European strip mill product prices continued to strengthen, in January. The substantial upward pressure from raw material costs diminished. However, supply remained extremely tight and domestic mill delivery lead times stretched into the second quarter. Moreover, third country import volumes were very restricted, due to trade defence measures and high third country quotations.
Purchasing activity in the immediate run-up to Christmas was subdued but steelmakers report increased order intake, in early January. Underlying demand is firm. Producers are looking to implement further increases in the second half of the month, when trading resumes properly. They continue to be very strict on pricing policy.
Germany’s manufacturing sector was buoyant at the end of 2016, with continuing growth. This year is forecast to be at a similar level, or even higher. Consequently, steel demand remains healthy. Strip mill products basis values continue to advance as a result of restricted supply and extended delivery lead times. Buyers believe that the steelmakers will continue to take advantage of the situation by claiming even higher prices in the short term. Service centre stocks are described as mid-range to low. Resale values are very high.
Buying activity remains moderate in the French market, except from the auto industry, which continues to boost demand, especially for coated coils. The absence of imports has caused availability problems, with domestic mill delivery lead times now stretching to April. In this context, EU producers intend to propose further price increases, which are likely to be accepted. Half-yearly contracts with the auto sector were settled at levels significantly above those of the previous six months. Spot market values, for the rest of industry, moved up a little in late December.
Italian strip mill product basis figures moved up, towards the end of last month, driven by tight supply. Antidumping legislation led to a considerable drop in import volumes, whilst delivery lead times from European steelmakers were extended. Transactions were slow at the start of 2017 as most companies did not return from the Christmas holidays until January 9. Service centre inventories are on the high side, due to speculative purchasing during September/October, when steel prices were low. Resale values remain depressed as some distributors continue to ignore the costs of replacement.
UK stockists are now heavily dependent on imported steel from continental Europe. Consequently, the weaker pound sterling creates additional upward price pressure. Suppliers are likely to impose an increase in excess of £30/40 per tonne for April business. Distributors’ sales were steady in early January, as resale values continued to move up, enabling them to preserve their profitability.
Quantities are still very limited in the Belgian market. Although basis numbers continue to rise, we detect more price stability. Buyers expect producers to push for further hikes, once new negotiations are underway. Service centres are reluctant to pay more because they have failed to pass on the full amount of previous mill rises to their customers.
Spanish steel demand is stable, or even expanding a little, as growth in the manufacturing sector continues to strengthen. The outlook for 2017 is positive. Ongoing constrained supply is expected to lead to higher basis numbers, once new negotiations are concluded. Customers expect a rise of at least another €20/30 per tonne, next month. Distributors still encounter difficulties when trying to pass on mill hikes to the marketplace.