Europe may see Q1 steel ‘shortage’ if auto demand recovers: Vanilla Steel

European steel market participants expect another quarter of high product prices on the back of surging electricity prices and import restrictions despite rather slow activity levels at present, according to Alexis Ducros, co-founder of Vanilla Steel, a digital platform for the auctioning of excess steel products and capacity.

The ongoing quotas system under the European Union’s steel imports safeguards system is preventing further imports and could provoke ongoing tightness, Ducros said in an interview.

“Framework contracts are still being negotiated with difficulties given the new highs and players are trying to source complementary procurement solutions,” he told S&P Global Platts. “[The] big unknown factor is the automotive industry as it was paused with ongoing semiconductors shortage. If automotive resumes its consumption, we can expect further shortage of steel in Europe in 2022.”

Ongoing logistics issues, including high prices, transport shortage and delays, have recently limited export market activity, Ducros said.

European flat and long steel prices reached record levels in the third quarter of 2021, as the market spiraled to recovery on stimulus funds following 2020’s COVID-19-related market slump. Furnaces halted near the start of the pandemic regained production levels slowly, leading prices to ease in Q4, especially as demand from the automotive sector continued weak on the semiconductors shortage, which is expected to last well into this year.

Overall, the European steel market remains tight, however. While the lifting of US Section 232 tariffs on EU steel has renewed the region’s export opportunities in that market, with reciprocal opportunities in Europe, the EU continues to exercise a tariff-rate quota (TRQ) import safeguard system which restricts its overall import levels.

A major steelmaking source with mills in Europe said this week that the EU’s quotas for India’s cold rolled steel, Chinese auto grade and Turkey’s wire rod had already been exceeded after one week of this year’s TRQ regime.

Auto demand still ‘sluggish’

European hot rolled coil market participants said Jan. 13 it was unclear whether the market would soon strike a balance between supply and demand as automotive demand continued sluggish. With little purchasing activity heard as buyers took a step back from inquiries, mills were keen to keep prices high despite slowness on import material, the sources said. Mills were heard mostly booked for January and February.

Platts assessed North European HRC prices down Eur2.50 at Eur922.5/mt ex-works Ruhr, and in Southern Europe, prices remained stable at Eur835/mt ex-works Italy Jan. 13.

In the hot-dip galvanized sheet market, where the automotive sector is a major consumer, some market participants said this week they were expecting uptake from import material to slow on account of increasing protectionist measures, with a lot of material waiting at Italian ports.

An Italy trader source said that although imports were looking less attractive, prices were not likely to fall.

“Prices will not decrease, energy and raw material costs are too high to do so,” an Italian trader told S&P Global Platts. “European mills will reduce production before lowering price.”

Platts assessed North European HDG prices stable at Eur1,100/mt ex-works Ruhr and in Southern Europe Jan. 12, while prices softened by Eur5/mt to Eur1,075/mt ex-works Italy.

Enabling ‘slow mover’ sales

Ducros said that during the period of material supply scarcity in Q2-Q3 2021, Vanilla Steel had aimed to enable suppliers to either sell “slow movers” or to sell material in high demand at higher prices via a competitive bidding process on its Berlin-based auction platform, launched in 2020. “The main usage is still to allow European suppliers to auction their excess inventory … to help the suppliers to requalify materials in the European domestic market,” he added.

Carbon and stainless steel flat and long products and tubes are made available on the platform for a four-day period each week at a minimum price and incoterms defined by the supplier. Tinplate and aluminum have been added to the platform this year.

Around 160 steel suppliers from 60 countries now trade on the platform, with German long steel products producer Saarstahl having announced its adhesion to the system this week. Other authorized suppliers include Vitkovice, a plate producer in the Czech Republic and German steel service center Stahlo, Ducros said.

“For the sake of logistics efficiency, most of the auctions are of fully-loaded truck size lots and the average transaction value last year was around Eur18,000,” he said.

Vanilla Steel is now building a secondary market with spot trading for the EMEA market, to closely accompany market cycles, he said.

Currently, 90% of spot steel trading is being done offline including prime and excess steel (slow movers, overrollings or declassified material), according to a statement issued by the platform.

— Diana Kinch