Northwest European hot-rolled coil (HRC) automotive supply chain buyers expect contracts for July-December to be settled at slight discounts to the €440-450/t deals for the first half of this year.
Two original equipment manufacturers said they expected settlements for July-December at €420-430/t, while one sub-supplier hoped to get a slightly lower price.
Mills intend to rollover prices, with a couple pushing for slight increases to avoid reductions. Some buyers within the north European automotive supply chain have started to see a slight strengthening in volumes and demand — one original equipment manufacturer said it was now at 50pc of normal volumes, up from 30pc in April.
Argus' daily northwest Europe HRC index slipped by €0.75/t today to €386/t ex-works. The Argus daily Italian HRC index edged down by €0.25 to €376, taking the spread between the two to just €10/t. At least one northwest European mill is selling below both indices.
Buyers point to such prices as justification for decreases compared with January-June accords. But steel spreads are near historically low prices, and mills would be making a loss should they lock them in for the remainder of the year.
The other big issue for mills is the actual volume taken under contractual agreements. One buyer surveyed by Argus said its volumes would be down dramatically in July and August, but after that it hopes to be back at around 70pc of normal levels. Another said it expected to take 50-60pc of normal volumes.
The CME Group forward curve remains at a steep contango to the physical market. July was at a midpoint of €415, with August at €425 and September €430 while the fourth quarter was priced at €442.50. By linking to the forward curve, or the underlying Argus index, mills could achieve firmer prices than €420-430/t.
But buyers are committed to half-yearly agreements, as they expect automakers will continue to adopt annual and six-month contracts, and because they anticipate increases in the fourth quarter and want to avoid renegotiating against a higher price. Buyers also want fixed prices, as opposed to floating.
Buyers could procure on a spot basis for their third quarter needs, and get below likely contractual settlements. But some lack the large volumes needed to get the lowest spot prices, and enter into contracts to ensure they get their necessary material when needed, effectively paying a premium to avoid the risk of supply disruption.
