Increasing without Demand

/Rusmet.ru, Victor Tarnavskiy/ On the threshold before iron ore and coking coal prices increase steel products quotations growth is necessary for metallurgical companies all over  the world. However, when in East Asia and partly in the USA  the manufacturers’ situation is improving due to  the growing demand for steel products, European market in this regard looks rather desolate.  Greece has been on  the default edge for a week;  the economies  of the  EU leaders,  Germany, France, UK, and  Italy also do not  look good. After the termination of last year programs on automotive industry stimulation in the region there no definite “growth zones” which could followed by other industries.

The most difficult situation is in construction sector.  In Italy some long products manufacturers in Feb. had to decrease the  capacities  load  to less than 50%. However, in this situation the supply volume  turned to by excessive. Usually European rebar market starts its seasonal increase as early as in Feb., when construction companies  start buying steel products for spring. However, this year there is no such a tendency, although it is March.

In the end of Feb. and beginning of March European rebar and wire rod manufacturers announced  the prices increase  by 30-40 euro per ton, to 390-410 and 410-420 euro per ton  EXW correspondingly. But they have not been understood by the buyers yet.  At that  European rolling mills have to increase the prices. Otherwise they can bear losses due to scrap prices growth. In Jan. long products quotations in EU countries increased, but returned back due to the  weak demand. It is possible that the same can happen in  March and April. Eventually the prices will increase, but to lower extent than the manufacturers would want.

The situation in the regional flat steel market is not very much better.  European metallurgical companies, preparing to raw materials prices increase in April, are planning to increase  the quotations  in the Q2. According to the estimations of German trader company Kloeckner & Co. HRC price in May and June is to exceed  500 euro per ton EXW. In March the manufacturers offer HR steel at about 430-450 euro per ton EXW, and new base prices for plate in Italy  reach 500 euro per ton EXW.

However, these prices reflect rather the suppliers’ wishes, than real deals.  The demand for flat steel in Europe remains low. Consumers and traders buy steel products in small lots to cover current demands.  The stockpiles which somewhat grew in  the end of 2009 have started decreasing again; however the distributors still do not hurry  to refill them.

In principle, the specialists believe that the situation will improve with time, although slowly.  Moody’s, company, in particular, forecasts that the demand will start increasing in  the second half-year.  But Moody’s notices that the restoration to service of  the capacities stopped in 2008-2009 can cause excessive supply and the prices fall. Such negative result in the Q2, obviously, is expected by many participants of European market. It  partly explains low consumer activity on the threshold of rolled steel prices increase scheduled on April, caused by raw materials prices increase. Whatever the  real demand for steel products in Europe is, the metallurgists will have to increase  the quotations due to avoid new losses.

Rather low euro to US dollar rate which is $1,355-1,365 supports the European market. As the result, imported HRC and CRC, which are bought by  the EU countries at 440-460 and 500-530 euro (about  $600-625 and $680-720) per ton CFR do not have any price advantages as compared with local manufacturers’ products. 

Considering general prices increase for flat steel in East Asia and the USA and, to less extent, in Middle East Europe becomes the “soft spot” in global steel market. But still the existing disproportions are rather big  to turn European metallurgical companies to  big exporters. Further development of the situation will depend on the success of European steel manufacturers with  the prices increase in April.

Wednesday, March 10, 2010
Ferrous metals,  Raw materials
Source: Rusmet.ru