GLOBAL FLAT PRODUCT STEEL PRICE RISES AGAIN IN FEBRUARY

18. February. 2010

First quarter flat product business is virtually finished now and spot prices for stripmill products have moved up in many instances. They are expected to rise further in period two if the mills' initiatives prove successful. Most producers have not quantified their proposals so far. Although stocks are low throughout the supply chain, end-user consumption has failed to recover. Consequently, buyers are very cautious. Distributors, in particular, question whether they will be able to recoup the increases from their customers.

In Germany, supplies for the remainder of the first quarter are quite limited and basis numbers have been pushed up as a result. Buyers are in discussions for the second trimester and anticipate hikes of anything from €50 to €100 per tonne. The mills argue that raw material costs are escalating. Currently, they have relatively good order books from the auto sector and from service centres whose empty stocks need replenishing. The fear is that the benefits from government incentives have already accrued and that sales will reduce during period two, causing downward price pressure.

French consumption has strengthened slightly but some market participants point out that it varies significantly depending on sector. Sales to the carmakers remain good, for now. Producers are claiming increases for April/June, while spot prices have already started to rise. The quarterly deals should be finalised by the start of March. Delivery lead times are extending. However, distributors complain of poor end-user demand, fearing they will be unable to pass on the hikes implemented by the steelmakers.

Activity is only a little better in Italy but market confidence is improving. However, a lack of final consumption still poses a major problem. Moreover, tightening credit lines are not allowing business to flourish. Service centres are fighting for orders, thus forcing down resale values. They worry that consumers will not be willing to pay the higher prices demanded by the mills.

The level of activity in the UK is not encouraging. Real demand remains subdued although a degree of restocking has taken place. No substantial improvement is likely for some time to come. Prices have moved up through January/February and suppliers have started to indicate their intentions for second quarter business. However, as the increases are purely cost driven, success is not guaranteed. Independent distributors claim that resale values from Corus-owned service centres are depressing the market and that, as mill prices climb, their profit margins will be squeezed even tighter. Any recovery looks fragile.

Belgian consumption, which was already low, has been further damaged by the harsh winter weather. The steelmakers are endeavouring to talk values up but are finding it hard to make sales. Service centres believe that producers are pushing material through their own tied outlets at very cheap prices. Certainly, their resale values are not moving inline with the mill hikes.

In Spain, suppliers claim that rising raw material expenditure is the catalyst behind their proposed price advances. However, distributors and end-users consider the size of their demands to be excessive in the present economic climate. Service centres are currently selling extremely cheaply - well below replacement costs in many instances. Even though stocks are now in balance with the much reduced consumption, this will create problems for the mills when trying to implement more increases.
[MEPS news]