COMMODITIES 2025: European HRC faces price pressures and demand challenges

This is part of the COMMODITIES 2025 series where our reporters bring to you key themes that will drive commodities markets in 2025.

European flat steel market outlooks remain focused on poor supply and demand dynamics, exacerbated by extra-market uncertainties as market participants share insights and expectations for 2025.

The fourth quarter of 2024 was marked by reduced spot liquidity and increasingly negative sentiment among suppliers and buyers. Prices for hot-rolled coil (HRC) ex-works Ruhr remained under pressure despite attempts by mills to increase offer levels due to poor margins and weaker capacity utilization.

HRC prices gradually eased from June to September 2024, remaining largely rangebound between Eur540-575/mt ex-works Ruhr, despite increased offer levels from mills. Sources continue to point to high stock levels across the value chain due to limited buyer interest in key demand sectors in both Northern and Southern Europe throughout 2024, particularly from the automotive and construction industries.

Automotive sales across Europe have remained stable throughout 2024, with new passenger car registrations in the EU increasing slightly by 0.4% eleven months into the year. However, key markets Germany and France have faced pressure, with sales dropping by 0.4% and 3.7%, respectively, according to European Automobile Manufacturers' Association data.

Recent negativity surrounding the construction sector was further highlighted in the S&P Global/HCOB Germany Construction PMI (Purchasing Managers' Index) Total Activity Index survey, which used data collected over Nov. 12-28. The report, published on Dec. 5 by S&P Global, recorded a further contraction in total activity for the sector in November 2024, down to 38.0, reaching the lowest level since April and marking a second consecutive drop month over month.

Looking ahead to 2025, market participants remain largely negative about the possibility of demand-driven price recovery, suggesting that support is more likely to come from capacity cuts necessary to ease the oversupplied market.

"Mills are losing money at current price levels, so need to reduce capacity in the first quarter to support prices," a Germany-based service center source said. "An output cut will help maintain higher offer levels, but I do not see any changes in real demand, prices will only increase because of supply-side factors."

Similarly, an Italy-based trader source said, "Currently, the expectation is that Q1 2025 will be difficult, but better than Q4 2024. We need demand to come back."

Nonetheless, in the short term, many sources have suggested that demand-driven price increases are unlikely to manifest, arguing that the upcoming elections and other geopolitical changes are further adding to the uncertainty faced by the market.

"The expectation is that after the German election, things will improve, but there will be a time lag as the new government will take time to change things," said one Germany-based distributor source, discussing the snap election called on February 23.

However, the same source also suggested that the turbulence seen in the wider European political system is adding additional pressure to the industry. He said, "While I am slightly positive about the possibility of a new German government, the recent political situation in France is concerning and it is a big question mark for us as France is very important for German and EU industry."

Similarly, President Donald Trump's inauguration as US president on Jan. 20, remains a key talking point among market participants, with many expecting a similar level of protectionist measures as seen during his first term.

Imports

Discussing prospects for the flat steel import market, sources remained steadfast that prices could remain uncompetitive compared to EU mills, potentially tightening the domestic market and further lending support to domestic prices -- marking a continuation of trends seen through Q4 2024.

Expectations for price recovery in the import market remain relatively poor, with the HRC CIF Antwerp price trajectory through H2 2024 mirroring domestic prices in Germany. The Platts HRC CIF Antwerp price peaked in January 2024 at Eur680/mt but gradually decreased throughout the year, falling below Eur600/mt on July 19, where it was assessed at Eur590/mt. It continued to face pressure despite higher offers reported in the market, as participants pointed to the limited competitiveness of import prices, with domestic service centers and mills reporting strong availability and shorter lead times through Q4. Additionally, sluggish demand within Europe has reduced the incentive to import steel, especially when offers for HRC on a CIF Antwerp basis are comparable to domestic prices.

"Current HRC import offers are unworkable, and with only a limited window to clear customs, you have the risk of sitting on the material for 3 months or be faced with a very high duty," said one South European seller. "There are too many question marks, and with the higher offers you need to stay domestic [for supply]."

Furthermore, the European Commission is initiating a review of safeguard measures for steel imports, which is scrutinizing the implications for domestic prices and market stability. This review, prompted by requests from 13 EU Member States, comes in the wake of significant changes in market conditions, including low steel demand and increased exports from China that have disrupted traditional trade flows.

Market participants are hopeful that adjustments to tariff rate quotas could lead to higher domestic prices, providing much-needed support to EU mills struggling with poor margins and overcapacity. A Germany-based distributor noted, "The EU review of safeguard measures could lead to higher domestic prices; it can help the EU steel industry." This sentiment reflects a broader expectation that recalibrating import quotas could bolster local production by reducing competitive pressures from imports.

However, skepticism remains prevalent. Some stakeholders argue that the underlying issue is not the pricing of imports but the persistent low demand for steel across Europe. As one distributor pointed out, "I don't think the safeguard review is positive for the market. The underlying problem is low demand, not price, so the review won't help with protection against imports."

Despite these mixed opinions, the current trend indicates that imports are likely to decrease in 2025, further tightening the market for domestic mills. With the euro's depreciation against the US dollar making imports more expensive, interest in foreign HRC has waned, as evidenced by the Dec. 31 Platts imported HRC prices in Northwest Europe at Eur530/mt CIF Antwerp, down from previous levels.

As EU mills continue to grapple with excess capacity and weak demand, the outcome of the safeguard review will be pivotal in shaping the future of the import landscape and its impact on domestic pricing dynamics.