Commodities 2023: European hot-rolled coil market approaches 2023 with cautious optimism

Bullish sentiment is prevailing in the European coil market, reinforced by a demand revival that is generally expected to continue in the first quarter of 2023.

The sustainability of the price rise and recovery in market activity, however, have been questioned by many market participants. In addition, following the turbulent market in 2022 due to effects of the global geopolitical situation, sources have been reluctant to make forecasts that stretch into the second half of 2023.

"I think over the past years the traditional market yearly cycles have changed, so it's hard to predict the market over the course of the year," a Southern European distributor said. "There are more important factors except for usual restocking in the first quarter or September."

For the beginning of 2023, however, the outlook is upbeat, with lower domestic availability, reduced competition from imports and a revival in demand among the factors cited that are supporting a higher coil price. But market participants have questioned whether the uptrend, which began in December, can be sustained as end-user demand declines and the economic and geopolitical situation remains uncertain.

In 2022, European steelmakers faced skyrocketing energy costs. In response to low demand and high costs a number of steelmakers stopped steelmaking equipment, cutting production in an attempt to support domestic coil prices.

The effects of the output reduction, however, were not visible until the close of the year and this is expected to remain a price supporting factor in the first half of 2023.

"I think the mills have been delaying stoppages this year as they feared the post-lockdown scenario when supply rose slower than demand," a source at a German service center said. "So we see the reduction of material availability only now, at the year's end. Buyers need to get rid of their stocks first, and now they are looking for orders. Oversupply is over, so prices will continue to rise."

A North European trader agreed: "European mills are going to have more power in the first quarter as inventories are not as strong and import prices aren't competitive enough."

Although sentiment has been largely upbeat towards the end of December, there are still concerns that the price recovery will end after buyers restock their required volumes by mid-January.

European steel association Eurofer said steel demand contraction was expected to continue for at least the first half of 2023, predicting a decline of 1.9% year on year in the period to 142.4 million mt of steel products.