Siderweb surveys trends in Italian flats market

A few figures

We can see that we are currently in a waiting period when we take a close look at the Italian service centers through the monthly survey carried out by Siderweb.

According to the Siderweb report, in September Italian service centers sold as much as, or just slightly less than, in July - when unquestionably good sales levels were recorded. In October, overall sales volumes should remain in line with those of September. Last month, inventories made a step forward (compared with July) with an increase for 62% of the Italian service centers sampled, whereas for the remaining 38% the level was unchanged. Stocks should be substantially stable in October also (stable for 66% of those sampled, with 29.3% on the rise).

By comparing purchase and sales prices, it can be estimated that in October service centers will sell at higher prices than in September (they will sell products derived from the coils bought in July at higher prices), while purchase prices will rise for 55% of those sampled. Closing data show that in September 64% of those sampled recorded purchase prices in line with those of July, while 30% registered prices that were lower.  

A few comments

Just a breather and, maybe, nothing more. This is the unanimous opinion of the operators Siderweb contacted for a snapshot of the flat products market. It is a pause for reflection and, in all likelihood, a downward correction of the prices of flat products. This is a consequence of several conditions which have partly changed the market:  a decrease in oil prices which, however, are still high, a decline in U.S. growth, and higher offers from the Far East which impact on purchase strategies and producers' offers. In general, deviations were limited, but they were enough to shift the situation from an upward trend to a more cautious attitude.  In fact, more and more operators are standing on the sidelines, thus slowing purchases and causing a slackening in the rise in coil prices. However, there are more general reasons that support the view that there will be no sharp declines, but just a search for a new balance. These mainly include the growing concentration among producers.

However, the downtrend in flat product prices - a fall of 40-50 euros/t compared with the highs recorded in July - is a fact.  The fall has been recorded over the past few days, but it is just in recent weeks that service centers received the coils purchased two or three months ago, i.e. when prices were at their highest. This is also due to delays in deliveries and, among these, the heavy delays of Arcelor which postponed several deliveries scheduled for the fourth quarter 2006 to the first quarter of next year as a consequence of plant problems. Therefore, service centers are processing and selling products today that were purchased at higher quotations than the ones being currently negotiated (deliveries scheduled for December-January).

Looking at the trends of each product, hot and cold rolled products showed performances which in general are the same (also downward), while the quotations of galvanized products started to decline later - in part due to a fall in the prices of galvanized products on the London Metal Exchange. Also heavy plates, which had reached very high quotations, gave way to falls fuelled by some imports. A drop in prices is, however, to be excluded, since downstream demand is still performing well.

Real consumption remains healthy, thus proving to be a standing pillar which will support the prices of flat products, even though downstream short-term purchases are more and more often the favorite strategy (for businesses that can follow this approach).

Today, according to what we gathered, Italian service centers, in general have average or good stocks, while ,downstream, stocks are thought to be low among end users. Therefore, there should be enough oxygen to fuel apparent consumption as well.

China's influence

When – and to what extent – is Chinese steel going to have an impact also on the European flat products market?  The fear is there, and it is confirmed, if any confirmation were necessary, by the very recent past.  In August, the arrival of about forty ships full of Chinese steel unsettled the market and, even if they did not cause prices to slip, cast some shadows over the Italian coil market, thus causing a slackening in flat product purchases.

And yet, according to the service center report, there is no "structural" menace, since the Chinese Dragon may not be interested in invading the West in the field of iron and steel. According to what we learned, the three leading Chinese steel plants export to Italy only a negligible quantity of the steel produced by their enormous furnaces. However, a multitude of small Chinese steel plants are more and more attracted by Western markets and are trying to carve out their own space (and room for speculation) westwards, but with insignificant volumes and, sometimes, low quality products. Moreover, the rising costs of sea freights should be considered, besides the fact that even the Chinese giant must necessarily buy raw materials at high prices.