Metal Prices European metal prices may rise this year despite slack demand
There’s one thing good about an economic slowdown: As growth dissipates, upward pressure on prices often disappears with it. Normally that would be good news for shops still buying metal, but the situation is more complicated than that.
Demand for steel in the EU is set to slip at least 1% this year, according to the European Steel Association Eurofer, which estimated a production decline of more than 7% in the first quarter. In mid May, spot steel billet prices were down some 18% from the beginning of year, according to the London Metals Exchange (LME).
This makes sense: With sales down, prices should also drop, or at a minimum hold steady, at least under most economic models. This may not be the case for steel in Europe, according to Nick Edström, European managing editor at steel pricing service Platts SBB. “Input costs are rising, with high energy prices putting pressure on electric arc furnace-based producers.” Edström blamed recent oil price strength for increasing power costs since the two are correlated. CO2 emission permits and pressure on heavy-industrial user tariffs have also added to costs.
When it comes to national demand, Edström said, “The underlying situation for the European steel industry closely reflects the general economic situation. Outside Germany, Scandinavia and Poland, the general climate remains uncertain. And the further south you go, the weaker underlying demand becomes.” Crude steel production in Germany will remain flat, the country’s steel producers’ association reported at the Hanover Fair.
Wild alloy prices keep suppliers, buyers guessing
Not only could basic steel prices could see some upward pressure from non-demand factors, costs for alloys also depend on their other components, the prices of which have proven volatile over the past few months. The US ratings agency Standard & Poor’s recently highlighted large swings in raw material prices, notably nickel and steel scrap. According to LME data, nickel prices soared 18% from January to mid-February but were 22% off the peak by mid-May and below the levels at the beginning of the year. Copper prices have also been whipsawing across the chart and in the middle of last month were down around 6% from January. This vacillation will likely force suppliers to price in the top end instead of the bottom.
The outlook for steel next year bodes ill for shops seeking relief. Eurofer General-Director Gordon Moffat said, “We are confident that in 2013 a further improvement in the business cycle will result in a modest rebound in real consumption and trigger some restocking. Apparent steel consumption is forecast to rise by 2.5%.”
Aluminium prices jumped 15% in the first quarter before settling again to year-end levels in mid-May. The resurgent US economy has spurred prices across the Atlantic: In April, Platts said its assessment of the premium aluminium transation hit a 26-year high. This reading measures how much higher US prices are versus those on the LME.