German steel pricing sentiment bullish, market hopeful of production increase: Platts survey

German steel market participants aregearing up for further price increases in May following the latest round of hikes from market-leading mill ArcelorMittal on April 29 to Eur1,020/mt delivered across Europe for hot-rolled coil, with additional price increases expected this week at Eur1,050/mt ex-works Ruhr, data from the monthly steel sentiment survey by S&P Global Platts showed May 6.

In the survey conducted among German producers, distributors, traders and end-buyers at the start of May, the index for steel price development stood at 96, indicating a notable expansion -- an index of 50 indicates stability -- from April when the index tallied 92.

Even as HRC prices move to unprecedented levels, it has been difficult to determine a unanimous workable price in Europe due to the limited availability of critical steel products, most notably cold-rolled coil and hot-dipped galvanized material, by which numerous niche deals of varying volumes have been executed according to the fluctuating stock levels of mills and stockholders.

As the supply situation tightens across Europe, sources have said that mills appear to be at high capacity utilization, with an increase in production unlikely even once maintenance issues at some mills and re-rollers is completed.

Prices were therefore expected to remain bullish if supply levels remained critically low across Europe, with current prices heard at or above Eur1000/mt ex-works Ruhr and between Eur980-1,000/mt ex-works Italy.

"We are in direct contact with mills and contacting several service centers," a European buyer said. "It's really difficult and taking quite a long time to find any material."

A German distributor said although there was notable real demand in the market, buyers were "thinking twice" before ordering material due to the high prices. But with general stock levels so low – and little to no buying possibilities – customers have been forced to buy, he added.

"Until now we have had our clients' concerns under control. Some have issues with credit limits," the distributor source said. "End-buyers now if they want to have material, they [are subjected to] short payment terms."

Imports offer relief from tight supply

With availability diminishing on CRC products, more imports prices were heard from India in the first week of May at Eur1,200/mt CIF Antwerp and from Korea at Eur1,210/mt FCA Antwerp. A deal was heard at Eur1,212.50/mt FCA Antwerp ex-India.

Domestic European distributors and buyers more open to foreign possibilities, with greater import flows expected during the summer months, when the European market generally slows down.

"A lot of import material coming in will give relief to the market, the problem is, everyone knows that it's coming so it's basically sold out before its arrived," the same European buyer source said. "When we get these orders in, we have a few months until the next delivery arrives, by the end of June-July we'll have some import relief, but prices will still be high."

Last month, Indian exporters were taking advantage of 30% of the "other countries" quota in response to the high demand from European buyers. For the April-June HRC quota period, just 950 mt were available from the initial 163,464 mt quota allowance.

For price movement, most bullish among survey participants were end buyers at an index of 100, with traders not far behind at 95 and producers with an index of 92.

Inventories to decrease, production optimistic

Almost six months into 2021, market participants were now seen to have a better understanding of the health of European stock levels, with the sentiment survey showing participants expected significant declines in inventories at the index of 28, compared to 40 in April.

Producers and end-buyers tallied at 25, suggesting expectations of a drastic decreases in stock levels, while traders stood at 35, just slightly more optimistic than the former.

Flat steel inventory levels at German stockholders fell in March for the eighth consecutive month on continuing severe material shortage, German steel stockholder association BDS data showed last month.

Volumes from mills and imports remain limited on the spot market. Sources said there would be no opportunity to restock as most purchases remain back to back.

A German trader said inventory levels were likely to decrease in May due to the real demand evident in the market, with customers struggling to replace quantities they have sold at record pace.

"Buyers have tried to negotiate on price, but we told them to take it or leave it, so they did," the trader said, having concluded a deal May 6. "They would never do that if they had time to replace or refill their stock, so they are in urgent need. On the supply side, we don't get as much as we could and should sell."

There was room for optimism when discussing additional capacity on the European market, with the index for production standing at 62, indicating an increase, up from April's stable index of 50. Producers were at 75 -- the most bullish on production levels -- whereas traders were at 60 and end-buyers at 50.

Most sources surveyed said there would be no additional domestic capacity on the market until after the summer period – with some saying not until early 2022 -- which could create some tensions if imports began to show up in full force.

The same German trader said the advent of greener steel production was also a factoring limiting the possibility of greater capacity from mills.

"Mills are running at 80%-90% capacity so in order to bring some relief to the market, they would need to restart a blast furnace," the trader said. "This is always a very delicate issue because mills need to buy those emissions certificates which are expensive."

Early last month, Tata Steel Europe was the first European mill to implement a fixed Eur12/mt carbon surcharge on all new steel contracts across Europe.