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German steel market sees output staying low, higher prices: survey

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German steel market sees output staying low, higher prices: survey

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Participants expect prices to rise in near term amid high costs

Producers expected to continue operating at low capacity

German steel producers and traders expect prices to see some upward momentum over August amid low supply, as production levels are expected to drop, according to data from S&P Global Commodity Insights' monthly steel sentiment survey.

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The survey saw traders and producers almost equally bullish on pricing, with the August pricing outlook index at around 54 points, up from around 29 points in July.

Producers were more bullish for August with the index at around 58 points compared with 50 points for traders, but both measures were higher compared to July when the index stood at 38 points for producers and 20 points for traders.

Despite slow demand amid the summer holidays in Europe, production levels were expected to fall lower than usual for the season so there might be some upward momentum in prices, sources said. In addition, producers noted that continuously high costs for electricity and gas were also going to impact prices in the near term.

The index for production outlook was flat at 18 points for August compared with July.

"We've seen negative production in [the first half of the year] for raw steel and further reductions in the upcoming weeks are more than in previous years. It could force prices upwards but when you don't need material the price doesn't really matter," one German service center source dealing in flat steel products told S&P Global.

One executive at a long steel producer expected prices to remain stable during the summer holidays in Europe amid slow seasonal demand.

"Post August, we will not be able to make money at this level due to energy costs like electricity and gas," he said, adding that higher energy costs were forecast in the near term.

The source also indicated that producers might raise prices when customers start returning from holidays and activity picks up.

Platts, part of S&P Global Commodity Insights data, assessed TSI Northwest Europe rebar down Eur5/mt on the week to Eur980/mt ($997/mt) ex-works Aug. 3.

For flat products, market participants expected mills to increase prices in the near-to-mid-term, with one large integrated producer predicted to lead the market in an upward trend from mid-August. Official offer levels for hot-rolled coil have stabilized at Eur850/mt ex-works Ruhr, but tradable values are much lower with substantial discounts reported as achievable – as low as Eur800/mt ex-works and below – due to the muted demand.

Mills were keen to establish higher pricing going into Q4, both on production margins due to rising energy costs, and so not to jeopardize negotiations for H1 2023 contracts, sources said.

Platts assessed TSI North European hot-rolled coil down Eur40/mt on the day to Eur800/mt ex-works Aug. 4.

Low inventory

The index for inventory sentiment for August stood at 34 points, compared with 40 points in July, suggesting that market participants expected stored steel volumes to be low this month.

Traders agreed that inventory levels would be significantly lower during August, with an index of 35 points, down from 55 points in July. However, steel producers were more bullish on their stance, putting August inventories at 33 points, up from 25 points in July.

"Inventories are still relatively strong on low demand so I don't see buyers coming back until late September -- supply in October could be tight," the German service center source said.

Holders of steel were focusing on depleting inventories, with current sales prices to end-users well below input costs from higher-priced material purchased in the wake of Russia's invasion of Ukraine.