European buyers are asking Italian hot-rolled coil (HRC) suppliers to ship material earlier than originally contracted, as they are concerned that production and logistics could come to a stop given the country's increasingly strict coronavirus quarantine measures.
The Italian spot market is, unsurprisingly, inactive, but buyers are looking to secure immediate supply of purchases they either previously bought on the spot market, or by taking delivery of more term contract material.
There is growing concern that the Italian government may order the shutdown of industrial activity in the coming days in its bid to contain coronavirus, and local authorities are pushing for this to be enforced. This could result in producers declaring force majeure, although so far only two longs producers have taken the decision to halt output.
There were reports today that border control authorities in Austria stopped people travelling in from Italy without medical certificates, although wagons still appeared to be moving, at least for now.
Resurfacing concerns about Italian deliveries, and long lead times, created panic among some northwest European HRC buyers, leading them to pay more for small volumes of material from nearby sources. Argus' daily northwest European HRC index increased by €1.25/t to €482.75/t ex-works, while the domestic Italian index was static at €442/t ex-works, meaning the differential is now above €40/t.
Steelmakers with shorter lead times than their counterparts benefited from nervous buyers feeling compelled to pay up for prompt material. This was reflected in indicative curves for the Chicago Mercantile Exchange's new north Europe HRC contract. Brokers were pegging May at €450-460/t — a huge discount to current index levels and the month-to-date average of €483.25/t. The contract cash settles against the monthly average of Argus' northwest European HRC index.
A steelmaker in central and eastern Europe offered 1,000t into Germany at €525/t delivered base for HRC, equating to around €500/t ex-works. While some said this appeared high, it was on a comparatively short four-to-five week lead time, which buyers appear happy to pay more for. One service centre said it paid this on an S235 base yesterday as it was concerned about availability and extending lead times. The mill it bought from was indicating lead times extending into the end of May or early June.
Large buyers returning to market to negotiate monthly contracts are not content with such pricing, and are trying to get rollovers or discounts of around €10/t. They admit to paying €480-485/t in the last round of purchasing. Some of these deals should conclude this week.
While coronavirus could impact logistics and production, there is widespread concern about its impact on demand. Italian carmaker Fiat today said that it is halting output at its Italian plants, and it was a slowdown in apparent automotive market demand that ravaged European steel margins last year.
There could be pent up demand for cars and components, and consequently steel, once the spread of the virus has slowed. But this could be balanced out by the big impact it is already having on services, which will ultimately dent consumer confidence.
