European steel prices across the board are showing declines in March – a development that has come as a surprise to industry observers who were expecting the first few months of 2005 to see steady market conditions, Sheffield-based MEPS – European Steel Review said in its monthly report.
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The dips are affecting all major carbon steel products and every category is showing lower prices than in February – even plate, which nevertheless remains the strongest market and may see prices bounce back quite quickly.
MEPS said its index in which January 1997=100, showed that March transaction prices have fallen from February levels by between two and four points for individual flat rolled products, and by as much as 10 points for long products. This leaves the EU average flat products price at €591 per tonne, down from €602 last month.
Customers are holding off from placing fresh orders, and less than the normal volume of agreements for new business have been reported this month. They are still using stocks that have been mounting since the latter part of 2004.
Buyers placed orders with local mills for more steel than they needed during the panic buying period of last year, in an attempt to secure supplies at a time of shortage. They also turned increasingly to imports in the last few months of 2004. The tonnages that were purchased then have now arrived, and are contributing to the overhang of unused stocks.
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By GlobalDataMEPS said suppliers seem to have misjudged the quantity of steel in the market. Real consumption in the key 15 EU countries appears to have gone up by less than 3% last year while figures from the producers’ organisation, Eurofer, show that EU mills increased deliveries into their domestic market by no less than 5.7% in the same period – double the rate of growth in actual consumption. Imports also expanded quite strongly in the second half of 2004 – estimates suggest about 15% year-on-year and are thought to be remaining high in the first few months of 2005.
The consequence has been an increase in stocks of in excess of four million tonnes which will take a while to unwind though there is no dramatic drop in price levels so far – but this is a real danger given the poor outlook for steel consumption.
Prospects for steel demand in the 15 EU countries this year are modest at best, though it could increase significantly in the new member states as well as in neighbouring countries of Eastern Europe, Russia and Turkey. GDP in the Euro area may rise by less than 2% in 2005, and steel-using sectors will grow by an even smaller amount. It is doubtful whether the mills will see any increase at all in their rate of order intake, at least in the first half of 2005.
MEPS said that the time taken to bring stocks down to a more normal level will be a testing period for steel prices. Mills have announced modest rises for the second quarter – but these must now be seen more as an attempt to avoid a decrease than to achieve an increase. In subsequent quarters they will be looking for opportunities to pass through real price rises to compensate for the huge hikes in raw material costs that they have been forced to accept.
It is often suggested that, as a result of the consolidation that the industry has seen in the last few years, mills will be more “disciplined” than in the past about over-supplying the market. Traditionally they have gone for volume before price, with disastrous consequences for their profit margins. The present nervousness in prices will provide them with an opportunity to show whether things have changed. That much-vaunted self-discipline is about to be tested, MEPS said.
