€500/mt likely to be the cut off point for HRC fall: sources

The European coil market has been slipping downwards, but delegates at the EUROMETAL World Steel Summit conference in Dusseldorf did not expect a prolonged fall, with many suggesting €500/mt ex-workks will be the cut off point for hot rolled coil.

While pressures are building in central and eastern Europe, traders noted the withdrawal of Russia from the import market and the potential for the declining coil prices to invigorate the EC’s investigation into HRC imports.

“I don’t see the market dropping considerable so it won’t go below €500/mt, maybe €510 but not much lower,” a mill source said. He said he was still “easily” able to achieve sales at around €530-540/mt in Germany, but accepted the market is on a downward track.

A trading source said he expects the major Europeans to return below €500/mt, but agreed that pressure from imports was slowing. He said the biggest cause for the European HRC market to fall was the availability of Russian HRC once the preliminary duties were not imposed. But he noted “the window for buying from Russia is now closing” as Russian mills have now largely withdrawn from the market.

He said many had bought in big quantities from Russia at €480-490/mt CIF Antwerp, but the lead times meant the trade flow was no longer viable.

In January, the EC enforced registration of Brazilian and Russian HRC but, as preliminary duties were not imposed, material could again be bought without threat of duties. As a result, there was a window of opportunity for people to buy.

But while preliminary measures were not imposed, buyers said they were concerned final duties could still be imposed and made retroactive. “The EC can announce registration again at any point,” a buy-side source said. The retroactive period can be applied for three months before the October 6 final decision which means many are nervous that HRC arriving in July will be susceptible to measures.

In his presentation, Alexander Julius of the German trading group Macrometal said: “It was the first case where the European Commission really considered the case of the end users, and the first case where they faced a major objection from end users.” But he said the EC had made €500/mt the effective cut off point, so if the market falls back below that level he said it was more likely that final duties would be imposed.

Peter Brennan, S&P Global Platts

European steel distribution ‘highly fragmented’: EUROMETAL

European steel distribution is seeing a trend towards changes in customers’ automotive requirements, while facing overcapacity and a complex structure owing to the co-existence of independent SSCs and mill-tied distribution, said Jens Lauber, President of EUROMETAL and CEO of Tata Steel Distribution, at the EUROMETAL World Steel Summit conference in Duesseldorf Thursday.

Asked in a panel discussion how European distribution compares with other regions, where mills do not establish distribution entities (and where there is a clear split between producer, distributor and customer), Lauber said Europe’s distribution landscape is indeed more complex and complicated, but “the customer side is finally on a good side they can decide on what service they want”.

Of the 80 million mt/year of steel distributed throughout Europe, around 30 million mt is distributed via SSCs, of which a third are mill-tied he said. “An SSC makes sense on its own and it makes more sense that they are independent,” said Josu Calvo, CEO of Gonvarri Services at the discussion, adding there should also be “fair play” within distribution. Pierre de Silly, General Manager of the Edgen Murray Sumitomo Corp., pointed out that the distribution units of mills do function independently.

However, there are other factors that make Europe’s distribution network more complex, according to Lauber. The continent’s distribution is fragmented into regional markets: many regions in Europe have a specific balance in their value chain and each model has to meet end-customers’ requirements, he said.

Calvo highlighted that, although an SSC may have international locations, providing access to new customers, businesses must always act locally. “Being global, you will always compete locally,” he said, suggesting that markets within Europe are not only diversified from a geographical point of view, but must also differentiate within customers’ sectors while a trend towards value-based pricing can also be seen.

Laura Varriale, S&P Global PLATTS

European construction sector improved, but uncertainty looms

The European construction market has seen a reversal of fortunes lately, but overcapacity among the steel producers that serve the sector and political and economic uncertainty will continue to drag on fundamentals for some time, according to speakers at an industry event in Germany.

In a presentation Thursday at the EUROMETAL World Steel Distribution & SSC Summit in Dusseldorf, Gareth Beese – strategic development director for construction at British Steel – said construction has seen a progressive recovery in Europe and sentiment within the industry is positive.

Germany, in particular, has benefited from the upturn, according to Roland Dohrn, a professor of economic research at the RWI-Leibniz Institute.

“If you drive around in Germany, you will see a lot of cranes there,” Dohrn said, adding that he worries, though, whether data regarding the upturn is perhaps “a bit too good to be true.”

Margins remain thin for the companies that produce construction products like beams and rebar, and it’s a fragmented market with limited collaboration among participants, Beese said.

“There’s significant overcapacity still,” he said. “Producers have had to get used to operating plants at less than 100%.”

Dohrn said Europe’s economy performed well in the first quarter of 2017, which could underpin an upswing going forward. However, GDP growth for the region is predicted to be only around 1.9% in 2017 and 1.7% in 2018. Traditionally, a minimum of 2% growth has been necessary to stimulate significant additional steel demand and production, and Dohrn said the rule of thumb now has probably risen to even 3-3.5% GDP growth.

Beese said Brexit and its impact also continue to cloud the longer-term picture, not only for steel but from an economic standpoint, as well. “I think there’s a prolonged period of uncertainty for all of us,” he said.

One certainty he hopes for, though, is that Europe and the UK will remain post-Brexit trade partners. “We want and expect continued access to European markets and, quid pro quo, the UK market will remain open to European producers,” Beese said.

Christopher Davis, S&P Global Platts

Mergers present opportunities for smaller players

Representatives of some of the smaller European mills have welcomed potential mega mergers in the continent’s steel industry, suggesting there will be benefits to the sector and opportunities for their companies.

ArcelorMittal, Marcegaglia and Arvedi are involved in the final stages of the bidding process to acquire the Ilva works in Taranto, while ThyssenKrupp and Tata Steel are discussing a potential merger in moves most see as crucial to consolidating the European industry.

Speaking at the EUROMETAL World Steel Summit conference in Dusseldorf, Sebastian Bross of Salzgitter said mills like his, with around 5% market share in the strip sector, had already received increased interest as a result of the rumors surrounding competitors. “We would like to have a less fragmented market but if there are some big players there’s always a role for some smaller ones… We recognized that as soon as these rumors began going on about a joint venture between ThyssenKrupp and Tata Steel we saw customers coming to us… It’s no threat it’s actually more a chance for us,” he said.

Henrik Adam of Tata Steel Europe agreed overcapacity and a lack of consolidation was one of the structural issues facing the sector, but declined to say how many producers there should be in the flat steel market, saying: “more than one and less than ten.”

Another source from a smaller European mill agreed with Bross noting their company would benefit from the reduced number of players in the market as competition for business would decrease, while a desire of customers to create as diverse a supply chain as possible should push demand in their direction.

Peter Brennan, S&P Global Platts

EU wants to be a poster child for the WTO: Salzgitter

The European Union is too slow and too cautious in tackling dumping, according to Sebastian Bross of Salzgitter Flachstahl, who told the EUROMETAL World Steel Summit conference in Dusseldorf he did not understand the decision not to impose preliminary HRC duties.

Bross said the difference between the EU and the US was stark in its approach to trade barriers, pointing to the European Commission’s logic in making its conclusion to its preliminary investigation into imports of HRC from Russia, Brazil, Iran, Ukraine and Serbia.

“240 of the 250 pages showed there was dumping, but in the end there was no duty. I don’t really understand that… Compared to the US it’s slow, very limited, and from our perspective far too cautious. It feels that the EU wants to be a poster child for the WTO. We accept every rule and we’re pretty fair, but it means it takes a very long time [to impose duties] and you see how quickly this flow of material changes,” he said.

The launching of a section 232 investigation in the US has made European mills nervous as the US is a major export destination for the continent. Bross pointed out the potential distortions to global trade if the US stops importing and the implications for the European market, “Where does the material go, where does it find its new home? If you look at the slow progress in the EU you can assume it will end up here,” he said.

Salzgitter is benefiting from the good performance in the automotive sector which accounts for two thirds of its annual 3.3 million mt of strip production. But Bross said pressures remain as construction and tube demand is still weak and growth in European steel demand is benefiting importers rather than the domestic producers.

Peter Brennan, S&P Global Platts