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The pricing policy of steel producers is squeezing distributors

Distributors thought that prices would quickly return to early December levels, and then rise even more, albeit modestly.

The pricing policy of steel producers is squeezing distributors

By mid-January, many large European steel producers had signaled significant price increases to the market, citing rising input costs. Distributors were skeptical about the longevity of such a move. Consumer demand has not yet recovered, and many believe that premature increases will hinder any demand recovery.

The traditionally slow start to the year has been extended to the second week of the month. The fact that factories in Southern Europe continued to work after the Eid holidays did not lead to any lively activity. Manufacturers were coolly evaluating advanced orders and calculating the effects of raw material cost increases.

Steel service centers and distributors took advantage of attractive December discounts to secure volumes for the first quarter of 2023. They thought that prices would quickly return to the levels of early December, and then rise even more, albeit modestly.

The distribution sector is sitting on stocks bought at above current market prices. It would welcome an upward movement to redress this imbalance. The initial expectation for flat products was an increase of €50 per ton, but this increase was gradual in the first three-month period.

But since the rapid price increases caused by Covid, the pricing philosophy of factories has changed. Small movements are no longer considered sufficient. Large producers accept €50 per ton as the minimum starting point, regardless of market conditions.

However, demand remains sensitive, and large hikes threaten new and existing projects. Some users are still demanding more price cuts in line with the fourth-quarter declines, which the service centers resisted. Despite evidence of depleted stocks and shortages of certain products, distributors cannot afford to replenish inventory at prices higher than their resale value.

Many stock experts fear a short-term price hike with a collapse in April. Those who bought on time and received competitive import volumes, which were cleared at the beginning of January, will strictly adhere to existing orders. If the automotive industry maintains its moderate growth, factories will start looking for orders once again in the first quarter, with the inevitable downward price correction.

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