Price slide on the steel market - also in Germany?

The international steel market was characterized by sharp price declines in November. Although spot market prices in Germany are still comparatively robust, they have also fallen, especially for flat products. Support factors have also lost strength in Germany. While many factors on the market side speak for the steel purchasers, the pending decision in the EU's safeguard investigation is the political "elephant in the room". Read an assessment of the current situation.

On the world market, the crumbling of the previous weeks has turned into a veritable price slide during November. Prices for semi-finished products and rolled steel have come under considerable pressure. After lower prices in many cases emanated from Turkey starting in late summer, massive price declines were recently recorded in China in particular. These have spread to many regions of the world via the export market. On the Asian market, export prices for hot-rolled wide strip have in many cases reached $480/t and are thus around $100/t lower than in the middle of the year. Market sentiment is currently very negative and hardly anyone expects a quick recovery. Doubts seem to be confirmed about the sustainability of the high price phase that has been ongoing since 2017.

The price declines on the world market are also clearly noticeable on the EU import market, where prices have fallen noticeably in recent weeks. In addition to this direct effect, the deterioration in sentiment should also lead to the traditionally pronounced buying restraint on the spot market at the end of the year becoming even more pronounced. The above-average level of inventories in the trading sector should also contribute to this.

Not only cyclical influences are dampening demand, but real demand is also weakening. In Germany, demand has not been good after the summer break. The apparently  low demand from the automotive industry is weighing on the flat steel market in particular. Whether there will be a counter-reaction after the WLTP changeover is difficult to assess. There are currently increasing signs that a rapid improvement is not necessarily to be expected.

Declining steel prices are leading to lower margins for steel producers, which in turn are depressing raw material prices. Iron ore prices have recently fallen sharply. For coking coal, at least the  recent upward trend seems to have stopped. On the scrap market, prices in Germany rose again slightly in November. However, the Turkish import market has been weaker recently.

Important market influences thus suggest that steel prices will continue to fall in the coming weeks. This applies more strongly to flat products than to construction-related long products, which currently appear to be better supported in terms of demand and costs. In addition, the duty-free import quotas set by the EU for many long products have been used up more than for sheets. In the case of wire rod, the EU quotas are likely to be completely exhausted in the near future, which will reduce import competition.

The greatest risk for steel purchasers lies in the approaching final decision of the EU Commission in the ongoing safeguard investigation. This must take place at the latest at the beginning of February, but can also be announced earlier. Not only a simple update is conceivable, but also a redesign of the provisional measures. The steel industry is lobbying for import quotas to be allocated to individual supplier countries in line with "historical" supply flows. From the point of view of processors, this would be a catastrophe, especially for flat steel products, in conjunction with the numerous existing anti-dumping measures. According to StahlmarktConsult calculations, import volumes would be reduced by around 30% compared with 2018 levels. Conversely, various flat products could also be completely excluded from the measures because the criterion of a significant increase in imports is not met.

Depending on the structure, the EU decision could have a positive or negative impact on steel prices. Either way, they are suitable for overshadowing market influences in the short term.

The article was written by Andreas Schneider, StahlmarktConsult, steel market consultant from Leverkusen.

Photo: StahlmarktConsult

The guest commentary reflects the opinion of the author, not necessarily that of marketSTEEL's editorial staff.