Supply Crunch Supports European Steel Prices

Supply Crunch Supports European Steel Prices

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European strip mill product steel prices were largely unchanged, in late March/early April, despite the major impact of the coronavirus outbreak on the steel sector and the worldwide economy. MEPS notes a great deal of uncertainty. As major end-user industries, especially the auto sector, ground to a halt, purchasing activity slowed significantly.

European steelmakers are cutting output substantially in an attempt to balance supply with reduced demand. Currently, local mills are not using price as an instrument to encourage sales.

Negative pressure could come, as a result of cheap third country imports. A sharp reduction in offers from overseas is noted. However, at present, buyers are only interested in purchasing small quantities for their immediate needs. They are unwilling to risk ordering material that will be delivered many months ahead, when future demand remains unquantifiable.

As the Covid-19 pandemic rampaged through Europe, the authorities in individual countries reacted to the threat in a variety of ways and at differing speeds.

Although the French government did not impose a total lockdown, many companies chose to close. Steel producers kept output at reduced levels or shut facilities. Some distributors and end-users are starting to reopen. However, workers are reluctant to return, especially in the logistics sector. Major players were still closed at the beginning of April. Carmaker, Peugeot, announced a slow resumption of production.

German distributors anticipate a slowdown
In Germany, steelmakers, in the strip mill products sector, remained active but reduced output at some sites, as demand declined. Service centres remained open and, in late March/early April, business was running relatively well. Many distributors report that March was a particularly good month for sales. They expect activity to reduce, in the near term.

Stock levels, in Germany, are quite low. This situation is exacerbated by the unreliability of mill deliveries. Third country offers are available in the market, but buyers are less interested than of late.

Liquidity concerns arise in Italy
Italy was on complete lockdown, which extended to April 13. Several steel mills continued production for essential industries, albeit at a reduced rate. Towards the end of the second week of April, Italian authorities allowed certain mills to restart commercial activity. After the Easter holidays, production and distribution resumed, very slowly.

Business activity is extremely low, at present. Liquidity is expected to be a major issue. Third country suppliers dropped their price offers quite dramatically. Many overseas companies are under pressure to export.

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