EU HRC: German weakness weighs in the north

The northwest European hot-rolled coil (HRC) market came under more pressure today, despite ArcelorMittal’s announced price increase, as a German seller offered at aggressive levels to move tonnes ahead of the end of its financial year.

Prices in Germany were heard at €460/t ex-works and below from one supplier, while an Italian seller recently achieved €450/t ex-works.

Argus‘ daily northwest Europe HRC index slipped by €1/t to €467/t ex-works, the lowest since its launch in November 2018. This left the monthly average at €468/t. The holiday period continued to subdue activity in the south, but the Italian index edged up by €1/t to €443/t ex-works.

The macroeconomic backdrop remains unencouraging, with Germany possibly on the verge of technical recession and Brexit-related uncertainty hitting investment appetite across the continent. There are faint signs of automotive demand beginning to recover, though sub-suppliers maintain their order-books are still down by as much as 30pc.

Even the potential no-deal Brexit scenario has not sparked restocking in the UK steel supply chain, as it did earlier this year. UK decoilers have been able to secure rollovers for October deliveries, and are pushing for lower levels from some mills.

In Italy, although most of the market is still closed, participants expect post-holiday purchases could see a slight uptick in prices, especially if other sellers try to benefit from ArcelorMittal’s €30/t list price increase. Some buyers are prepared for a €5-10/t increase on reduced output from Taranto in the fourth quarter and higher iron ore prices in January-August.

But not all Italian mills have been affected by increased iron ore costs, with the others being a re-roller and an electric arc furnace (EAF)-based producer. They are also expected to lift offers in September, albeit by far less than €30, although it is uncertain that Arcelor’s increase would be enough to outweigh persistently poor demand.

In Europe, apparent demand last year was stronger than real buying, which has left too much inventory in the system this year, exacerbating the price slide.

Third-country offers are also sliding. And with Indian material being sold into Vietnam below $480/t cfr, some believe the country’s producers could reduce offers into Europe. Indian mills have been offering into southern Europe at around €460/t cfr and slightly above in recent days, while Turkey is also becoming more competitive, with sellers acknowledging that the market is well below $500/t fob now.

Although the possibility that a 30pc cap on imports into Europe could affect sentiment and aid mills in attempted price increases, some say arrivals are already low and offers have stayed uncompetitive in comparison with European producers. Recent scrap price falls could allow for more discounts from Turkey, but some say this would only make Turkish mills temporarily competitive.

One mill in the Visegrad region was heard to have reduced its offers by €20/t to move tonnes at a time of thin demand.

Sellers question the likelihood of ArcelorMittal implementing increases, given the uncertain macroeconomic backdrop and falling raw material costs, although mills never passed off the higher costs when iron ore was above $120/dmt. Some queried whether deals would be concluded at lower levels as the mill looked to fill its order-book. That said, it remains off market in the UK and is talking about November arrivals, with some buyers questioning the amount of cold-rolled coil and hot-dip galvanised coil that will be available.