According to MEPS double digit steel price hikes have been recorded for the July to September period in EU flat products sector. Most of them have occurred in recent weeks as customers started to reorder after the August summer break. The increases have not been generated by significantly higher real demand. The main driver has been a shortfall in supply.
It is estimated that over the past twelve months activity in the steel consuming sectors fell by between 30 and 35 percent. Consequently, most steel users and service centres embarked on a strategy of inventory drawdown. Over the same time horizon, the mills cut back production by 40/45 percent.
Market conditions have now changed. Stock reduction is almost complete. Customers are ordering more steel to meet their real demand but output remains low. Shortages are being noted in the flat products’ segment with the consequent hike in selling prices. Local mills have now recognised this situation and many are planning to bring back previously closed capacity. However, in the interim, shortages will continue.
EU producers may have left it a little late. Third country suppliers are already looking to jump in to satisfy the shortfall - particularly now that EU prices have improved. Chinese steelmakers have oversupplied their market and are looking for export sales to reduce their excess. East European prices are also looking competitive once again.
The tight supply situation is creating serious problems for those original equipment manufacturers which carry only small stocks and rely on the mills for regular deliveries. Under current conditions, the OEM’s bargaining power is reduced and increased volumes are difficult to secure. They have little option but to pay the increasing price demands.
Further but more modest upward price movements are anticipated in the short term. However, downward pressure on selling values is likely around the turn of the year as domestic capacity comes on stream and deliveries of third country material arrive in the final quarter.
SOURCE: MEPS INTERNATIONAL Ltd
We would agree with MEPS summary. Many UK OEM’s have been slow to reorder raw material, and low demand has lead to service centres running down their inventories. Some grades and sizes are almost impossible to locate in the UK at the moment and an element of panic is setting in. Spot prices have increased dramatically and we think this situation is likely to continue for some weeks until the supply situation eases.