European coil buyers may be inclined to increasingly purchase non-prime material, as a consequence of the continued lull in demand, but also as part of a long-term development.
“I see more people asking for non-prime material” amid the prevailing caution not to overspend on volumes that might further lose value, a Benelux trader tells Kallanish. “This, of course, is only for applications where it is possible to use non-prime,” he adds.
Steel service centres (SSC) prefer to stick to prime material for their processing, but have not excluded the possibility of sourcing non-prime, secondary material. A German SSC manager notes: “It depends on the purpose. If the part is not visible on the outside, many are okay with 2A [a German secondary-quality steel grading],” he says. However, 1A remains the firm’s mainstay and customers would not typically substitute one for the other, he adds.
Sometimes, mills downgrade prime material to 2A, to have a reason to sell it at a lower price without losing face. There has long been a system for doing this, one observer says. For cold rolled coil, the German classification range goes from the customary DC-01 grade up to DC-05, which would fetch some €40/tonne ($47) more.
“[The major mill’s] products are normally DC-03,” he explains. “From them, buyers normally order DC-01, as they know they will receive DC-03, because for the mill it does not pay to adjust production too often. And then the buyers from their customers can still certify it as DC-03, and charge a correspondingly higher price.”
This can also work to the disadvantage of buyers from mills. The trader tells the case of one buyer who did not ask for certificates and bought for years from a big mill group, which was very happy as it could use non-prime and sell it at prime prices. A new manager at the buyer company then questioned the purchases and started buying from the trader rather than the mill.
Regarding current market prices, players see little change from the €570-580/tonne ex-works ($671-682) range that has prevailed for hot rolled coil for several weeks. Cold rolled coil will cost the customary premium of €80/t.
Christian Koehl Germany
