Wednesday, October 22, 2008

EU Steel Prices falling - MEPS reporting

The crisis in the financial sector worldwide is now impacting badly on the EU steel market. The tightening of credit lines and a complete breakdown of confidence has stalled all business activity. For the small amount of orders being placed, prices are weakening, despite efforts by the mills to hold them fast. Several domestic steelmakers have announced plans to curb output due to the substantial slowdown in demand for their products. Many companies are currently destocking.

There is a wide range of prices in Germany following recent negotiations for the final quarter. Suppliers from Northern Europe are trying to maintain them at period three levels, especially as discussions with annual contract customers are still ongoing. So, instead of lowering prices to stimulate sales, they are cutting capacity. Mills further south have reacted quickly to the deteriorating situation, offering discounts to German buyers. Third country producers have slashed quotations significantly since August - to a minimum of €100 per tonne below prevailing EU levels - but customers are not willing to risk the long delivery lead times in a falling market. There has been no pick up in demand since June and none is expected in the near term. Therefore, clients are purchasing far less steel than in the first half of the year. Service centres and end-users all have excess stocks. Distributors may be forced to sell very cheaply in order to generate cash.

French values have been dropping substantially since the beginning of September. End user consumption remains weak, having seen no recovery after the summer holidays. Buyers have now adopted a 'wait and see’ approach as prices trend downwards. Distributors have fairly high inventories and are destocking. Mills are also building up quantities of material because of poor sales. There is now a need to regulate supply more in line with demand.

In Italy, activity in the market place is described as ‘frozen’ with most consuming sectors affected. In addition to the usual cyclical nature of steel prices, the financial crisis is making things even more difficult. The lack of available credit is becoming a major problem. Market sentiment is extremely low. Stocks have grown because of the decline in sales. Service centres report their business levels are down enormously. Riva has made no announcements so far regarding output cuts. The company has been running late on deliveries because of recent production troubles and customers are now loathe to accept the material at the high prices originally negotiated.

UK demand is depressed. Order intake at the mills has reduced sharply as customers live off their inventories. Service centre business has slowed markedly, putting resale values under negative pressure. There is far too much high priced stock in the system which distributors are desperate to liquidate. They are filling any shortfalls by buying from each other. Third country offers are limited but at very low prices.

The Belgian market is extremely quiet due to the financial crisis. End users are waiting to see how things develop, whilst stockholders are buying only the minimum tonnages they need because they anticipate further price slippage. Resale values are poor. Buyers purchased before the holidays in the expectation that steel would become more expensive and now have too much material because demand has dropped. Indian and Chinese mills seem to be reducing their price offers daily but are hardly selling anything.

In Spain, a significant decline in domestic demand has been further exacerbated by falling international consumption and a severe financial crisis. There is real fear in the marketplace that steel values will collapse. Customers are reluctant to order even small amounts, irrespective of price. Distributors say that stocks have grown in proportion to the current downturn in sales. They are exchanging material between themselves to fill any gaps in their inventories. Credit restrictions are making the situation even worse. Traders have third country steel in the ports, or shortly to arrive, but it is moving out only very slowly.

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Whilst it is clear from this and other reports that the steelmakers are reducing capacity to "stave off" a collapse in steel prices, we are seeing offers circulating from traders for significant quantities of steel strip, at "well below" market levels. Despite the lower prices on offer , there is very little interest in buying.

As reported by MEPS above, credit restrictions are also having a major impact. Few steel users or distributors have the cash reserves to fund "spot" purchases, and fearing further price falls are unlikely to buy anything that they do not immediately need.


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