Strip mill product prices have continued to deteriorate over the last four weeks but may well be nearing the bottom now. Mill order intake is slow as stockists hold back from buying significant quantities in case basis values weaken further and also to minimise their inventories as the year-end approaches. At present, there is oversupply but some mills are now reducing capacity accordingly. Moreover, stocks in the supply chain will need replenishing soon. Any price developments for the remainder of the final quarter, especially in Southern Europe, will be heavily influenced by movements in the US dollar/euro exchange rate.
In Germany, an uptick in the general economy has not, so far, translated into any sizeable growth in steel purchasing, although order intake is relatively strong compared to other countries in the region. Major steel consuming sectors such as auto and mechanical engineering are performing quite well, while construction continues to falter. For the moment, both distributors and end-users are controlling their stocks at a low level. Nevertheless, the negative pressure on flat product prices continues. A great many customers are hesitating before placing business because they fear basis figures may go lower. Moreover, the fiscal year-end is close, so companies do not want to be carrying a lot of stock. There is no real threat from third country imports as the offers that do exist are not particularly attractive. Southern European coil is available at comparable numbers and delivery lead times are relatively short.
Demand remains weak in France, where prices have continued to slide. Even though producers are endeavouring to contain the decreases, they are willing to offer discounts when large tonnages are involved. There appears to be no hope of any immediate reversal in this trend whilst end-user activity remains so poor.
Italian sales are extremely weak as many buyers are loathe to order because they have enough material in their warehouses to see them through to the year-end. However, traders report that their business picked up a little at the beginning of November as a number of clients needed steel for the New Year because their stocks were so low. Overseas material is becoming cheaper as the US dollar slides, although local market players believe prices are quite close to the bottom. Domestic mills continue to align down to meet these offers.
The UK market is described as "pretty grim", with activity levels even more quiet than in October. Domestic producers are struggling to keep prices level against competition from outside Europe as the currency exchange rate moves in favour of importers. Although the volume of steel in the supply chain is very low, resale values have fallen further due to severe competition between stockists for the few orders available. Many will not buy more material until January because they cannot get forward commitment from end-users.
Producers have marked down Belgian basis figures since our October report but values are starting to stabilise now. Some period one 2011 business has already been booked at fourth quarter prices but a good many customers are postponing buying, fearing further erosion. However, supply should tighten soon as local mills are reducing capacity and imported material is not popular. Generally, demand is rather stable.
The Spanish market is quieter than usual in the pre-Christmas period. The US dollar is very weak, depressing import values. The European mills have reacted by cutting basis numbers again. Exporting is difficult because of the exchange rate. Customers are staying out of the market wherever possible, anticipating further decreases. Real consumption has not changed. Distributors and consumers continue to constrain stocks.