European Steel Buyers Expect Further Price Cuts Before Year-End

Despite the regional steelmakers’ attempts to lift basis values, in order to restore profit margins, European strip mill product prices moved downwards, in October. Market activity deteriorated noticeably. The lack of orders from the automotive sector continues to have a negative effect on overall demand. Mill delivery lead times are short, allowing European steel buyers to either postpone purchasing decisions or to buy only small quantities.

Procurement by distributors is still weak, due to concerns about their resale margins. The year-end is approaching. As a result, businesses are reducing stocks. Mills are keen to book orders but most market participants, expecting even lower prices in the immediate future, remain very cautious. Moreover, global trade tensions, plus political and economic uncertainties, persist. Notwithstanding recent cutbacks in production by the major mills, customers perceive no significant supply tightness.

Germany

Strip mill product prices continue to fall, in the German market. The lack of activity in the auto industry creates negativity in the economy as a whole. Machinery manufacture is also under pressure, after many years of growth. The slowdown in steel demand left large gaps in mill order books. Steelmakers are offering discounts to generate sales. Nevertheless, buyers will only negotiate for their short-term requirements. Third country imports play a minor role in buyers’ decision making, at present, as customers expect domestic values to decrease further.

France

End-user activity was generally good on the French market, in October, but prices continued to fall. Apparent demand is very low. Mills struggle to fill their order books. A further slowdown is expected, in an atmosphere of continuously decreasing prices. A number of service centres report a drop in sales volumes of around 15 percent. Those dealing with the auto sector still enjoy reasonable margins. For the rest of industry, profits have contracted rapidly.

Italy

A number of issues afflict the Italian steel sector. The economic outlook is negative, with automotive, construction and mechanical engineering performing poorly. Service centres continue to destock. Resale values are very low. Supplying mills can deliver almost immediately, negating the need for buyers to order large quantities. Moreover, scrap prices have been steadily revised downwards, over the past nine months. Domestic strip mill product values came under renewed negative pressure, in October, as importers’ offers became more competitive.

UK

UK basis figures continue to decline, this month, due to very low demand. Customers refrain from concluding deals because of the downward price trend. Moreover, many service centres are already covered for their current needs. Speculative purchases are being avoided due to Brexit uncertainty. Steelmakers offered further discounts. UK and European steel buyers see no signs of any short-term recovery. Although distributors’ resale values are weakening, a number report that profit margins remain acceptable.

Belgium

In Belgium, conditions are weak, with pessimistic forecasts for 2020. Fifteen to twenty percent of Belgium’s industrial production is supplied to companies in Germany. The economic downturn in that country has a severe impact on suppliers in Belgium. End-users are only buying for their short-term needs. Mills are chasing orders and cutting output. Large service centres are also keen to sell in order to improve turnover and to reduce inventories before the year-end. Intense competition in the distribution sector led to discounting. Mill basis values came under renewed pressure, in October.

Spain

Market participants, in Spain’s steel sector, were surprised by the rapid decline in strip mill product prices, during late September/October. A lack of activity and the recent drop in scrap expenditure were catalysts for the negative price trend. The situation was aggravated by the fact that, as prices plummeted, buyers adopted a “wait and see” position, before making further purchases. Uncertainty, both political and economic, will do little to reverse the current situation, during the remainder of this year.

 

Source: MEPS International Ltd.MEPS European Steel Review | October 2019