Northwest European steel mills have concluded their first 2019 deals with automotive buyers at a rollover from this year's prices, following protracted negotiations.
One steelmaker finalised a large deal at stable pricing in the last few days, an executive at the firm said, adding that "it is a fairly good result given the development of the market, but it is a margin squeeze".
But mills hope to secure deals for smaller volumes at slightly higher prices to alleviate that squeeze. They argue that automotive contracts with raw material clauses do not account for the steep increase in costs of high-grade iron ore and direct charge materials. The clauses are based solely on headline 62pc Fe iron ore indices, as well as fob Australia coking coal prices. Increased costs for electrodes and refractories, as well as for some alloys, are not also factored into the agreements.
Headline iron ore indices have been rangebound in the last year but premiums for higher grades have soared, primarily as a result of China's Blue Sky environmental protection drive and supply side constraints.
The automotive deals are an important indicator of coil pricing direction, and have been keenly awaited by many participants across the supply chain. Carmakers had initially pushed for large discounts of up to €60/t ($68/t) compared with this year, with mills aiming for €20-30/t rises.
There was still concern over how automotive demand for steel would develop into next year. Auto order intake is broadly stable for January-February 2019 compared with this year, one mill executive said, but he questioned how this could be the case given the marked slowdown in the sector.
"Mills are probably negotiating automotive contracts for next year and trying to keep prices high somehow," one London-based trader said, referring to high offer prices and the perceived inflated level of some indices.
Stockholders still refer to prices being around €550/t ex-works in northern Europe, but this is above what sellers are quoting and likely reflects the fact that those with inventory do not want to see prices slip and their stock depreciate.
The supply chain appears to be well stocked, and service centre margins are compressing as people look to whittle down inventories.
One mill with strong exposure to a certain carmaker still has surplus fourth quarter material to sell, which is weighing on pricing. And Italian material continues to be offered aggressively into northern Europe, at prices substantially below those northwest European sellers are targeting.
The euro remains weak, as Italy's crisis with the EU appears to deepen and its bonds are sold off rapidly. This is making life tougher for traders, but hot-rolled coil (HRC) is still available at €510/t cfr Antwerp from one trader.
Material is available into southern Europe at below €500/t cfr. There were competitive quotes for Brazilian cold-reduced coil at €615/t delivered service centre, compared with €620-630/t ex-works quotes for domestic material.
There is still belief that the US' Section 232 duty on Turkey will be reduced to the original 25pc, explaining Turkish producers' reduced presence in the European market. One Marmara-based steelmaker has offered into the US at $730/st ddp Houston, contingent on the 232 duty falling to 25pc. Increased clarity over this issue could spur some import activity, one trader said.
Argus' northwest European HRC index slipped by €1.75/t to €533.25/t today.
Summary of market activity heard by Argus
- HRC-EU: A steelmaker estimated tradeable value at €540/t ex-works
- HRC-EU: An offer for German material at €545/t ex-works
- HRC-EU: A service centre estimated tradeable value at €550/t ex-works
- HRC-EU: An offer for imported material at €500/t cif southern European port
- CRC-EU: A steelmaker estimated tradeable value at €625/t ex-works
- CRC-EU: Brazilian material offered at €615/t delivered service centre
