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European steel producers, distributors and traders were found to be bullish on pricing over February, despite a constrain from reduced purchasing activity. A lack of import competition and rising costs are expected to keep prices at elevated levels in the near term, data from the S&P Global Platts monthly steel sentiment survey showed.
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As automotive demand is yet to fully return, most participants were unanimous about inventory levels due to more previously agreed automotive volumes now up for grab, with production therefore expected to be lower as several producers make cuts.
Sources noted that the market overcommitted in the fourth quarter of 2020, amid expectations of strong automotive demand, however, that didn't transpire, so market is generally covered and expecting a pickup in automotive orders in the next few weeks. Therefore, the expected price hikes might not relate to any newfound demand but mostly reflect increasing raw material costs and uncompetitive import offers.
Meanwhile, the European Commission, which is investigating alleged dumping of hot-dipped galvanized coil by Russia and Turkey, decided not to impose provisional duties at this stage of the investigation due to inherent complexities of the issue, according to a letter on Jan. 26. The decision boosted market sentiment in Turkey, where exporters, especially re-rollers, are expecting to increase cold-rolled coil and HDG exports to Europe, which might put some pressure on the domestic European market within the limitations of country-specific quotas.
Similarly, on the long products side, market saw a substantial increase in prices from mills and suppliers. European mills announced a Eur100/mt increase in long steel products like category 1 medium sections, with significant increases for rebars and merchant bars as well. Sources expected prices to increase further in the near term, given a return in demand when construction projects resume and pick up pace, in addition to persistently high energy costs.
Overall trend is leading market participants to expect a strong likelihood for further price increase in February.
The survey, which is used to compile an index demonstrating pricing sentiment, was conducted at the beginning of this month and showed the overall expectation for steel prices at 65 – an index of 50 denotes stability -- suggesting prices would increase.
German inventories stable, production down
The index for inventory sentiment stood at 50, suggesting that stored steel volumes were expected to be stable for February, compared to the market participants' expectation of lower inventories in January when the index stood at 44. Steel producers continued to be more bearish on inventory decreases for February with an index of 42, though it was an improvement from January when the index stood at 38, while traders stood at 59, expecting inventories to increase, up nearly 15 points since the previous month.
Amid a continuous cautious buying behavior and recent price increases, the market saw no eagerness of placing new orders. As the semiconductor issue continues to resolve larger inventories could be necessary, however this could go either way, sources told Platts.
Production outlook for January turned bearish with the overall index at 46 – down approximately 4 points from January, suggesting mills were in no hurry to produce. The added concern of rising energy prices was also adding to the cautious sentiment trend. Steelmakers continue to operate at a low level of capacity utilization, following several production cuts in Europe the last few months down to increasing electricity costs.
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