Tuesday, November 18, 2014


The newer European austerity policies in some of the largest national economies of Europe and economic sanctions against the eastern nations continue to take their toll.

Steel report at MEPS International, Ltd. which is probably indicative of the current price-setting environment for industrial output in Europe.  Based on this information, expect the continued Euro/USD currency weakness through at least November.

European flat products basis prices remain under negative pressure due to domestic oversupply, weakening raw material costs and flat demand caused by poor macro-economic conditions in several countries. Third country imports are, generally, unattractive as local offers are at similar prices, with shorter delivery lead times. However, there is a threat from Chinese steelmakers in the EU mills’ traditional export markets. 
Domestic producers would like to hold European basis figures steady as contract negotiations with large end-users, for the first half of 2015, are due to commence in the coming weeks. 
Basis values are largely unchanged in Germany. There is very little third country import competition because the US dollar is strong.  Moreover, there are few offers from Italy at present. Despite domestic steelmaker ThyssenKrupp’s production problems, there is no obvious supply tightness. Mill order intake has shrunk from non-automotive industries. Little economic growth is envisaged in 2015.  
The French market has deteriorated. Demand has slowed down, compared with last month. As a result, some basis values have slipped. On the distribution side, resale prices have fallen more significantly. Service centres, integrated with steel mills, are, reportedly, quoting very low offers. Imports remain limited due to the weakness of the euro. However, production inside Europe is plentiful enough to disrupt the market. 
Italian steel consumption is static at a low level, with very little sales activity. Most end-user sectors remain weak. The small improvement noted in the first half of the year has evaporated as demand decelerated in the second quarter. Some contraction is anticipated in the final trimester. Market sentiment is poor and any optimism has completely disappeared. Producers continue to offer price incentives.  
UK distributors report healthy levels of business, although a number of independent companies complain that Tata Steel’s stockholding outlets are selling quite aggressively as they try to regain market share. Service centre stocks are generally well controlled. Ex-mill basis values are stable at the level reported a month ago.  
The Belgian market is quiet. Over the last two weeks, we have noted some price erosion, albeit not sizeable. No major changes are anticipated by buyers because order placement will be slow as companies destock ahead of their financial year-ends. Both German and Dutch distributors are selling across the border at low prices.  
Spanish market players are less optimistic than a month ago. Any hopes of a price rise for the fourth quarter have been quashed by a lack of mill order intake. Buyers are in “wait and see” mode as they watch the effect that lower raw material costs may have on steel prices. Some producers are already accepting today’s basis figures for January/February rollings.
Expect more Euro weakness through at least November as European producers hold the line and/or reduce prices as they struggle to maintain international sales and market shares in the export industries of Europe.

The Chinese supply threat (I'd assume in the US market) mentioned in the first paragraph will put European producers at a decision point on whether they want to lower prices again from already lower levels in order to maintain export market share.  If the Europeans decide to fight aggressively on price to maintain US share, look for another leg down in the Euro/USD.

Its probably a good time in general to hammer any European suppliers and vendors one may have with the goal of obtaining additional price concessions.


Ryan Harris said...

Steel price is only 3 components,

Coal/Gas prices
Scrap/Ore price
Mfr. value add

2 of 3 are down, way down.

The price of steel should be falling like a rock

Matt Franko said...

Once or if they capitulate on the 3rd component there Ryan then probably "look out below"... seems like they have capitulated some but not a whole lot (10% +/- or so?)

If they decide to fight it out, we will probably see another leg down in the Euro as the exporters will reduce the real terms of trade for their employees...

It looks like they are soon going to be at a decision point...

Some small fiscal help on the way here ($15B I reported on yesterday) but other than that it looks like we are just a bit above breakeven YoY...

So still no sign of a strong US recovery this year that can turn this around for Europe and get prices headed up again...

Looks like they are either going to have to capitulate on price again or shutter some capacity...