German engineering industry sees some relief

For companies in the German mechanical engineering sector, November was the first month with a year-on-year growth trend in 2020.

Overall, order intake in November was up 5%, Kallanish hears from their federation, VDMA. A slight increase in domestic orders of 1% was supplemented by a stronger rise in foreign orders of 7%. Customers from eurozone countries ordered 4% more machinery and equipment, while orders from outside the European Union were up even 9%.

“The result is pleasing, even if partly attributable to a weak prior-year base. In the entire fourth quarter of 2019, the order level was quite low,” says VDMA chief economist Ralph Wiechers. “What matters now is whether the visible positive trend of recent months can continue. After all, the machinery and plant engineering sector is not immune to setbacks in this fragile environment.”

In the less volatile September-November 2020 period, order intake fell by -2% on-year. Although domestic orders were up 2%, foreign orders were -3% below their prior-year level, with little difference between EU and non-EU countries.

Italian beam prices skyrocket

Italian heavy sections producers are back following the Christmas holiday break, quoting at over €100/tonne ($121) more than last month, market participants tell Kallanish.

Sections prices increased more slowly in December compared to the price rally of other long products such as rebar and merchant bar.

The first category of beams has gone up in transactions to €200-250/t base e-works. Including €385/t size extras, end-of-December contracts were at €585-635/t ex-works or delivered, depending on point of delivery and tonnage purchased. Prices increase by €20/t for each subsequent category, sources say.

Starting this week, producers are asking for €340/t base ex-works for the first category of beams. Distributors are selling at €360/t base ex-works. Contracts this week are also at €340-450/t base ex-works, or €725-735/t ex-works including size extras, but for small quantities, sources say.

Scrap prices in Italy have increased this month by €100/t on-month, in line with French and German hikes (see Kallanish 13 January). However, scrap price increases are losing momentum and values are forecast to soon decrease significantly, Kallanish hears.

Northern Ireland sees post-Brexit supply disruption, confusion

Steel originating in the EU can enter Northern Ireland tariff- and quota-free, senior UK steel sources confirm. However, all origins outside the EU and Great Britain are automatically levied with a 25% tariff.

There had in recent days been speculation that all steel that does not originate in Great Britain would incur a 25% tariff when entering Northern Ireland. However, this is the case only for non-EU steel.

The UK Customs authority recently announced that any steel moving from Great Britain to Northern Ireland would be subject to EU steel quotas until UK authorities negotiate a permanent solution with the European Commission (see Kallanish passim). For now, Great British-origin steel can enter Northern Ireland tariff-free only if it has not filled the EU’s quota for the specific good. The Department for Business, Energy and Industrial Strategy must also be informed of any movement of goods.

This effectively seems to mean that buyers in Northern Ireland can import tariff- and quota-free steel only from the EU, severely limiting their supply options. It remains to be seen whether this restricted supply situation has an impact on steel availability and prices in Northern Ireland.

“Ultimately, all the Great Britain to Northern Ireland steel movements will be registered against UK TRQs [tariff rate quotas], but we don’t know when or what impact it will have on the overall use of the UK’s TRQs within the EU steel safeguards,” a UK steel source says. “We’re obviously asking for the government to develop a longer-term solution.”

The situation is causing confusion among suppliers. One Turkish supplier said this week: “Everything that we bring into Northern Ireland falls under a 25% tax. The system has collapsed. And they changed the rules last Friday without telling anyone.” The seller has suspended sales to Northern Ireland until the issue is resolved, or asked customers there to pay the 25% tariff upfront.

UK Customs authority HMRC, the Department for International Trade, and Cabinet Office each did not provide comment before deadline.

European distributors remain concerned over steel supply

European distributors and service centres for steel continue being concerned over the availability of steel supplies from mills and the impact of the jump in prices.

In recent weeks a number of market participants have voiced their concerns. Most believe the tight availability of steel supply will continue at least until the end of the second quarter.

Clisson Groupe, a large French steel distributor, issued a letter to its clients in December to explain the problems faced due to difficulties in finding material from its suppliers and the rapid steel price growth. The company noted that the situation should not normalise at least until Q2. It added that while the tight supply was mainly for coil products originally, it then spread into all other categories, including sheet, tube and longs.

A service centre in the Benelux confirms this view. “Supply and demand became completely out of balance,” it notes. “Previously, there was more supply than demand, but the situation has now been drastically reversed.”

The Benelux source adds that there are rumours some European service centres could be forced to introduce reduced working hours due to the shortage of supply in the market.

Various sources say the tight supply is due to drastic production cuts applied last year by European mills in response to the pandemic. These, together with new trade barriers and a faster-than-expected demand recovery, have created the current problems.

According to the World Steel Association, monthly EU28 crude steel production returned to above pre-coronavirus levels for the first time in November 2020.

The situation is complicated further by the rapid jump in steel prices, which has given the upper hand to domestic mills that can renegotiate existing long-term contracts if needed to secure higher levels. According to the Kallanish price series, HRC transaction prices in northern Europe have jumped by over 68% since July 2020.

US HRC prices continue climbing; record new all-time highs

US hot-rolled coil prices marched higher on Jan. 14 as more spot transactions at the $1,100/st band were reported at a tightly supplied market.

The daily Platts TSI US HRC index rose by $4.75 to $1,094.50/st. After hitting an all-time high on Jan. 13, the index continued to move higher as mills were still able to sell their spot availability for higher prices and saw little resistance by some buyers who were trying to cover their short positions.

The majority of the market expected prices to test new highs but they were unsure about the timing or level of peak pricing and the slope of correction from there.

There were still various supply and demand factors that were making it more difficult for buyers to make predictions about the market outlook.

A Midwest service center source cited strong business activity in his processing facility that has been keeping them busy even in the weekends. “The demand is not showing much weakness, remaining steady,” he said, a little surprised by that activity level despite record-high prices.

Without any major changes in the supply side, prices would maintain current levels or above, according to the service center source. He, however, shared concerns about potential pressure related to credit line restrictions in trade volumes with current price levels.

Another Midwest service center source thought the current supply tightness was unlike any other that he has experienced before. Having experienced the supply issues in 2003 and 2004, he said he was not only concerned about finding steel during the current cycle.

Multiple suppliers were running behind by at least a couple of months which was pressuring their stocks further and a Midwest mini-mill, meanwhile, quoted a 200 st inquiry at $1,200/st, remaining firm at that price, according to the second source.

“I don’t see how – it would take something that crazy – for this thing to stop in the first half,” he added.

The second source thought there will be a point where service centers cannot take any more risk and “put a top to this, not that this is going down.”

A third service center source reported a transaction at $1,100/st from mini-mill in the South with a mid-March lead time.

The combined Platts TSI price index uses a volume-weighted-average calculation – according to TSI’s standard – to determine value on an ex-works Indiana basis.

— Ali Oktay