European Steel Prices On the Up

Despite worries about Irish and Club Med country debt and auto sales continuing to decline across Europe, in some cases back to levels seen in the 1990s according to an AFP article, steel producers still plan to raise prices as the year ends.   A Steel Business Briefing note advised most medium section mills are sold out for December as distributors scrambled to take up December production prior to anticipated January increases. A Steel Guru article mentions that in spite of an estimated 40-90 million tons of excess capacity in the region, rebar prices, which were at 410 euro per ton EXW ($545/t) in southern Europe earlier this month, jumped to 450 to 470 euro per ton EXW ($600-625/t) for December. ArcelorMittal reported section steel increases of 25 euro per ton in October and 50 euro per ton in January. Spot prices in the flat steel market increased about 10 euro per ton since early November, while HRC is being offered at 450 to 500 euro per ton EXW ($600-665/t). The price increases span both the south to the north across Europe. Galvanized steel prices were reported in excess of 550 euro per ton EXW ($730/t).

As in North America, European producers have done a much better job during this recession in managing excess capacity and therefore maintaining a modicum of profitability in what would otherwise be dire times. A Rusmet-sourced article reports ArcelorMittal stopped three blast furnaces at two mills in France and one in Poland this summer. Last week it stopped steel smelting in one of two furnaces at its Romanian steel mill and during December it plans to idle some capacity in France and Germany. In addition, the company plans to temporarily idle seven rolling lines to bring supply of steel products in line with reduced demand. Early indications suggest US Steel may follow ArcelorMittal’s example —   this summer it stopped one blast furnace at its steel mill in Serbia, and it may stop the second soon, removing all of its steel smelting from its Slovak mill. The article estimates idle capacities at European integrated iron and steel mills total around 20 to 25 million tons per year and by the start of the next year it may reach even 30 million tons.

The mills’ ability and willingness to adjust capacity in line with demand is a testament to the consolidation that has gone on over the last ten years. Production is held in the hands of fewer but larger producers better able to take such strategic steps. While consumers would obviously like to see lower prices, rising raw material costs point to price trends in the opposite direction regardless of capacity utilization. To survive, it is important steel makers continue to make a profit. As recovery in European manufacturing does materialize, at least a steel industry will be there to service it in the years ahead.

–Stuart Burns

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