Italy’s steel plate price puts margins under pressure

Hot rolled plate prices in Italy are likely to have reached the bottom of the current cycle as production costs continue to apply pressure to steelmakers’ margins.

Italian plate manufacturers and rerollers report that they have little scope to reduce their price quotations in upcoming negotiations, claiming that they are now operating at or around their breakeven point. A recent rise in slab prices and the current conversion costs are cited as contributory factors.?

During research for May's edition of the European Steel Review, plate suppliers told MEPS International that even reducing prices, and selling at a loss, would fail to prompt any increase in sales.

Poor order intake – at both mill and stockholder level – persists in Italy, mirroring the trend seen elsewhere in Europe. Most small and medium-sized plate buyers are purchasing only limited quantities – typically on a back-to-back basis – and have little appetite to acquire material for stock.

MEPS’s Italian research contacts reported that a short spell of restocking, in mid-to-late January, had helped to maintain plate sales in quarter one. Public holidays in April and May contributed to a reduction in activity during quarter two.?

Plate consumers are now alert to the effect of the impending summer holiday period and will operate with minimum stock levels for the foreseeable future. Many Italian companies will wind down their operations – either in part or fully – in August.??

Activity levels in the machinery sector are reduced and segments linked to consumer goods continue to operate below expectations. There are pockets of relative strength, however. MEPS contacts said that the renewable energy sector’s wind farm developments are providing some demand.?

A slight uptick was also noted in Italy’s construction sector in recent weeks. This is despite the Hamburg Commercial Bank Construction Purchasing Managers’ Index declining to 48.5 points in April, the first time the index has fallen below the 50-point mark – indicating a market contraction – since September last year.

Asian imports compete for plate sales

Italian plate suppliers face competition for sales from overseas. The market continues to be exposed to low-priced Asian imports, most notably from Indonesia. Compared with local quotations, a price advantage of around EUR100 per tonne was reported to MEPS during May. Delivery lead times are long, however, with August/September arrival being offered.

Ongoing demand weakness in East Asia means that mills in the region will maximise European export opportunities where possible.?The European Commission’s import safeguard quotas for hot rolled plate are rarely oversubscribed, allowing trade to be facilitated without fear of additional tariffs. ??

Furthermore, the availability of domestically produced plate is good in Italy. Producers are now quoting early July delivery for new orders.?

Shifting source of slab supply?

Italian plate producers have limited purchasing options for slab, however. Due to the Ukraine war, end-users are likely to specify that Russian raw materials are not used. Meanwhile, Russian mills continue to allocate low export volumes of slab to Europe, preferring to sell in other markets.?

Consequently, Italian rerollers have made Asian slab producers their preferred supply option in recent years. Faced with weak domestic flat product demand Asian mills welcome this alternative sales channel for their raw materials.

It is reported that slab prices from Asia are currently about USD580-600 per tonne, CFR Italy. MEPS respondents suggest that a potential price increase by Russian slab producers may enable East Asian mills to implement their own rises in the next round of negotiations.?

MEPS predicts that Italian plate prices will rise in the next few months. Potential production cuts by European mills in the summer months could lead to price rises and improve their profit margins. However, lacklustre local demand and competitively priced non-EU material will continue to threaten their price aspirations.??