German steel outlook still cautious as auto demand brings hope

The German steel market expected domestic prices and mill production to be mostly stable for January, with inventories likely to dip, amid talks about a resurgence in automotive demand and volume uptake in the first quarter, showed data from the S&P Global Platts monthly steel sentiment survey.

Expectations of a strong return in demand were rife, following murmurs of an easing in the semiconductor shortage and an increase in night shifts at original equipment manufacturers that had previously halted production. This sparked some bullishness among market participants, particularly mills, who believe currently high inventories could rapidly deplete as soon as automotive manufacturers take up more volumes in January-March.

The survey, which is used to compile an index demonstrating the pricing sentiment, was conducted at the end of December and showed the overall expectation for steel prices at 52 – an index of 50 denotes stability – suggesting prices would increase marginally as participants await the outcome of the automotive situation.

“Stock are too high, so spot business will be poor in the next weeks,” a European service center said, with an expectation of stable prices in January. “The problem for subcontractors to automotive is they don’t know what they’ll have to pay for their material as long as contracts haven’t been fixed.”

Half-yearly and quarterly HRC contracts from Northwestern mills were said to be “floating” within Eur950-1,000/mt delivered Europe, a Benelux service center said.

“As long as automotive haven’t fixed their contract the market will remain unclear,” the source said.

A European mill source, however, was confident domestic prices would increase due to skyrocketing energy costs, with some producers said to be minimizing production amid the slow period.

“We believe the energy factor will now be the main driver of the price as all over Europe, everyone will be faced with seven-fold increases on gas and electricity,” he said.

The threat of cheaper Indian and South Korean-origin steel imports could put a damper on prices, with the second-quarter Other Countries quota expected to become more “relevant” for Q2 pricing, a European service center said earlier in December.

Import prices ranged within Eur750-760/mt CIF Italy ports ex-India, and Eur830/mt CIF Italy Ports ex-Korea, a European trader said.

A second European mill source said any concerns about the exhaustion of the import quota in April would be quelled by the Section 232 tariff decision.

“Mills have the door open to the US, where prices are far higher, so this will offset lower import prices,” the source said. “If you look at Q2, European availability still has good tonnages that could be delivered to the States.”

Inventories down, production stable

Despite the current hopes for Q1 automotive demand, inventories were still exceptionally high at most stockholders due to hefty automotive volume hand-backs that occurred earlier in fourth-quarter 2021.

Buyers were still in no hurry to purchase as they look to exhaust the stocks built up due to the shortage from several months ago, with the potential for lower prices in Q1 still a fear among some cautious procurers. For the most part, however, market sources did expect prices to remain stable or to increase, and for inventories to fall, the survey showed.

The index for inventory sentiment stood at 44, suggesting a decrease in stored steel volumes for January, with the index falling 7 points from December’s tally of 51. Steel producers were the most bearish on inventory decreases for January with an index of 38, unchanged from December, while traders stood at 44, down nearly 21 points since the previous month.

The production outlook for January was bullish with the overall index stable at 50, down approximately 9 points from December, suggesting mills were in no hurry to produce with the European supply chain still inundated with material and some producers needing time to restart previously paused galvanizing lines. The concern of rising energy prices was also adding to the cautious sentiment, with some producers pausing production during the slow period to mitigate the increase in energy costs.

Another factor impacting the production process was the upcoming review of the safeguards in January, with market participants keeping a watchful eye on what could transpire with prices and output.

The European Commission’s periodic review into its steel import safeguard measures, which will also assess changes in the US Section 232 tariffs Jan. 1 and its effect on steel trade flows, has been brought forward to January.

Market participants will have until Jan. 10 to submit opinions on the current safeguard measures and the Section 232 changes. The commission will also assess whether a 3% annual increase in liberalization under the current safeguards is warranted.

“Difficult to say [production], but I think mills will look at the EC’s decision and hope they’ll react to the cheap imports from India, Russia in combination with doubling energy costs,” the same European service center said.

— Amanda Flint