EU steel market prices run out of control

Edited by the Engineeringtalk editorial team Feb 25, 2004

The European steel market seems to have gone crazy: in 25 years of analysing steel prices, MEPS has not seen anything like the present mania.

The European steel market seems to have gone crazy: in 25 years of analysing steel prices, MEPS has not seen anything like the present mania.

It is not just a bull market, it's a rampant, raging bull market.

Record levels of global steel production have drained all the available supplies of ferrous raw materials.

Panic reigns, as the shortages and other cost increases are pushing steel prices up dramatically for hot rolled coil.

Values in March are expected to be at an 8.5-year high.

Some mills are putting customers on allocation.

There are rumours of suppliers cancelling orders in the sure and certain knowledge that they will be able to charge another Eur 10 per tonne in a fortnight's time.

The cost of raw materials for making strip products has gone up substantially - 18 to 20% for iron ore and more than this for coking coal.

Prices of finished steel products are going up even faster.

As MEPS reports negotiated prices, its published levels currently reflect business done since mid-January.

For most strip products these have shown rises of around Eur 50 per tonne since December.

It is already clear that figures will go up again next month for second quarter deliveries and - assuming the Chinese bubble does not burst - in the following trimester as well.

There are murmurings about increases later in the year.

EU strip mills want to raise basis prices by a minimum of 8%, or about Eur 40 per tonne, from 1st April.

Buyers may have little choice other than to agree, and try to pass the hike on to their customers.

There is certainly some speculative purchasing taking place.

Stockists and end users are ordering more than they need for their immediate requirements, as they know it will be more expensive later on.

There may also be some double-booking taking place, which will add to the strain on the mills.

Customers have been frightened by the rise in prices and tightness in supply, and many may not be able to get the tonnages they require no matter what price they pay.

Even those with long-term contracts may go short.

Some of them have already been told they will not be getting their full volume for the year.

China continues to drive the market.

Although there is growing reluctance to pay the higher prices, there is little sign of the Asian steel boom abating.

Buyers have recently been paying in excess of US $450 per tonne for imported slab, and US $340 per tonne for scrap.

We are old enough to remember the days when European mills couldn't export to China unless they conceded a substantial discount: today China is paying a premium and still can't get enough steel.

The value of top-grade scrap has risen by more than US $100 per tonne since December.

There are reports of European electric furnace operators slowing production rather than pay the current asking price for scrap.

Some EU mini-mills are quoting prices only for sales ex-stock.

They are refusing to quote forward prices for steel that has yet to be produced, because they do not know what their input costs will be.

As one integrated mill executive pointed out to us a few days ago, the main challenge for steel companies this year will be to expand revenue, at least in line with increasing raw material costs.

So far, they are managing to pass through some sizeable price rises.

However, there will come a point at which end users start to resist.

This could come into play first in markets such as construction, where contracts are signed on tight margins.