being supported by suppliers’ delayed response to recovering demand. “In a nutshell, since the third quarter of 2020 a progressive order backlog was building up at EU mills where stock ​replenishment deliveries by EU mills were drastically failing the supply orders for coils by EU steel service centres (SSC),” Kirps says.

The analyst calculates that in Q1 2021, on average, SSC had little more than 60 days of sales in their stocks, against an average in 2018 and 2019 of between 75 and 80 days. The fall in stocks at SSC started in Q3 2020 and is still continuing.

Low availability of domestic supply, difficulties in importing, and low stocks have triggered the jump in coil prices in Europe. However, Kirps believes EU real consumption is not growing rapidly enough to justify the full extent of such rapid price increases.

“It is a fact that this price bubble is not supported by a significant increase in EU real consumption, as is in other world markets,” he continues. “Presently, real consumption levels in the EU are not in the vicinity of 2018 consumption.”

“Extended mill lead times, ​dwindling stocks, failing mill supplies, and stringent trade measures have laid the roots for highly volatile price behaviour and price speculation,” Kirps explains. “This is a kind of ‘déjà-vu’ of what was perceived before the steel price bubble of 2008 went bust, leading in the EU ​market to the spectacular steel market collapse of 2009.​”

According to Kallanish price series, north European hot rolled coil prices have jumped by over 160% since July 2020. During the same period iron ore increased by 100% in value and northwen European scrap by less than 80%.

“The question remains open if raw material price hikes are driving finished steel prices or if, on the contrary, finished ​steel price hikes are heightening the appetite of raw materials suppliers to catch a fair part of the mushrooming ​mill margin cake,” Kirps concludes.

Emanuele Norsa Italy