EU LONG STEEL OUTLOOK: New import quota proposal offers clarity to European market

European long steel buyers were quiet throughout December on uncertainties arising from the United States' various trade wars, but a European Commission quota proposal in January has offered some hope of more certainty to sellers.

The EC proposal for new import quotas for steel products in Europe has finally offered some clarity on what form those quotas will take in 2019, but the US government shutdown has added a new layer of political confusion and, in such an environment, it is unlikely that buyers will commit to any long-term business in the early part of the year.

December was a quiet month for the European long steel market, with uncertainty over the import quotas and steadily weakening prices keeping buying activity at bay. 

And many suppliers were unwilling to sell at lower levels at a time when raw materials costs were rising, there was a forecast of strong demand and other influencing factors, such as low water levels on the Rhine and industrial action at some southern European ports, were disrupting deliveries.

So with little activity to speak of, prices stagnated through the month.

Domestic rebar prices in Northern Europe stayed at €540-560 ($618-641) per tonne delivered throughout December, while in Southern Europe, prices edged down to €520-540 per tonne from €530-540.

Import prices were also flat in the north, at €500-505 per tonne fob, while falling slightly in the south, to €470-500 per tonne from €480-510.

In the wire rod market prices were equally static. Domestic wire rod prices stayed at €540-560 per tonne delivered throughout December in both the north and south of Europe, while import prices were also flat through the month at €520-530 per tonne fob in both regions

The import quotas, introduced in mid 2018 to combat the market disruption caused by the US Section 232 import tariffs, were based on an average of the previous three years of imports. But in a market where imports have been growing swiftly in recent years the volumes under the quotas were not regarded as sufficient.

Additionally, with just one quota covering all importing regions and a single figure for the whole applicable time period, the quota was seen by many as a rather too heavy-handed response to the issue at hand.

However, the EC has now proposed an outline for the new quotas, to take effect when the old ones expire at the beginning of February.

The proposal not only adds 5% on top of the three-year average for calculating its volume, but is also country-specific for the major supplying regions, and will be imposed on a quarterly basis, with unused quarterly allocations automatically transferred to the next period.

While EU-based producers are broadly positive about the new proposal, some aspects remain unclear.

For example, there is uncertainty over what happens to any accumulated volumes not used in each quarter, while the named regions that have their own quota volumes have, as yet, no quarterly breakdown – unlike the non-major supplying regions.

“The proposal doesn’t fully meet our expectations,” one producer said. “What you need to maintain the equilibrium is a steady flow of business, not the peaks and troughs that we’ve been seeing.”

Without more clarity on those and other issues, the trend of volatile markets of varying activity will continue.

With much of the uncertainty over the import quotas nevertheless now removed, January could see buying activity increase as both buyers and sellers are able to plan further ahead with greater certainty over the import situation.

But there is still the question of the political environment.

While many market participants were confident early in December that the US Section 232 tariffs would soon be relaxed for certain suppliers, President Donald Trump’s decision to shut down the government over funding for his border wall with Mexico means there will not be any movement on the tariffs for some time.

And Trump has already said he is willing to let the shutdown drag on for months or even years.

In Europe, meanwhile, the chaos surrounding the United Kingdom’s impending exit from the European Union (‘Brexit’) will continue to add to the political uncertainty.

The EC quota proposal may have granted the market enough clarity for buyers to start stocking up again, but the political uncertainty is likely to limit that activity to the relative near term.

And it will be very difficult for sellers to significantly raise prices in January while buyers keep to this strategy.