Lead-times more important than price in EU coil market

Availability, rather than pricing, appears to be the most crucial driver to current European strip product demand, with service centers making sure they can cover their requirements in the face of tightening supply.

Higher mill offers have been largely accepted by the market despite the difficulties downstream players have in passing the costs on to buyers. While many sources suggest this boost in demand will keep the spot price firm through Q1 of next year, a number say the level is unsustainable and prices will fall in the second half of the year when real demand does not appear.

“Some expect prices to fall in March/April and they might be right, but what are you going to do in Jan/Feb [for Q2 orders]. Lead-times are getting longer, you have contracts to fulfill so you have to pay more on the spot market,” a Benelux trading source observed.

He noted that some service centers had refused to buy as they did not believe the price levels were sustainable, but now they had been forced to accept €550/mt for hot rolled coil from an Italian mill.

Some have pointed to the declining spot coking coal market as a sign that steel prices should drop. The S&P Global Platts assessment for premium low-vol material fell to $252/mt FOB Australia Thursday from a high of around $310/mt.

However, the quarterly settlement price for Q1 looks set to increase strongly from the Q4 contract price with the Japanese mill Nippon Steel & Sumitomo Metal Corp settling for January-February at $285/mt FOB Australia, up from $200/mt for October-December. This contract settlement is the benchmark, generally followed by the European mills.

A German trading source said the raw material prices will become less of a talking point in future negotiations with steelmakers switching their argument from higher production cost burdens to tighter supply.

“A mill told me the main impact is that it seems steel demand is higher in the last month, but it’s only a feeling of the demand it’s not the real demand because some customers are focusing on the lead-times and securing material. In the past it was price first, now it is not. I think in May/June we will talk about real demand and it won’t be so good so we’ll see prices start to decline.”

Peter Brennan, PLATTS