In times of weakening steel prices, producers sometimes announce plans to raise their selling values simply with the aim of stabilising the market, and with only faint hopes of actually reversing the downward trend. Certainly, they do not always achieve the full published price increase from day one.
The first to move in the latest round of attempted strip product price hikes was US Steel Europe. It announced a €40 per tonne price increase on coated and uncoated products from its Slovakian and Serbian works to come into effect on August 16 – a day when we suspect more of its customers were on the beach than in the office. Nevertheless, the company is backing up its price rise effort with further production cuts at its Kosice works.
German mills, ThyssenKrupp and Salzgitter, are proposing fourth quarter increases on strip products amounting to €20/30 per tonne. Arcelor is hinting at €10/50 per tonne. Other mills are likely to follow these moves. Finland’s Rautaruukki has said it will lift prices in the final trimester but has given no details. Mittal Steel’s strip product works also expect to try for a fourth quarter increase of perhaps €20 per tonne. Corus is raising prices on structural sections, but has not yet determined whether to go for an advance on strip products too. Some Italian coil producers and re-rollers are also indicating they will attempt price improvements soon.
Producers have restrained their output and import tonnages have fallen in recent months. We estimate that EU25 inventories of flat products rose by at least 6 million tonnes, year on year, in the twelve month period to June 2005. Since then, 1.5 million tonnes may have been taken out of the system - but this still leaves a large excess. Evidence from buyers also suggests there is still a lot of steel in many customers’ factories and warehouses. Moreover, mill stocks have not yet been totally eliminated.
Some factors are moving in the steelmakers’ favour. Import pressure has been significantly reduced, with fewer low-priced offers from countries such as China, India and Iran. There are small signs of a rise in underlying steel consumption. But the producers are feeling the full impact of increased costs for inputs such as iron ore, coal, scrap and energy. This makes them anxious to secure counterbalancing price hikes from their customers.
However, many stockholders and other market players say price escalations of the scale mills are seeking have yet to find general acceptance. Some buyers do see room for price rises from October, but only perhaps €5/10 per tonne. It may be only those purchasing managers needing urgent supplies who are prepared to pay more. Those who can wait may hold off - putting more pressure on the mills to relax their current stance.
If prices do start moving up again in the final quarter, it would be one of the shortest cyclical downturns on record. The European steel market left behind the five-year and four-year cycles in the 1990's. The normal span from peak-to-peak has reduced to 2¼ or 2½ years.
In the current cycle, flat product prices in most European countries started to fall in March or April. It would therefore be very unusual for them to begin rebounding as early as October. This would indicate a downward leg of the cycle lasting only some 5/6 months, and it would be quite a dramatic development if the trough really has been reached already.
ThyssenKrupp followed up its period four price rise with a comment that a further increase is under consideration for the first quarter 2006. It seems much more probable that the mills would succeed in securing the higher prices in January than in October.