Steel producers in southern Europe are expected to attempt price increases, in the short term. Strip mill product basis values, in Italy and Spain, have fallen by between €60 and €85 per tonne, since March. Steelmaking input costs, particularly iron ore, have risen, during the same period. Consequently, mill profit margins are at unsustainably low levels. This is compounded by reduced sales volumes, due to the coronavirus-related shutdowns across steel-consuming sectors.
In addition to the high raw material outlay, amendments to the EC safeguard quotas and mill production cuts are expected to support the steelmakers’ price hike initiatives. Furthermore, Turkish and Indian exporters are less aggressive than in recent months. Nevertheless, many southern European steel buyers believe that the price increases will be short-lived, as no sustained improvement in demand is envisaged.
High inventories in Italy
Italian steel producers and distributors are facing adverse financial circumstances, due to the current market conditions. Supply chain participants are trying to destock, but inventories are lasting longer than usual due to reduced demand. Material can be obtained promptly, from local sources, for the small volume of purchasing that is taking place. Liquidity problems are growing.
End-user consumption is mixed, in Italy. Demand, from manufacturers of vehicles and home appliances, is muted. A slight upturn is noted in the packaging segment. Activity is more favourable in the construction sector.
Spanish distributors purchase cautiously
Activity is picking up in the Spanish market but not significantly enough to prevent price erosion, over the past month. Distributors continue to purchase only for their immediate requirements. Nonetheless, strip mill product basis values, in June, are believed to have reached the bottom of the current cycle.
The increase in Spanish automotive production, following coronavirus-related shutdowns, is marginal. Service centres supplying customers in that sector recorded a dramatic reduction in sales, in recent months. In contrast, volumes to construction companies are at a reasonable level.
Source: MEPS International Ltd.