European Union member states voted in the week ended June 18 in favor of a proposed extension of these measures for three years beyond their scheduled expiration on June 30, 2021, although the European Commission had not at that time released an official statement with final details of the case.
On June 11, the EC published a draft proposal to member states, suggesting a three-year extension to the existing safeguard measures on 26 steel products imported into the EU, with an annual quota increase of 3%.
The announcement surprised market participants who had anticipated the safeguard measures would be prolonged for one year with 5% year-on-year volume liberalization.
“We had been getting signals from both authorities and other market sources that the measures will be continued for another year. So it felt like a bad joke when we received a draft proposal with safeguard extensions for the next three years. This disregards the current situation in the market. We have shortage of steel, and there are no signs of when availability will improve,” a Southern European source said.
“This decision looks rushed, as if the EC changed its original decision of an extension for one year to three years in less than one week without regard for current availability and demand,” an Italian distributor said.
European steel prices have been rising in the first two quarters of 2021 supported by a continuous supply-demand imbalance after consumption recovered faster than production at facilities that shut down during Covid-19 lockdowns in 2020.
As a result, Italian steel distributors association Assofermet had called for removal of the safeguard measures. The European Non-Integrated Wire Rod Producers’ Association (Eunirpa) also criticized the decision of the EU authorities.
In addition, some market participants have expressed concerns that the safeguard measures have been extended for three years to limit imports until a proposed carbon border adjustment mechanism (CBAM) comes into force on January 1, 2023..
The EC plans to set a CBAM for imports of some goods, including steel and aluminium, to prevent the risk of carbon leakage, according to a draft of the EC’s proposal seen by Fastmarkets. The mechanism will be applied to imports of aluminium, iron, steel, cement, electricity and fertilizer from outside the customs union. The EC is scheduled to present the draft officially in mid-July, so the draft currently available might be subject to change.
Find out how the decarbonization challenge and impending carbon borders could impact steel production margins in our latest report: "The true price of green steel".
Flat steel products
The uptrend in the European flat steel market has been supported by material shortages from both domestic producers (due to equipment shutdowns during lockdown) and from overseas (as a result of trade and safeguard measures in place).
Fastmarkets calculated its daily steel hot-rolled coil index, domestic, exw Northern Europe at €1,190.87 ($1,421.20) per tonne on June 24 this year, more than triple the level of €390 per tonne on June 17, 2020.
A combination of a supply shortage and strong demand has resulted in a substantial increase in lead times for coil products. Most European mills are trading fourth-quarter HRC, and downstream products have been reported to be sold out for the full year of 2021.
“This safeguard [extension] proposal is technically the same as what we were functioning with over the past three years. But the market has changed; we have new anti-dumping cases, we have troubles with Liberty Steel which all results in reduced availability. And the Commission ignores those changes in the market,” a German trader said.
“I think that over the course of the past three years we have learned how to live with the safeguards, we have found some alternative coil suppliers - we are buying more from Japan or other Asian countries. But when you combine new anti-dumping cases with the safeguard we might run out of options for sources of some coil products,” a second Italian distributor said.
Imported HRC from Turkey, India, Russia and Serbia are subject to country-specific quotas.
In January this year, the EC started a review of existing anti-dumping measures on HRC produced by Severstal, the only Russian producer still active in the EU market.
The EU authorities also plan to set definitive anti-dumping duties of 4.70-7.30% - marginally lower than the preliminary duties - on Turkish HRC. Anti-dumping duties are scheduled to be set on July 13, 2021.
On June 24, the EC also opened an anti-dumping investigation into hot-dipped galvanized flat steel from Turkey and Russia.
Meanwhile, the EU has anti-dumping tariffs on HRC from China, Russia, Ukraine, Brazil and Iran as well as similar measures against cold-rolled coil from Russia and China, and HDG from China.
The latest offers of HRC from India have been heard at €1,050 per tonne cfr Italian ports, including the 25% safeguard duty. Producers from India have already sold substantial volumes of HRC to Europe and are expected to exhaust their quota for July-September on the first day of the new quarter.
As a result, any toughening of safeguard or anti-dumping measures leave buyers with few overseas options and makes domestic production the main source, market sources said.
“All the trade restrictions give more power to the producers. So far distributors managed to pass the price rises downstream and end consumers accepted it. But this situation is unhealthy and we have some problems with credit lines. There is no hope for additional volumes in the market this year,” a Northern European source said.
Over the past few months, European coil buyers have struggled to obtain credit insurance and open credit lines for purchases because of the rapid price rises and extended lead times in recent months.
In addition, European buyers have been cautious about making new deals with Liberty Steel despite the shortage, market sources said.
On March 3, German financial watchdog Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) imposed a moratorium on Greensill Bank, the key funding facility for Gupta Family Group Alliance (GFG Alliance), which is the parent company of Liberty Steel.
Following the moratorium, Greensill Capital - Greensill Bank's parent company - filed for insolvency on March 8.
Earlier in May, the United Kingdom’s Serious Fraud Office started an investigation against the GFG Alliance in relation to the organization's financing arrangements.
“We have a void in the market the size of Liberty Steel. It produced something, they traded something at rather low prices, but… European authorities did not take into the account the situation around Liberty Steel and that these volumes might be absent from the market for some time,” a Northern European source said.
Long steel products
Long steel prices in the EU have surged to historical highs in recent months, gaining strength from a combination of solid demand and insufficient supply, especially of wire rod and rebar for coils.
Sources pointed directly to the lack of imports as a driver of long steel price rises. Consequently, the news of a further extension of safeguard measures that will limit access to import material was not well met by traders, distributors, and downstream steel users in the EU long steel market.
“The EC once again demonstrated a total neglect of downstream steel consumers’ and independent traders' interests,” one EU steel buyer said.
“European mills absolutely control the market – they got no competition from imports. Whatever price they want the customers will have to pay,” a second trader said.
In May this year, Fastmarkets’ price assessment for steel reinforcing bar (rebar), domestic, delivered Northern Europe averaged €730 per tonne, up sharply from the monthly average of €471.25 per tonne in May 2020, and its highest since August 2008.
The corresponding assessment for steel wire rod (mesh-quality), domestic, delivered Northern Europe averaged €760 per tonne in May, rising from €455 per tonne in May 2020. This was also the highest since August 2008.
“Of course I would like to have high prices in the market, you make more from 5% in margins at €1,000 per tonne than €100 per tonne. I do not mind high prices but I do mind the speed that it went up, it is so huge, it is not healthy. If it goes down at the same speed it went up there would be problems,” a long steel stockholder said.
Besides, markets sources told Fastmarkets they believe the suggested 3% annual quota liberalization does not reflect real market growth.
“The liberalization rate of 3% is absolutely not enough to give the EU metal fabrication industry the chance to grow in the next few years,” the president of the European Non-Integrated Wire Rod Producers’ Association (Eunirpa), Kris Van Ginderdeuren, said in a statement seen by Fastmarkets.
“I think that a liberalization by an absolute minimum of 15-20% per year would be a correct step from the Commission and the politicians behind it,” he added.
Second-quarter steel import quotas into the EU for wire rod and rebar were either completely exhausted or almost filled less than a month after the start of the April-June 2021 period, as Fastmarkets has reported.
Before the introduction of the safeguard measures in 2019, imports accounted for about a 30% share of rebar consumption in Germany and the Benelux area. After the restrictions were imposed, this figure fell to 5%, the International Rebar Producers & Exporters Association (Irepas) said earlier this month
Rebar imports into the EU declined to about 989,493 tonnes in 2020, from 1.55 million tonnes in 2019 when the safeguards were first imposed, according to data released by Eurofer. Wire rod imports to the bloc declined more modestly. In 2020, they totaled 2.33 million tonnes, down from 2.45 million tonnes in 2019.
“There is a drastic shortage of wire rod in Europe due to main producers making mesh themselves rather than selling mesh-quality wire rod. We have to rely on imports to secure uninterrupted supply of material, but the EC doesn’t care about that,” a third distributor said.
In contrast to the views of distributors and associations, EU long steel producers have strongly supported the EC’s decision to extend the safeguards, calling it a necessary step to protect the EU steel market from trade flow diversion.
“Safeguards were initially the reflection of the United States’ Section 232 [tariff]. Section 232 still remains in place, and if the EC were to drop safeguards, we would have faced unprecedented steel imports covering the EU markets, denting the prices,” a mill source told Fastmarkets.
“EC did what it had to do to protect the domestic market,” a second mill source said.
The extension of the safeguarding measures was met with dismay by stainless steel distributors, some of whom said the current market tightness has begun to negatively impact their business and has reduced the volume of material they have been able to trade.
Delivery dates for flat-rolled stainless steel produced in the EU are "deep into the fourth quarter," according to distributors, with some EU producers said to be only able to supply newly-rolled material as late as January.
The proposal to extend the safeguarding measures came less than a month after the EC set preliminary anti-dumping duties on imports of cold-rolled stainless steel from Indian and Indonesia, and the combined effect on imports of safeguarding measures and anti-dumping duties was expected by market sources to be substantial.
"I don't understand the timing from the [European] Commission. The EU mills are not able to supply the market, so bringing more limitations to the market, to imports, to me it sounds unwise," a distributor that buys both European and Asia stainless steel said.
"[Downstream] producing industries are already suffering; car manufacturers, white goods makers, the catering goods industry. Everyone is complaining because the supply chain is being disrupted. And now we going to get even longer lead times and even higher prices," the distributor continued.
"Probably the most significant [effect] at present is with regards to imports of cold-rolled flat products from South Korea and Taiwan. In the absence of safeguard measures, they were probably best placed to take some market share from Indian and Indonesian suppliers, which have recently been hit by large anti-dumping duties on such products. That ability will now be limited by the [safeguarding] quotas," Fastmarkets senior analyst Rob Cartman said.
Fastmarkets' weekly price assessment for stainless steel cold-rolled sheet 2mm grade 304 transaction domestic, delivered North Europe was €3,350-3,400 per tonne on June 18, up by 40.3% from €1,980-2,050 per tonne a year previously.
Prices are widely expected to increase more in July, and by a substantial amount, with one distributor suggesting a rise of €300 per tonne would not be surprising, although this would be driven not only by the short supply but higher alloy component costs as well, primarily that of nickel.
Demand is strong and the high prices have not been a deterrent to buyers. But the lack of material has meant that some distributors have not been able to find sufficient tonnages and have been trading lower volumes than normal as a result.
"We've been using up stock but now we can't replenish. We're paying the prices [producers] ask for, and we can pass them on to the [end] markets. But no matter what we pay we can't get enough material," the distributor above said.
Even some companies that traditionally welcome import restrictions believe the current measures should be more liberal. Demand is very strong but supply is simply insufficient for many sellers to benefit.
"We want to buy extra tonnages but [European mills] can't supply it. We have allocations with some mills but to buy anything additional they ask ridiculous prices," a distributor that buys only European material said. "I welcome safeguards but I think they should have been looser, it would have been the right thing to do."
This second distributor also raised the risk of buyers' exceeding their credit limit with financers if prices increase by much more, and being unable to obtain insurance on purchases as a result, which could hamper demand.
This risk aside, and disruptions caused by long delivery times notwithstanding, demand appears resilient and unlikely to be affected by further price rises. Distributors said current buying appears to be “real demand” driven by strong underlying economic activity and not a case of buyers trying to purchase extra material ahead of expected future price rises.
"Higher prices will be the main result to a degree [of the safeguarding measures]…I don't think there will be many end users that won't be able to absorb or pass on costs. In general, stainless is only used if necessary and has few cheaper substitutes," Cartman said. "I think the main effect long term is higher margins for producers and this is already showing up in higher base prices."
Fastmarkets’ weekly assessment for stainless steel cold-rolled sheet 2mm grade 304 base price domestic, delivered Northern Europe was €1,380-1,400 per tonne on June 18, compared with €700-750 per tonne a year earlier.
A stainless steel producer welcomed the extension of the safeguards and said that it expected domestic supply to catch up with demand over the course of the next quarter.
"It's positive… together with the recent anti-dumping duties put in place it gives us the right room to breathe. Regarding the lead times, of course it's an issue but we don't see that they're getting longer… it's clear, I would say, that we're going in the right direction," the producer said.
The producer added that it believed the long delivery times had been at least partly caused by other issues such as port congestions and container shortages. It further added, contrary to the second distributor above, that some buyers had indeed been increasing order volumes in anticipation of future price increases, and that this had created an additional demand burden on the supply chain.
“It is obviously good for us as a producer. The import risk has not gone away, even if talk about US [Section] 232 being reviewed by end of the year, that would not mean all diverted tonnage which used to go to US from suppliers will still be floating around,” a carbon steel mill source said.
European buyers of imported steel products are shocked by the extension of existing safeguard measures for another three years at a time when most of the industry’s segments are struggling from material shortage and, consequently, high prices.