European flat steel prices in rapid retreat, but US mills to be more competitive in third quarter
European steel prices jumped in March last year, posting a brief and unusual spike above US market prices as Russia’s invasion of Ukraine caused a buyer’s panic for various steels and their raw materials produced in Ukraine. Since then, however, European prices have been in rapid retreat, particularly for benchmark hot-rolled coil (HRC).
Steel prices have been showing signs of a revival in July, even as monthly averages recorded so far have corrected further in many cases, notably for carbon steel grades of hot-rolled coil
European steel prices jumped in March last year, posting a brief and unusual spike above US market prices as Russia’s invasion of Ukraine caused a buyer’s panic for various steels and their raw materials produced in Ukraine. Since then, however, European prices have been in rapid retreat, particularly for benchmark hot-rolled coil (HRC). European spot prices fell by 27% year-on-year during the first seven months of 2023, according to the London Metal Exchange (LME), compared with a smaller 21% decline in US domestic and Chinese export prices – the latter of which typically drives other market movements.
The gap, or differential, between European and US prices widened to a factory gate/parity point equivalent of $249 per metric tonne in June, up by $20 per tonne year-on-year, suggesting that European producers will continue to seek more profitable sales in the US. Safeguard tariffs against EU-origin imports have been removed and delivery charges are now less than half the current differential. This allows the US to remain a highly attractive export market for international producers.
Supplies from the EU, which is the US market’s third-most popular foreign supplier behind Canada and Mexico, fell slightly in the first six months of this year. However, EU-origin material typically has a much lower-than-average carbon footprint and is therefore more popular, even as reduced demand has shrunk total US imports by more than 10% – a competitive advantage that will continue as US demand revives with increasing economic activity next year. This is good news for European suppliers whose domestic market appears to be falling further in the quiet month of August as imports are showing signs of recovery. Indeed, imports of heavy plate into Europe are already recovering from last year’s downturn and have gained more than 20% during the first seven months of 2023, squeezing local suppliers.
EU mills’ ability to reduce prices further, to become more competitive at home and abroad, is now starting to weaken as raw material costs have begun to stabilize. Prime scrap prices, which are critical to mills looking to reduce carbon emissions, fell further last month to €321.40 per tonne, the lowest monthly price since February 2021, according to the BDSV in Germany. The decline was nevertheless smaller than normal for the time of year, which in turn is squeezing conversion margins to a level that is rapidly approaching breakeven levels.
For primary iron-based steel producers, margins remain above average following recent cuts to imported ore and coal/coke prices, but the period of pain-free price discounting appears to be coming to an end. US mills are currently happy to pay far more for their raw materials than their European peers, which has allowed prime scrap prices in the US to stabilize at about $100 per tonne higher than in the EU. However, with US steel prices more than $249 per tonne higher and US energy costs still lower, we believe it more likely that it will be US, rather than EU mills, who will be happy to become more competitive as the third-quarter buying season approaches.
Vice President Metals and Materials
Senior Vice President Metals and Materials