A few months ago an intense debate started regarding the use of financial means to handle the risk coming from high price volatility in the steel chain. Steelmakers fear the entrance of financial speculation in the steel market. They are not sure they see the benefits, but they fear additional factors being added to the existing volatility.
The return of iron ore transactions at annual or just six-month benchmarks could be an easier solution, so the entire steel supply chain will be able to face a more stable situation. More stable and better scheduled iron ore purchases by the developing countries would be the first condition, and this is easily realizable. The question is: Will the consumers (especially the Chinese ones) and the big four iron ore producers be able to find an agreement to go back to the contractual forms which have characterized the world of steel for decades, thus granting the needed price stability?
Here in Italy we went through another very quiet month, where demand and offers remained well balanced. Contracts have been settled only by small movements downward on prices around €5 to €10. Mill inventories are always well covered by the standard of about 15 working days of scrap consumption. Domestic deliveries, along with those from France and Germany, followed the contracts that were settled. Arrivals by vessel were about 60,000 tonnes of scrap, about 150,000 tonnes of pig iron and about 47,000 tonnes of HBI. The strong growth of the euro against the U.S. dollar could help the purchases by vessel, therefore keeping the continental prices weaker.
Following are the May average prices reported (€/payment delivered) for Italy and Germany, respectively:
New arising E8: €355; €355
Shredded E40: €345; €345
Demolition scrap E3: €300; €315
For the contracts for June, considering the stable mill demand and the positive scrap collection and availability, no relevant movement on prices is foreseen.
At the ports, offers are now quoted around $550 per tonne CIF for July/August shipment. The arrival of a couple of HBI cargoes is reported (from Russia and Venezuela).
Also, mills producing engineered steel products are starting to see leaner order books than before, even if they are still working at high capacity. Billet and rebar producers are concerned about low demand, from both the continental construction industry and export markets. Prices seem to remain more or less unchanged.
Ruggero Alocci can be contacted at mail@alocci.com.