Dec 22 2005
European steel buyers remain very much in the driving seat when it comes to negotiating prices for new orders of flat rolled products. Mills are not able to enforce the price increases of €20-30 per tonne that some of them – but by no means all – have announced for the first quarter of 2006.
As we reported last month, mills made few gains in prices during the final quarter of this year. Prices in period four are virtually unchanged from the previous quarter, and December has seen no upward movement month-on-month. Going into the end-of-year holiday season, many buyers are content to sit on the sidelines.
Real consumption of steel in Europe has improved from the position earlier this year when negative growth was recorded. But it remains far from buoyant. Reduced production has improved the balance between supply and demand. Stock levels have come down, and some producers are saying apparent demand for steel increased in the final quarter.
Import tonnages have fallen significantly since the early part of this year. Weakening of the euro against the dollar has made Europe a less attractive market for steel exporters. Imports still have a presence: even though their prices are not generally very low, availability is adding to the supply-side of the equation.
Mills had hoped that their production cuts, along with the reduced supply of imports, would force customers back into the market. They clearly believed buyers would have to re-order significant tonnages before the end of the year.
However, they appear to have misread the signals from the marketplace. It is now clear many users are content to live off the inventory they already have in hand. As the year-end stock-take approaches, they do not want to hold more steel than they need for their immediate requirements for financial reasons.
This means the mills have had to be more flexible than they would like over prices in recent discussions, and probably in the first trimester 2006 as well. This might involve accepting only half – or less – of the increase they have said they want. For some big orders, they might even have to offer small rebates. Arcelor’s chief executive was recently quoted as saying his European customers are holding back on placing orders, waiting to see how the market will develop. His caution seems justified.
A few weeks ago, many buyers believed they would have to pay higher prices for deliveries in January. But now sentiment has changed. Several customers are still preparing to pay perhaps €10 per tonne more for cold rolled coil – but most say they expect to get away with no price increase at all. There may also be regional variations in the amounts mills can achieve, as markets in northern Europe are definitely firmer than those in the south. New quotas of coil from Russia will become available in January, and some tonnages are already being booked. This will help keep a lid on price levels.
There are signs of a possible tightening in the market as the first quarter progresses. After running down their stocks at the year-end, distributors and end-users will be looking to replenish inventories in January. Prospects for stronger general economic growth – despite high energy prices – should also aid market sentiment. However, import volumes will almost certainly rise. It remains to be seen whether the mills will achieve any more than a token price increase in the New Year.
Source: MEPS