MEPS reports that steel prices for both flat and long products are declining across all of Europe. The downward movement is proving to be stronger than most observers — and steel producers — anticipated even a few months ago.

Many mills have announced production cutbacks in an attempt to bring supply into line with demand. They have also taken steel off the EU market by stepping up their export shipments. To the extent that the announced production cuts have in fact been implemented, these measures have failed adequately to deal with the problem. The market oversupply has persisted.

One reason for the continued oversupply is that import volumes have ballooned. In the first quarter of this year, imports of finished steel products into the EU-25 soared to 1.8 million tonnes per month — almost 60% higher than the same period last year.

Imports of hot rolled coil jumped by 145%, and there was also a sharp rise for coated coil — the product that has borne the brunt of the EU mill production cuts. Third country supply of beams and wire rods also showed substantial increases year-on-year.

MEPS’ average European flat product price — a weighted average of transaction prices for all flat products — fell by 4.2% from May to stand at Euro 531 per tonne in June. This means it has dropped by 12% since February. MEPS’ long product weighted average price has also come down, by 7% from May. In dollar terms, however, the price development has been even more dramatic. From May to June, the EU average flat product price dropped 9.4%, while long products fell more than 12%.

The weakening of the Euro against the U.S. currency has had a significant impact. MEPS says that weaker prospects for economic growth in the Euro-zone — particularly in Italy and Germany — along with uncertainty caused by the political fallout from the demise of the EU’s constitutional treaty, suggest the Euro is unlikely to bounce back in the near future.

This should be largely helpful to EU steel producers. Although it will make their raw materials more expensive, it will also make the EU market less attractive to imports. A weaker Euro will also improve the international competitiveness of steelmakers and of their customers. It is a bit of light in an otherwise gloomy picture.

MEPS says that if the threat from imports is reduced, European mills may feel better able to keep a tighter grip on supply. Nevertheless, their leverage is limited, and any drastic production cuts may simply create a vacuum that pulls in more foreign tonnage, regardless of exchange rate movements.

Mills continue to talk about their need to recover the rising cost of raw materials through higher selling prices. Their attempt to lift prices in the second quarter has clearly had no impact. Given the steep increase in iron ore and coking coal prices, producers’ margins must be narrowing, though they probably remain healthy after last year’s boom. Any further effort by the steelmakers to raise prices cannot take place until after the summer holidays at the earliest — and maybe not before the end of this year.

Source: MEPS European Steel Review