UK steel stockists face difficult first quarter

UK steel service centres are bracing for a difficult first quarter as outsell prices continue to compress and demand softens from integral sectors, such as automotive.

Hot-rolled coil (HRC) arriving at stockholders is priced at £500-550/t ddp West Midlands given the sharp downturn in prices seen over the second half of 2018. Stockholders are reporting they are failing to secure cut sheet business at £535-540/t, meaning a loss based on steel arriving. Offers for new hot-rolled coil production are around £485-500/t ddp for Turkish and western European material, but this will not arrive until later in the first quarter.

Cold-rolled coil prices have unravelled to around £530-535/t ddp from £600-610/t ddp.

Cheaper forward pricing does little to stoke sentiment or support outsell prices. “General day-to-day business is going to be carnage, pretty desperate,” one trader said of the competition between service centres.

Coil availability remains ample, which means no firms are keen to commit to tonnage, and the inventory on the ground is constraining price development.

The first half of the year is seasonally a strong period for the UK steel market, where service centres have good trading months and bank cash for quieter months later in the year. This means the current lack of impetus is all the more worrying, particularly as the European steel safeguard — certainly on HRC — is proving to be something of a damp squib. The quota is 8.6mn t for the July 2019–June 20 period, and 9mn t for July 2020–June 2021, whereas the EU imported 6.7mn t of HRC in 2017. The quota ensures continuity of supply but does not support pricing, at least in the short-term.

News such as Jaguar Land Rover (JLR) cutting staff is exacerbating stockholders’ fears. JLR is heavily exposed to the slowdown in Chinese car buying and the move away from diesel. Ford is also shedding thousands of jobs.

The threat to UK automotive production from Brexit, given the potential disruption to just-in-time supply chains in the event of a no-deal exit from the bloc, could also mean downside for consumption. A steelmaker said demand from the automotive sector in Europe is down by 5-10pc year-on-year so far in the first quarter, and the drop is likely to be stronger in the UK.

Sources are hoping for increases in Asian pricing after the lunar new year when restocking traditionally occurs, which could push up pricing at home and in other primary export regions.