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Tight Supply And Stock Replenishment Push EU Steel Prices Higher

Thursday, 23 February 2012 | 00:00
Negotiated basis prices for flat products are higher this month than those reported by MEPS (International) Ltd. in January, as buyers replenish stocks. The mills are keen to offset the losses they incurred in the last two months of 2011. Consequently, they are psychologically preparing customers for further hikes for April production. However, as much as the steelmakers would like to continue to lift prices, they also want to keep imports at bay. At present, import activity is low but, if the euro continues to strengthen against the US dollar, there could soon be competition from third country sources. On a more positive note for the producers, the current exchange rate has been providing new export opportunities.
Most German customers have placed their orders for the first quarter at values above those quoted by MEPS (International) Ltd. in January. Target prices for the second trimester have not been fully released yet but it is expected that the mills will press for increases rather than consolidate the current figures. Growth in real consumption is only small. However, supply has tightened significantly, due to the recent reductions in capacity. End-users, in general, are still just buying their regular quantities but there has been some speculative purchasing by a number of service centres, so stocks are expanding.
French distributors are continuing to place orders following the mills’ ongoing price escalation. Inventories are on a low/medium level, with restocking still in progress this month. Meanwhile, real demand is deemed satisfactory, with the exception of the auto industry, which is considered to be weak. Market participants question whether activity will be high enough to carry the current price momentum through the middle of the second quarter, as hoped by the producers.
The Italian mills are pushing hard to restore their profit margins. They have imposed a number of increases and are now proposing further hikes. There has been an improvement in activity but this is linked to restocking rather than real consumption. Distributors’ purchasing is constrained by poor end-user demand and a lack of liquidity.
A degree of inventory replenishment has helped to boost mill order intake in the UK. This is reflected in the higher basis values that have been agreed during recent settlements for the first quarter, which is now closed. Domestic capacity has been aligned down to match the current low demand and third country import offers are few and far between. Distributors are still struggling to realise decent profit margins but resale values have picked up recently, although they are often still lagging the mill increases.
Spanish apparent demand has recovered somewhat in recent weeks as companies replenish stocks ahead of escalating basis values but underlying consumption continues to show severe weakness. Limitations on finance have become even worse and are reaching a critical level. Service centres are keeping stocks under strict control. Their poor sales mean that they are only managing to pass on a small proportion of the recent mill price advances to their customers.
Source: MEPS
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