UNITED KINGDOM August 24 2015 4:45 PM     

LONDON (Scrap Register): European steel prices have  continued to trend downwards over the last twelve months. The MEPS - EU Average  All Products Composite Price is currently 5 percent below the figure recorded in  August 2014. Steel selling values now stand at a five-and-a-half-year  low.

MEPS analysis indicates that the differential between steel prices  and mill input expenditure, in euro terms, is broadly similar to a year ago.  Substantial decreases have been witnessed in the cost of US dollar denominated  raw materials, such as iron ore, coking coal and ferrous scrap. However, due to  currency exchange rate movements, the reduction has not been as pronounced when  converted into euros.

There have been mixed fortunes for the region’s  steelmakers. A number of mills, including ThyssenKrupp, Salzgitter and  Voestalpine, have recently announced positive second quarter financial results,  mainly based on the implementation of restructuring programmes. In contrast,  earnings have deteriorated at Tata Steel’s European division. The company has  cited the influx of cheap imports, uncompetitive energy costs in the UK and the  strength of sterling as the reasons for the poor performance.

Demand from  most steel consuming sectors is projected to expand this year, with automotive  being the stand-out performer. We believe that apparent consumption will rise by  approximately 2 percent, compared with 2014. Improving consumer sentiment, low  oil prices and the depreciation of the euro are supporting growth.

Steel  production, in the EU, has been relatively flat in the first half of this year.  In contrast, imports have expanded. The inflow of foreign flat and long finished  steel products increased, in January/April 2015, by 7 percent, year-on-year.  This follows a rise of more than 20 percent in the previous twelve month  period.

Conditions are very quiet in the European steel market, at  present, due to the summer shutdowns. We do not expect that any post-holiday  restocking will result in an increase in steel transaction values. In fact, we  forecast them to remain under negative pressure in the coming months. Import  prices continue to fall and domestic mills may be forced to cut their selling  figures in order to compete.

The recent devaluation of the Chinese  renminbi is likely to result in even lower import offers into Europe. Material  of CIS origin will remain a prominent feature of the market. Furthermore,  producers in countries such as Brazil and South Korea are attempting to boost  sales in the region.

The heightened import threat, coupled with low raw  material costs, is expected to result in steel price decreases for the remainder  of 2015.