EU flat products producers are more optimistic for the first quarter of next year, hoping that escalating raw material costs will help to boost market prices. Underlying demand appears to remain quite strong. So much will depend on third country import pressure. There are some positive indications for local mills. Chinese export prices are rising. Furthermore, negotiations for annual contracts with the auto sector are likely to result in higher figures.
In Germany, producers are reported to be carrying large amounts of "over rolled" material that they are selling quite cheaply. Consequently, many buyers are purchasing this instead of placing forward orders. Moreover, there is still a massive overhang of stock at service centres and end-users. Resale values for slit strip are very poor as the processors fight for orders. A first quarter mill price advance will prove difficult to impose.
Basis prices are still under pressure in the French market but decreases are not as significant as last month. The mills are aiming to lift values at the beginning of next year. Currently there is a large gap between their expectations and what buyers are ready to accept. Distributors are very cautious and are reluctant to start ordering for the first trimester. Stocks are fairly high. Under present conditions the auto industry is seen as the only positive market.
Italian activity levels have slowed considerably in the last two months. Riva has reacted to this by reducing basis prices. The cuts are in the region of €20/30 per tonne. Demand is low because customers are working through inventories that have been swollen by the late arrival of large quantities of foreign material. Stocks may not be cleared by the start of 2008. Pressure from import competition for new orders has declined.
This time of year is traditionally a period of strong demand from end users in the UK. However, at present, activity levels are quite subdued. Buyers are not rushing to book tonnage, despite indications from the mills that price increases are imminent in January. Customers believe that no price advances will be secured until at least the second half of period one because of a lack of demand to support them. At the start of 2008, there will still be a hangover of stock from fourth quarter imports which are currently standing at West coast ports.
In Belgium, recent negotiations for late fourth quarter business have resulted in further small price cuts. However, some customers feel that the bottom may have been reached, although they intend to resist increases in the first quarter. The port of Antwerp is still full of steel from old orders. Service centres continue to destock as they want low inventories by the year end. Demand on distributors is quite healthy.
Sales activity is flat in Spain. Service centre stocks are coming down with many now standing at 2.5/3.0 months supply. We have reports that shortages of certain products are starting to develop. Therefore, distributors should start to reorder before the end of the year. This will be good news for the mills who would like to be able to charge higher prices in period one 2008.
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