European hot-rolled coil market approaches 2023 with cautious optimism

Bullish sentiment is prevailing in the European coil market, reinforced by a demand revival that is generally expected to continue in the first quarter of 2023.

The sustainability of the price rise and recovery in market activity, however, have been questioned by many market participants. In addition, following the turbulent market in 2022 due to effects of the global geopolitical situation, sources have been reluctant to make forecasts that stretch into the second half of 2023.

“I think over the past years the traditional market yearly cycles have changed, so it’s hard to predict the market over the course of the year,” a Southern European distributor said. “There are more important factors except for usual restocking in the first quarter or September.”

For the beginning of 2023, however, the outlook is upbeat, with lower domestic availability, reduced competition from imports and a revival in demand among the factors cited that are supporting a higher coil price. But market participants have questioned whether the uptrend, which began in December, can be sustained as end-user demand declines and the economic and geopolitical situation remains uncertain.

Impact from production cuts

In 2022, European steelmakers faced skyrocketing energy costs. In response to low demand and high costs a number of steelmakers stopped steelmaking equipment, cutting production in an attempt to support domestic coil prices.

The effects of the output reduction, however, were not visible until the close of the year and this is expected to remain a price supporting factor in the first half of 2023.

“I think the mills have been delaying stoppages this year as they feared the post-lockdown scenario when supply rose slower than demand,” a source at a German service center said. “So we see the reduction of material availability only now, at the year’s end. Buyers need to get rid of their stocks first, and now they are looking for orders. Oversupply is over, so prices will continue to rise.”

A North European trader agreed: “European mills are going to have more power in the first quarter as inventories are not as strong and import prices aren’t competitive enough.”

Less competitive imports

The anticipated start of new antidumping investigations against imported HRC has also made exporters less active in Europe and buyers have been cautious when planning bookings of non-EU material. Market participants cite hot-rolled coil from India, South Korea and Japan among possible subjects of a new trade case.

“With rumors about new antidumping cases and the imminent introduction of the Carbon Border Adjustment Mechanism, buyers will have to strengthen their relationship with European mills to secure volumes,” a source at a Southern European service center said.

In addition, overseas suppliers already increased offers in the second half of December by about Eur20-30/mt for HRC and they are expected to push for further price rises in January, sources said.

“There isn’t enough confidence in the domestic price increase yet on the domestic side to encourage import buying, so domestic steelmakers will have a majority market share as buyers have been very patient,” a trader said.

Shaky ground for recovery

Although sentiment has been largely upbeat towards the end of December, there are still concerns that the price recovery will end after buyers restock their required volumes by mid-January.

European steel association Eurofer said steel demand contraction was expected to continue for at least the first half of 2023, predicting a decline of 1.9% year on year in the period to 142.4 million mt of steel products.

“I think we might see a similar picture as we saw in September — prices rose as it seemed that demand improved, but as soon as restocking was over it became clear that end-user demand was not there to support,” a steelmaker source said.

Mills have not yet finalized long-term contracts negotiations, and there is likely to be at least a 30% reduction in steel demand from automotive sector in the first quarter, a source at a Central European service center said.

“I think that this price rise is more wishful thinking than the reality,” the source said. “Sure, it is needed to cover energy costs, but without the backing of real demand I do not think that a recovery is possible until the geopolitical situation stabilizes.”

Volumes this year will be lower than last year but still at a relatively reasonable level, according to a trader.

“It’s next year when we’ll see the real dampeners on the market,” the trader said. “Especially in the first quarter, or even first half of the year, activity will be substantially reduced but a recovery isn’t outside the bounds of possibility — just unlikely when considering the macroeconomic picture.”

Platts, part of S&P Global Commodity Insights, assessed North European domestic hot-rolled coil prices at Eur680/mt ex-works Ruhr Dec. 29, reflecting tradable values reported at Eur650-700/mt ex-works Ruhr. One German steelmaker had also increased official offers to Eur740/mt ex-works Ruhr in the second half of December and another mill moved HRC offers up to Eur730/mt ex-works Ruhr.

A negative trend had sustained in the European coil market from mid-March to late November due to high distributor inventories, competitive import offers, reduced demand from end consumers and general uncertainties caused by the war in Ukraine.

— Maria Tanatar, Benjamin Steven