There has been very little movement in strip mill product prices since July. However, demand over the holiday period has been slower than normal for the time of year because of the current poor economic climate. This has caused growing concern over the trend for the final quarter. Most companies have sufficient inventories for the near-term and are in no rush to conclude new business. The mills are likely to reduce capacity rather than chase orders by lowering prices, particularly before the annual auto contracts are settled. So far, there is no evidence of severe downward pressure from third country imports. Despite price reductions by Chinese exporters, many European buyers have not been tempted to place business because they suspect further discounts will be offered.
In Germany, the higher values that producers tried to enforce for September deliveries of some stripmill products were only accepted by a limited number of customers. Service centres have enough steel to cover current demand, which has weakened in several market sectors. There is now more ex-stock material available from the EU mills. Some quantities of Indian and Chinese imports have been ordered and should arrive in time for the final trimester. Negotiations with local suppliers for period four shipments are due to start later this month. We do not believe that any increases will be possible, despite such proposals by the steelmakers.
Prices have stabilised in France, following the third quarter rises. Sales of coils at the beginning of September are described as "not very good". Moreover, demand from the auto industry is expected to fall as French car makers have announced some temporary shutdowns. Steel producers are said to be looking for further price advances in the final trimester. However, the general feeling is that values are likely to remain steady. Meanwhile, negotiations for annual contracts are taking place with end-users aiming to implement a rise of at least €250 per tonne for 2009.
Subdued Italian sales over the summer have led to some discounting by the local producers. Buyers are limiting purchases because they expect prices to drop further. The quantities of third country material at the ports are rising. Distributors' inventories are too high for present demand, which is poor. They can live off their stocks for a while. The auto sector is under performing and construction is sluggish.
UK companies are holding off purchasing as manufacturing and building activity continues to contract. Sales at the service centres have been disappointing over the summer so inventories are slightly higher than planned. Consequently, resale values have come under negative pressure. Fourth quarter mill negotiations will get underway towards the end of the month. Market players are not anticipating any price falls but neither do they believe increases will be viable. The weakness of Sterling should help to keep imports at bay. Third country offers do exist but are not particularly competitive, especially when the long delivery lead times are taken into consideration.
August was quieter than usual in the Belgian distribution sector due to problems with finance and credit insurance. However, suppliers are mildly positive about future demand overall. The mills are not particularly busy at present and service centres are waiting for further price decreases. Some material is arriving in Antwerp from China but values are still high. This could change later in the year.
The Spanish building industry is in deep recession. Additionally, steel suppliers cannot obtain credit for any construction related companies. Customers are covered for their requirements in October/November and may be back in the market by December. Inventories are quite low because both end-users and service centres are buying only the minimum possible quantities.
We would largely concur with the situation a MEPS see it. However unless eastern markets recover dramatically and soon, the low demand in the West will lead to Steelmakers having to make more dramatic production cuts than they may be comfortable with. Either that or the prices will drift down. The coming price negotiations with the automakers will be interesting, as poor sales will mean that car manufacturers are not going to be in a mood to accept substantial increases. I see a battle of nerves ahead!