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EU Steel Price Recovery Now In Place
April 2006
A recovery in prices has now definitely commenced in the European steel market. In the first two months of this year, despite much talk by the mills, the market saw little actual upward movement.
But now the advance is underway. Mills order books are swelling with new business, as buyers return to the market to replenish their inventories. Price increases of about 7 percent are being obtained for strip products from negotiations this month - the first upward move in prices in more than a year. Producers are intending to follow this up with further increases. They will try to add €20-40 per tonne to flat product prices. European mills continue to hold back their production rates in order to keep the supply side of the market in check. January’s crude steel output by the EU - 25 was 5.8 percent less than in the same month the year before – and in the EU - 15 (which contains the region’s biggest steel producers) the production cut was as high as 6.6 percent year-on-year. February output figures have not been published at the time of writing, but they are expected to show a similar pattern. Evidently, steel makers are implementing their stated intention to restrain production when necessary. A number of unplanned output cuts have also assisted. It now seems clear that this policy has helped to support prices during the recent decline in demand, and it probably prevented the kind of plunge in prices that, in previous years, would have left mills reporting heavy losses. In long products, prices are beginning to reflect the normal seasonal upturn in demand. Moreover, construction activity is forecast to grow this year in most European countries. Supply has also been curtailed by unexpected breakdowns and output disruptions at some plants. An absence of low-priced import offers is one of the main factors behind the rise in long product prices. Turkish steel makers are having to pay higher prices for scrap, so they are unwilling to export their finished steel cheaply. All producers – outside the EU as well as within – are anxious to recover higher costs through escalating selling prices. Energy costs are at the top of some mills’ concerns. Among the major raw material inputs, prices for top-grade hard coking coal will be somewhat lower this year. Prices have come down by between 8 percent and 16 percent (according to grade) for 2006 shipments. Iron ore is a different story. Steelmakers are stubbornly resisting miners’ demands for a further increase in annual contract prices. But most independent observers believe they will have to concede a rise in the range of 10-20 percent. Nevertheless, European mills cannot push their selling prices too far up without keeping a close eye on the competition from foreign suppliers. EU imports of finished steel in 2005 were about 5 percent lower than 2004 at 17 million tonnes. So far this year, there does not appear to have been any significant increase – certainly not enough to imperil price levels. But there have been some indications from import licence statistics that a rise in third country shipments could be in the offing. While China’s much-discussed export potential is not currently having a serious direct impact on European markets, there are plenty of other – nearer – sources of supply. Mills in Libya, Iran and Egypt are looking to raise their shipments into Europe. Source: MEPS European Steel Review
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