European longs restocking could trigger hikes, market uncertain

Central European construction steel market participants note prices of rebar and wire rod have reached rock bottom. Some small increases could be announced, but the market remains challenging.

“This is generating some timid requests for re-stocking and if mesh prices do not fall any further – which appears impossible given the low values reached – then the wire rod market could also gradually resume some volumes of purchases in the coming weeks,” a mill source tells Kallanish.

The price decline stopping is also due to the application of new safeguard restrictions on wire rod imports from third countries, particularly Malaysia and Egypt. “The most probable scenario is therefore that of a July where we could witness some awakening of apparent demand for long products and some restocking, but producers will only be able to obtain relatively moderate increases, between €10-20/tonne [$11-22] at most, with a €10/t hike seeming more reasonable at the moment,” the source continues.

Another mill source says the market is gearing up for a €30/t hike for commodity-grade long products. Steelmakers are reducing or stopping rebar and mesh-quality rod production because current market values are not profitable enough, he adds.

Some steelmakers are announcing upward adjustments for rebar prices but wire rod is still seeing “deathly silence and prices firming at the bottom of the barrel … However, it is difficult to say with how much conviction producers are implementing rebar price increases given the very high inventories for all steelmakers and the current supply and demand imbalance”, he adds.

Buyers, especially those in Slovakia, Hungary, Germany, Poland and Czech Republic, are still seriously concerned about the level of real downstream demand, especially from the construction activity. The combination of higher credit costs and the skyrocketing cost of construction is now freezing the residential building sector.

This is particularly so in Germany; the number of new building permits in Bavaria has declined by over 50% compared to the same period in 2022. The situation appears to be only slightly better in northern Germany. Public works, for which start-up and construction times remain long, are only partially compensating for the drop in activity in the private sector. A large part of steelmakers in Germany are thus working at reduced utilisation to meet lower consumption.

“Italy, with its various incentives and some induced optimism, is perhaps performing better than all the other European countries at this stage … but a radical rise in energy costs will happen. This adds to uncertainties over tax credit which have allowed steelmakers to sustain acceptable energy costs in Italy. Mills expect July to see prices in the Italian market at least €30-40/t higher than June,” the source adds.

Scrap prices have bottomed in Italy and sources see extended August stoppages at all longs producers in the country. “We hope this will have a temporary supply and demand re-balancing effect. It’s difficult to say if the second part of the year will bring concrete signals of higher real consumption … The combination of the high cost of money and high construction cost could in fact require a long time for Europe to reposition itself to an acceptable level for the downstream market,” he continues.

“Moreover, the preliminary announcements for the next step of interest rate hikes by the European Central Bank are only having the effect to increase panic and uncertainty,” he adds. The market may have to wait until spring 2024 to see a real stable trend reversal that does not only reflect a momentary restocking, he concludes.

Natalia Capra France , Emanuele Norsa Italy