Raw materials 2022: European coil market uncertain as first quarter automotive demand hopes to balance

Strong points

EU car demand to rebound in the first quarter

Factories focus on March orders

Quotas from “other countries” could decide prices in Italy

US exports to the EU will push up domestic prices

Sentiment in the European coil market was based on hopes that a global semiconductor chip shortage will ease in the first quarter of 2022, pushing up prices for steel producers who have resorted to rebates. due to the weakness of automobile production.

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The European coil industry had a tumultuous 2021, with material shortages leading to record prices, followed by a drop in demand for steel from the automotive sector which derailed the domestic market.

Hot-rolled coil prices in Northern Europe ended the year at 922 euros / mt, after record prices in June of 1,190 euros / mt ex-Ruhr. Italian HRC prices also hit a record high in June at 1,145 EUR / mt from Italy, but have since fallen from 309 EUR / mt to 836 EUR / mt.

Heading into 2022, after two unprecedented years of production cuts, accelerations, lows and record highs, two issues are likely to determine supply and demand in the spot market: the absorption of materials by the automotive industry and the fate of trade barriers, such as import quotas and anti-dumping duties on steel imports into the EU.

Auto makers abandon steel volumes

Global auto manufacturing demand and production have fallen since September following severe steel shortages in the spring and early summer, as the chip shortage worsened. Steel inventories have been building up because previously agreed auto volumes have been returned.

Some European steel companies channeled the volumes of steel available for exports, while others were confident that peripheral sectors, especially heavy machinery and construction industries, would be able to absorb the surplus.

“The cancellation of auto orders has forced EU factories to try and move volumes to export markets so as not to contaminate domestic prices,” a source from a European factory said.

A German factory source said spot price developments were bearish in early 2022.

“I expect the price to be still under pressure in the first quarter. The automobile is still weak,” the source said. “There are gaps in the order books, but that will not force price erosion.” The supply chain was likely to get rid of excess inventory before large purchases resumed, according to the source.

In December, some automakers said they were confident the chip shortage would ease between the first quarter and the second half of 2022, sparking hope among steelmakers to increase in volume.

“There are positive signs – signs of hope for the automobile,” said a UK trade source. “The only concern is that while there is an order book of two million cars, there is not much order book beyond that.”

EU car production only grew by 3.1% in the first three quarters of 2021 to reach 7.6 million cars built, 3 million units lower than the volume before the pandemic in 2019, according to data from the Association of European Automobile Manufacturers (ACEA).

“The auto is going to call for more volumes. Service centers have to ship a lot in January, so their inventory will be down,” a second source from the plant said.

Auto contracts 2022 sealed

Long-term auto contract negotiations were already in full swing as spot prices declined, following weaker adoption among automakers through the second half of 2021.

Talks stalled as factories attempted to hit EUR 1,000 / mt and above for HRC and EUR 1,200 / mt for hot-dip galvanized steel, while automakers meticulously monitored price developments cash and raised the stakes in the negotiations.

The prices for the HDG 2022 contract were established at 1,200-1,250 euros / mt delivered in Europe towards the end of the fourth quarter, and around 1000-1,050 € / mt delivered in Europe for the HRC.

A European factory source said its outlook for the first quarter was focused on securing March orders with a “much better view” on auto demand. The source said several automakers have already announced extra shifts due to the reduced chip shortage.

“Autos have been weak in the last quarter and hit factories – autos account for 20% of total production. It happened, but it’s over now,” the source said.

EC revises steel import safeguards

The European Commission’s periodic review of its steel import safeguard measures, which will also assess changes to US Section 232 tariffs on January 1 and its effect on steel trade flows, has been brought forward from February or March 2022.

Market participants will have until January 10 to submit opinions on current safeguard measures and changes to Article 232. The committee will also assess whether a 3% annual increase in liberalization under current safeguards is justified.

“I think the review of ongoing backups will also help stop the decline. [in prices]. Nobody needs to push now, ”the British trader said.

Steel quota from “other countries” to determine prices

Southern European market players have said that the HRC steel import quota for “other countries” in April 2022 could determine the direction of Italian prices, as entries from India and Turkey are likely to benefit from the unused capacity of that quota.

“From April we will be able to enter the quota for ‘other countries’, so that we can be helped in this way,” said an Italian service center.

A second source from the service center said the wide range of import options would become more “relevant to pricing in the second quarter.”

Concerns about a possible exhaustion of the import quota would be offset by a Section 232 tariff decision and an increase in automotive demand in the first quarter, a source from the plant said.

“The factories have the door open to the United States, where the prices are much higher, so that will compensate for the lower import prices,” the source said. “If you look at Q2, the European availability still has some good tonnages that could be delivered to the US. Nobody is considering that part of the demand.”

Concerns over import duties, quota restrictions and anti-dumping investigations always make imports a risky option for buyers.

Market chatter about an anti-dumping investigation into HDG’s imports from Turkey and Russia led participants to anticipate possible provisional measures coming into effect at the end of January 2022.