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German steel pricing sentiment bearish, higher stocks seen for Q4: Survey

Highlights

Bearish pricing sentiment felt across entire supply chain

Buyers cautious of spot market amid fears of lower prices ahead

Inventories rise amid lack of demand for autos

German steel producers, end-buyers, distributors and traders were found to be mostly bearish on pricing over October, according to a monthly survey of sentiment in the country's steel sector conducted by S&P Global Platts for October.

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Most participants also agreed on expectations for higher inventories as lack of automotive demand, with a build-up of imports at European ports leaving steel mills fearful amid slow buying activity, according to the survey data.

The survey, which is used to compile an index demonstrating pricing sentiment, was conducted at the beginning of this month and showed the overall expectation for steel prices at 25, down a whopping 31 points from the previous month, with all participants largely in tune over the direction of prices.

Steel pricing sentiment has taken a downturn since the summer slowdown and has struggled to recover since then, with cheap imports and a semiconductor shortage hindering the automotive industry from consuming previously agreed steel volumes, leading to higher availability of steel.

Back in September, the European market remained very uncertain about prices and inventories, as the semiconductor shortage forced carmakers into intermittent production, with one known manufacturer Stellantis having to cut production from 24/7 to just five days a week and two major European original equipment manufacturers announcing a cease in production.

Since then, market participants have been very cautious to divulge workable prices at a time when transaction activity has been minimal, with buyers choosing to hold off spot purchases in fear of imminent lower prices as more import material clears European ports.

"Imports are a serious threat in this period and given the semiconductor issue remaining unresolved for the foreseeable future, auto demand will remain under pressure," a European trader said. "We are in a buyers' market now."

With producers still in long-term contract negotiations with manufacturers, Western European mills are keen to keep spot prices firm, while Visegrad mills have finalized deals reportedly below Eur1,000/mt ex-works Ruhr.

"Currently, the barrier is at Eur1,050/mt ex-works Ruhr," a German distributor said. "I see a potential towards Eur1,000/mt."

Hot-rolled coil prices have dropped considerably since their peak toward the end of June 2021. The daily Platts HRC assessment stood at Eur1,047.50/mt EXW Ruhr Oct 8, down nearly Eur143/mt from a record high of Eur1,190/mt June 25.

Unwanted autos

As domestic prices rise, European inventories are starting to pile up as unwanted automotive volumes – coupled with recently cleared imports – flood the market.

While some mills stand confident that peripheral sectors like the heavy machinery and construction industries will be able to soak up the steel surplus, some European mills were heard to be channeling available steel volumes into exports.

"The cancellation of orders by automotive has forced EU mills to try and move volumes to export markets in order to not contaminate domestic prices," a European mill source said.

A German distributor said: "Lack of automotive demand across Europe is causing increasing stocks. The availability makes mills nervous – there are no real transactions, inventories are growing, and no one needs to buy. People are sitting and waiting, mills are giving discounts to secure volumes."

Stockholders and distributors were still busy with outstanding orders and assessing what orders they could cancel amid depressive sentiment.

The index for inventory sentiment stood at 77, suggesting a very aggressive rise in stored volumes from September, when the index stood at 57. End-buyers were the most bullish on inventory increases with an index of 75, while producers stood at 58 and traders at 38.

Capacity fears

Production forecasts for October were rather muted with the overall index at 51, denoting stability. Most bullish in this category were producers at 56, followed by end-buyers at 50 and traders at 46.

The European market has been expecting some additional production, with Thyssenkrupp having restarted its biggest blast furnace Oct. 1 after a reline. Salzgitter said in August it would restart its Blast Furnace C in November, which had been idled in 2019. A Salzgitter spokesperson said earlier this week the restart would be "under consideration."

As inventories rise, market players have expressed their doubt about mills potentially adding more unneeded capacity to the market.

"I don't know what to think of those mills restarting. It's risky, but perhaps they want to catch as much volume as possible before there is a real collapse," the European trader said. "We also have to consider that [steel body] Eurofer's demands for quotas/tariffs are a bit unfair if there are unused European capacity falsely inflating prices."