European steel price rise that began in January will be short-lived - MEPS
The traditionally slow beginning of the year lasted until the second week of the month. The return of the South European factories after the holiday break did not cause a flurry of activity. Manufacturers have been calmly evaluating pre-orders and calculating the impact of higher raw material costs.
Steel mill capacity cuts recorded late last year continue to limit production. Nevertheless, in December, European steel mills sold the necessary volumes to fulfill the programs of the first quarter. In addition, roll producers reserve space for contract customers who have negotiated new deals at prices above prevailing spot prices. Consequently, the delivery time of flat products to the domestic market for spot trading has begun to be extended to March and beyond.
Steel service centers and distributors took advantage of attractive December discounts to secure volumes in the first quarter of 2023. They reasoned that prices would quickly return to early December levels and then rise, albeit slightly. The risk of buying was minimal.
The distribution sector is sitting on shares bought at prices above current market prices. He would welcome an upward movement to correct this imbalance. For flat products, the increase was originally expected to be 50 euros per tonne, but gradually over the first trimester.
However, after the Covid-driven price spike, the pricing philosophy of the mills has changed. Small movements are no longer considered sufficient. Large producers consider 50 euros per ton as the minimum starting point, regardless of market conditions.
Demand, however, remains volatile and large price hikes threaten new and existing projects. Some end users are still looking for further price cuts due to the price drop at the end of the fourth quarter, which service centers are resisting. Despite signs of destocking and shortages of certain products, distributors cannot afford to restock at prices in excess of resale value.
Many shareholders fear a short-term price bubble that will burst in April. Those who purchased on time and who receive competitive volumes of imports cleared through customs in early January will sit on existing orders. If the auto industry maintains moderate growth, factories will start looking for orders again at the end of the first quarter, with a downward price correction imminent.