EU Steel Prices Increase Despite Poor Market Activity

Recent and anticipated escalating international raw material costs have led to sharply rising European steel prices against a backdrop of stagnant demand. At present, this is causing a real dilemma for the mills, distributors and end-users. Difficulties associated with obtaining credit insurance are exacerbating the low level of business activity. Many market players question whether the price increases will be sustainable if consumption does not pick up.

German customers remain cautious when placing orders. Some buyers are still in second quarter discussions but it is abundantly clear that the steelmakers are determined to jack up their selling values. There is little, or even no, room for negotiation as the mills argue that their raw material costs must be recouped. For now, there are some inventories that require refilling but, come the traditionally poor third trimester, the hikes could come unstuck. Third country offers are not tempting, being too costly and on long delivery lead times.

Prices have risen again in the French market and the trend is up for the coming months, with producers no longer willing to sell below their manufacturing costs. Service centers note that demand has improved slightly. They need to place some mill orders due to fairly low inventories. However, end-user consumption is at a relatively low level. Despite the producers' initiatives, in order to generate business, some distributors' resale values remain depressed.

The small advances secured in Italy this month are mainly based on higher mill input expenditure. Service centers are complaining that final demand is extremely poor and that consumers are unable to accept more expensive steel. Some stock replenishment has taken place over the last couple of months but this is coming to an end. It is difficult for traders to locate material for import. Russian offers are too high at the moment and the quantities available are small. Turkish mills are not in the export market at present. Riva is expected to announce another round of basis hikes quite soon.

Sales at UK end-users are described as "completely flat". Availability is satisfactory for now, despite fewer offers from mainland Europe and a lack of third country import penetration. Distributors are maintaining the balance of their stocks with the reduced level of consumption. They are reluctant to pay more for their supplies and have been holding off placing orders. Nevertheless, some second quarter business is underway and there is upward price momentum. Corus is warning customers that supply may be tight in the immediate future because of production problems in the Netherlands and a pickup in export sales. Buyers anticipate that prices will climb higher as period two progresses.

A number of Belgian market players have noted a marginal improvement in real demand, which they expect to recover further, once the severe winter weather is over, allowing construction sites to restart. There is pressure from the mills to strengthen basis figures but total success is not in their immediate grasp. Buyers are purchasing only for immediate needs and at prices that they can afford to pay. Service centers are frequently selling below replacement costs.

The Spanish market is dull with poor consumption. Ex-mill values are clearly rising sharply but resale prices are worryingly low. Consequently, many distributors are significantly reducing the volumes they order. Imports are not an issue because they are at least as expensive as domestic material.