Northern EU steel service centers in margin squeeze

Northern European steel service centers are finding themselves in a “sandwich position,” faced with higher coil prices from mills but with limited scope to pass these on to end-customers, sources said Wednesday.

Service center sources said competition is fierce with some offers below current replacement costs, making it difficult to lift prices in discussions with customers.

“Sales prices at service centers are not going up, that is a problem. There are replacement cost issues,” said a German service center source.

A Belgian service center source said that they were having difficulties moving prices up due to some competitors offering as low as Eur555/mt ($643/mt) ex-warehouse for hot-rolled coil to end-customers.

With current prices of around Eur565/mt ex-works Ruhr for HRC, no attractive import offers as an alternative source of material and northern European mills now starting to push for Eur575-580/mt ex-works for Q4, the stockholding and distribution sector is already struggling to maintain a margin if they do not have older material on stock.

“It’s brutal competition resulting from a surplus of service centers,” said a German mill source. “There are always some big industrial customers that beat prices down in negotiations and there is always one service center that says, ‘OK. There’s no margin for us but better than no business at all,'” the mill source added.

The latest data from the German stockholder association BDS showed that inventories of flat steel increased in June for the first time since March, growing 2.5% to 1.47 million mt from May. Sources said that the coming weeks should show whether some service centers will continue to drop selling prices.

Demand is expected to pick up with the market returning from holidays.

Laura Varriale, PLATTS