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Panic reigns in European steel market over supply shortage

Main / Europe

Overheating of the market could have dire consequences for distributors who buy rolled metal at inflated prices after steel prices return to normal levels next year.

Panic reigns in European steel market over supply shortage

European steelmakers continue to raise prices for new deals almost daily. At the same time, buyers accuse suppliers of withdrawing already made offers just a couple of hours after invoicing.

Rising steel production costs add pressure to steel sales figures. Local producers are trying to formulate their pricing policy in line with the rapidly changing cost of iron ore and scrap metal. The recent spike in these costs is likely to lead to further significant increases in steel prices.

Constantly changing market conditions create challenges for buyers throughout the supply chain. The situation is exacerbated by the increase in delivery times, as shipments from factories are currently reported for dates starting in the second or even the third quarter of the next year.

Consequently, buyers are panicking about purchasing the material they will need in the coming months. This could have a detrimental effect on the activity level of several manufacturers in the first half of 2021.

Speculative buying increases the volume of orders across the region. Distributors and equipment manufacturers are desperate to replenish their depleted stocks. Renovations are planned for several steel mills in January. This will further exacerbate the supply deficit.

Lack of availability could lead to further drop in inventory levels in the first quarter of 2021 as buyers wait for their orders to be fulfilled in April and May. By the spring, the market may face serious difficulties, as demand traditionally improves during this time of year.

At the same time, many distributors are wondering whether the mills really have full order books or whether the deficit is maintained artificially. In addition, doubts have been expressed that underlying demand may not be sufficient to sustain the rapid rise in steel prices beyond the first quarter of 2021.

For example, the CEO of Severstal believes that in three months supply and demand will be balanced on the steel market, which will halt price increases.

Construction activity is also expected to decrease during the winter months. Moreover, there is concern that car sales are not as dynamic as one would expect, with many fearing that production at car factories will decline once stocking programs are completed.

The European steel market may overheat. The higher the rise in prices, the faster they can fall. This will leave many companies with overpriced inventories after steel sales decline.

Therefore, the next twelve months could pose a lot of problems for steel buyers after a tough 2020.

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