European steelmakers are contemplating ways to boost hot dip galvanized margins as high zinc and rising hot rolled coil prices bite.
The weekly Platts TSI base grade HDG index ticked up to Eur670/mt ($830.64/mt) ex-works Friday, but mill sources are desperate to get the market towards Eur700/mt in order to return margins to the buoyant levels seen in the first half of 2017.
According to calculations by S&P Global Platts, the margin left once spot ex-works Ruhr and LME cash zinc prices are subtracted from the Platts TSI Z275 HDG price was Eur19.96/mt Thursday.
The margin had been as high as around Eur100/mt in April 2016, remaining in a range of Eur70-90/mt until July. By late October a combination of a strong zinc market and weakness in the base grade HDG market saw the margin slip below Eur20/mt.
Most mills sell HDG to customers by negotiating a base price and then applying an extras list for different specifications. But steelmakers are struggling to keep these extras lists relevant in the face of the climbing zinc price.
As previously reported, Italy's Marcegaglia is again revising its extras list, having previously done so in November. A source from a western European mill said he was considering a surcharge having only recently revised his own extras list.
"We're thinking about what to do. If you want to do a price list it's a big effort so we're thinking about a new way. A surcharge maybe," he said. "We tried to figure out a surcharge, we're talking to customers about how others are doing it. We see standard 140g (zinc coating) we need an extra Eur20/mt, Z275 we need Eur40/mt," he said.
ArcelorMittal announced to the market it was moving away from an extras list to sell HDG products on an effective basis, but sources noted that results have been mixed. A source close to the company said the mill has imposed effective pricing with all but the biggest customers, booking the widest variety of specifications. However, customers said this is not always the case.
"Back to back inquiries are sold on an effective grade, but when you are talking about buying for stock it's the same as always: you can buy using effective prices and extras lists," a service center buyer said.
Most mills are focusing on pushing up base prices, with a number targeting Eur700/mt ex-works. But this has proven surprisingly difficult to achieve considering the strong demand and introduction of anti-dumping duties for Chinese material.
"There are two reasons," a major service center buyer said. "One is the unforeseen high level of imports in Q4 and the second is that these imports are related to commodity grades and they did not come in the best season," he said. Commodity grade HDG is mainly used in construction, which is at its weakest in winter.
The availability of HDG is particularly apparent in downstream markets. "In organic coated and pre-painted there's not so much pressure, we tried to increase prices from Q4 to Q1 and we struggled," a mill source said.
A service center source said the expected further strengthening of the hot rolled coil market is applying further pressure. "The cost structure for galv is not so good, as the price increase is reflecting," he said. "The euro is helpful to absorb some of the LME dollar number, but not enough. HRC strength could be the next impact if the HDG market will not follow."