London — Pricing sentiment remained bullish in the German steel market for January, data from the monthly steel sentiment survey by S&P Global Platts showed, with all participants expecting increases in both steel and raw material costs, and most respondents optimistic about capacity ramp-ups in the near-term.
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Production levels are expected to increase, sources said, as more blast furnaces are expected to restart in the first quarter of 2021, although maintenance issues at some European mills could lead to potential delays.
In the survey of German producers, distributors, and traders conducted at the beginning of January, the index for steel price development was at 91, the same as December's survey, indicating expectations of a substantial increase (an index of 50 indicates stability).
Traders and producers were bullish across the board for December at 85 and 97. This was in line with November's data, with traders at 87.50 and producers slightly lower at 85. All market participants surveyed expected prolonged increases over the next several weeks.
Sources said the increase in prices was driven by the shortage of steel in the market, with mills sold out for Q1. Customers are now awaiting offers for the beginning of April, with Q2 orders expected for June-July delivery.
Hot-rolled coil and hot-dipped galvanized products were extremely hard to purchase due to substantial automotive demand, extended lead times and expensive import offers leaving buyers with few purchasing outlets.
Since the start of December, Northern European hot-rolled coil prices increased by 21% month on month, and in Italy, hot-rolled coil prices went up by 25%.
Inventory expectations were a bit higher for January, with respondents pointing mostly to slight decrease in available stocks at 43, compared to December's overall index at 20. Traders and producers expected a smaller decrease at 40 and 46 respectively, indicating the longevity of ongoing steel capacity issues.
A European service center source said inventories would be a bit higher than they were in December.
"What's important is that we have a good number of orders for future. We are scared because we ordered so much [in November-December] so we'll receive a lot of material in Q2."
A German mill source said that only economic shutdowns -- similar to when the pandemic hit early last year -- would stop the price surge. Economic shutdowns are currently under political discussion as Germany struggles to contain COVID-19 cases.
Increased capacity expected in Q1
Several market sources have said that blast furnaces at mills in Gent, Bremen and Dunkerque have already returned to full production this month. According to the survey, output for January was higher at 68, compared with December's 53.
Producers were the most bullish at 75 on a future ramp-up in production and the trading/distribution sector pointed toward an increase of 60.
A Benelux buying source said there would be more imports into the EU during Q1, as well as additional capacity coming online, suggesting a "better balance between offers and customer demand."
The metals processing industry was struggling with capacity shortage as the processors wait for material from the mills to process and deliver to end-users. The industry has expanded from flat steel to long steel as well, according to German steel processing association WSM.