UK HRC: EU seller chops prices after low Russian offer

Market: Metals
03/10/19

UK hot-rolled coil (HRC) prices continued to slip this week as a Benelux-based seller cut its offer on the back of a cheaper Russian import quote.

Argus' weekly domestic UK HRC assessment, which specifies S275 grade in speed-stock sizes, slipped by £2.50/t to £432.50/t ddp West Midlands today.

Material from a Russian mill was recently offered around £420/t ddp West Midlands, and the Benelux mill reduced its offer to £425/t ddp as a result. Buyer interest in the Russian offer is limited as it is December loading.

Most European mills, and domestic UK sellers, are still eager for tonnage. There was talk of a German mill not normally seen in the commodity grade HRC space offering into the UK. This did happen a few months ago, but the mill could not be reached for comment today.

One domestic UK seller is struggling to go below £435/t ddp, and pushing for more, because of high slab costs. But this level is not particularly attractive to buyers when European pricing is similar, and the mill might need to drop prices of lower offers for similar quality European coil.

Another European mill that is behind on HRC deliveries after stoppages is idling three of its galv lines a day per week while it catches up, evidence of how weak the hot-dip galvanised market is.

Imported Turkish HRC has been offered at £435-439/t ddp West Midlands, but again demand is scant. Indian cold-rolled coil has been offered around £490/t ddp West Midlands, but buyers are not keen because of the lead time; some said the material is also "greyer" than customers would like.

Demand has slipped, margins remain negative and there is sufficient coil around should buyers require top-up tonnage.

One major issue in the UK is the weak outsell market. Cut sheet prices are as low as £460-465/t ddp, which only covers coil cost and some transport, and nothing for the actual processing of coil into sheet; service centres say that this typically costs £50/t. Stock cost is around £440/t, according to buy-side sources.

The possible Brexit scenarios and their respective impact on the pound are also a concern. Should the EU try to negotiate a deal based on Boris Johnson's latest proposals, which seems unlikely, the pound could strengthen. While a deal is largely viewed as economically beneficial, the stronger pound would actually weigh on third-country and European pricing. Conversely, should the EU veto the proposals and the likelihood of no deal increase, the pound could depreciate rapidly and push prices up.

Several sources surveyed by Argus, on both the buy and sell sides of the market, suggest a big capacity cut is needed from mills to push out lead times and support prices.

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