EU HRC: Germany, automotives constrain sentiment

Argus' daily northwest Europe HRC index was stable today at €510.25/t ex-works.

Germany's manufacturing sector contracted in January as Chinese demand cooled, and the automotive slowdown continued to bite.

Automotive sub-suppliers, and the companies serving them, all have sufficient stocks because of the slowdown in production. A cold-roller serving the sector said his company has around four weeks of production in stock after cutting output in the fourth quarter of 2018, but a weak order book.

Half-yearly contracts between cold-rollers, service centres and automotive sub-suppliers have returned to the levels of early 2018, paring back the €15-20/t increases that mills obtained in the middle of last year.

Annual contracts concluded at rollovers, although some mills suggest they got €15/t increases.

In southern Germany, mill' spot offers are around €460-470/t ex-works, which is starting to crimp appetite for imported tonnes, particularly as Turkish mills look for higher prices. Buyers are trying to secure imported material at €460/t cfr base, but traders are reluctant to accept such levels.

In the UK, buyers are firmly on the fence because of concern about Brexit-induced exchange rate movements, which could exacerbate any reduction in pricing. Traders are also beginning to become concerned as lead times from certain destinations extend.

Traders remain pretty well stocked and buyers can still order material for arrival in the first week of March from at least one European mill. There is plenty of supply around, according to service centres, and outsell prices are still under pressure.

There is an expectation that the definitive safeguard will tighten pricing, particularly for cold-rolled coil and hot-dip galvanised (HDG), with less oiled HDG coming from China.

Buyers are holding off purchases because of the uncertainty, and this is leading some traders to hope that there could be shortages on certain gauges at a later date.

The stalled sentiment in Europe contrasts pretty sharply with the primary export hubs. CIS HRC pricing firmed by $11.70/t to $459.20/t fob today, according to Argus' assessment, as another mill sold out February production. Turkish pricing soared on firmer offers and lengthening lead times. The Argus weekly fob Turkey assessment jumped by $30/t on the week to $510/t today.

Fob China HRC rose by $4/t to $491/t fob on tighter availability, as traders looked to book cargoes to move post-lunar new year.

But the outlook for post-lunar new year pricing is somewhat unclear. Typically it is a restocking period for the world's largest consumer, and producer, of steel, but manufacturing demand has been relatively subdued since the fourth quarter of last year. And the continuing trade issues with the US are stoking fears over the health of China's economy. Stimulus measures designed to offset an economic slowdown could of course support steel pricing.