European
steel buyers of cold heading quality (CHQ) rod must pay significantly more for
their material, in the second quarter. Following the trend of other
wire-related products, regional steel producers have secured substantial price
hikes during their recent negotiations.
The European
CHQ market has been exposed to the same cost pressures that have influenced all
other steel products, in recent months. The outbreak of war in Ukraine was the
catalyst for the spike in prices.
The military
action is having both a direct and indirect impact on the market.
CHQ rod
supply from Ukraine has ceased. Russian and Belarussian material is
unavailable, due to the sanctions imposed by the European Union. Many
purchasing managers, in Europe, report that this has caused supply shortages,
in several products, such as nail wire.
European
mills had to review their production schedules, owing to the rapid rise in
their raw material expenditure. Furthermore, energy costs have surged, and
remain at elevated levels, due to the crisis.
It is
reported that several CHQ producers added energy cost-related clauses to their
pricing mechanisms, in an attempt to maintain their existing profit margins.
Alternatively, other mills have used the surge in their input expenditure as
the main rationale to hike their basis prices.
Buyers claim
that several steel manufacturers are only willing to commit to monthly prices,
as opposed to their traditional quarterly agreements.
Some German
and Benelux-based producers were late to finalise their pricing and delivery
intentions for the second quarter. Buying from Spain was problematic, due to
ongoing transport disruptions. A lack of UK buying options exists. Central
European supply is limited, owing to the regional mills’ exposure to raw
material deliveries from the east.
The current
supply concerns, however, have been largely offset by the ongoing demand
weakness in many CHQ-consuming segments.
Car-related
activity remains at low levels, due to supply chain difficulties, including the
ongoing lack of semiconductors. Other vital components, previously produced in
Ukraine, are now in short supply. Some automotive production has been moved
from Ukraine to neighbouring countries, such as Poland and the Czech Republic,
on a temporary basis. This is to minimise any potential disruption to vehicle
output.
Commodity price inflation
is an increasing concern. Tightening monetary and fiscal policies are expected
to significantly affect future consumption. This will negatively influence
demand from most steel-using sectors. The risks of a recession, this year or in
2023, are growing, across the continent.
Source: MEPS International Ltd.