Buyers in the automotive supply chain are seeking price cuts of €200/t from EU mills for 2025 annual deals.
The gap between the annual 2024 contracts and current spot market levels has reached an unsustainably large delta, automotive-facing service centres told Argus. Some automakers are paying as much as €250/t more than general industrial buyers, a figure that they want to reduce dramatically. Argus' daily northwest EU HRC index was €551.50/t on 17 October, down by €198/t since early February, while the daily Italian index was €545.50/t, down by €208.50/t.
Some service centres said automakers may even push for shorter-term deals as a result, but they often reduce their volume offtake and postpone deliveries when required, which some call a built-in 'call option' — a call-option gives buyers the ability to purchase if the market reaches what they view as an agreeable price. Automakers at present are delaying call-offs, which has exacerbated the supply and demand imbalance for steelmakers looking to churn out high volumes to secure carbon credit allowances for next year.
One service centre said it is budgeting for a €100/t drop as mills are trying to maintain rollovers, with little support from the market environment. One large buyer called the recent increases in EU a "dead cat bounce", with little support from demand. Mills might manage to stem the declines to about €75/t, another said, which would still leave automotive deals at a hefty premium to spot market levels. One mill executive called the automotive demands "impossible", suggesting momentum would strengthen in the coming weeks as buyers look to procure first-quarter supply. A reduction in import volumes, existing anti-dumping investigations and other potential cases could contribute to this, alongside an expected cut in EU supply in the new year.
Some automakers last year pushed to move to index-linked deals that would enable them to hedge their coil exposure on CME Group's north European hot-rolled coil contract. Automakers have been hedging their aluminium exposure for years and want to do the same for steel. If mills deem the market to be at its low, indexed deals could be a more attractive proposition this year.
