EU SAFEGUARDS: Stainless producers, distributors disagree on potential effect on imports

European stainless steel producers expect the definitive EU safeguarding measures to reduce the volume of imports arriving in the EU, while distributors were less convinced that these measures will be any more effective than the provisional ones that preceded them.

The definitive measures, which came into effect on February 2, 2019 and will run until June 30, 2021, differ from the provisional measures in that country-specific quotas will be applied to countries that have supplied at least a 5% share of imports for a given steel product to the EU over 2015, 2016 and 2017.

A global tariff-rate quota – the residual quota – will be based on the average of the remaining imports over the past three years and will be allocated to all other supplying countries.

For stainless cold-rolled sheets and strips, country-specific quotas will apply to imports from South Korea, Taiwan, India, the United States, Turkey, Malaysia and Vietnam.

Global stainless-steel manufacturer Outokumpu believes the safeguards appear sufficient to reduce the volume of cold-rolled stainless imports into the EU, Roeland Baan, chief executive officer of Finland-headquartered producer Outokumpu, said during an investor call on February 7.

“The quotas for the large exporters that represent 75-80% of the imports are country-specific, so the issue that we had where counties are jockeying for position and just trying to beat the quota barrier has now been replaced by a more manageable country-specific target,” Baan said.

Outokumpu estimated that during February to June 2019, imports could decrease by 11% compared with June to October 2018, during which time the provisional measures were in place.

It is widely agreed in the stainless market that the provisional measures did not have any discernible effect on European import volumes. Indeed, of the 476,161-tonne quota assigned to the 200 day period when the provisional measures were in play, only 349,577 tonnes were imported, or just 73%. Quotas must be completely filled before the tariff of 25% is applied to any subsequent imports.

Outokumpu’s view that the country-specific quotas will be effective comes despite the fact that, in the fourth quarter of each period of the measures, any remaining ‘residual quota’ balance can potentially be applied to exports from countries whose specific quotas have been filled.

The residual quotas will not apply to any countries classified as developing by the WTO, unless material from that country exceeds a 3% share of EU imports. Currently, this means that imports from Indonesia are exempt.

Baan, however, noted that the European Commission will periodically review the measures and that the status of previously exempted countries can change if their share of imports to the EU has increased to above 3%. The next review is scheduled for July 2019, and imports from Indonesia have indeed increased to above the threshold.

Cold-rolled stainless imports from Indonesia in 2017 made up 14,490 tonnes, or 1.48%, of a total of 975,919 tonnes imported into the EU, according to data published by European steel association Eurofer. By 2018, those figures had increased to 33,516 tonnes, or 3.37%, out of a total of 995,801 tonnes.

The Indonesian exemption is expected to be removed, which would be an important step in improving the ability of the measures to decrease imports, Baan said.

“The very high level of imports [in 2018] will come down, and…if you do the maths on it, you will probably get to an import penetration share of 23-24%,” Baan said of the measures. The average, import penetration share during 2018 was 30%, according to Eurofer data.

While the quotas are scheduled to liberalize by 5% each period to allow for market growth, this was also subject to review and was therefore not necessarily an automatic outcome, Baan also noted.

The definitive safeguards “should yield some improvement”, but, “we expect a difficult market environment to persist during the first quarter of 2019,” Netherlands-headquartered producer Aperam also stated in a conference call this week.

The company observed that the volumes of cold-rolled stainless steel permitted under the country-specific quotas for 2019 is 10% less than the estimated volumes actually imported from those same countries in 2018.

While producers appeared confident that imports will decrease because of the measures, distributors did not necessarily share that view.

Despite the definitive measures containing some improvements compared to the provisional ones, these changes would not be sufficient for the quotas for cold-rolled stainless imports to be filled and for tariffs to be applied, one stainless steel distributor in Scandinavia, which both imports from Asia and buys from European mills, said.

One such improvement, the country-specific quotas, could well be mitigated by the fact that leftover ‘residual quota’ balances could be applied to those countries whose balance has run out in the fourth quarter of each period, the distributor said.

“If the market doesn’t explode [in terms of imports], the measures won’t have any affect,” the distributor added.

The distributor also pointed out that the measures are intended to safeguard against any knock-on effects from the US Section 232 tariffs in the form of increased imports, and were not designed to reduce imports from the levels that existed before Section 232 tariffs were imposed.

Another stainless distributor from the Benelux region, which only buys from European mills and has suffered from competition with imports, said that while it hopes the measures curb imports, it was not confident they will.

“I’m hoping, yes they will, but it’s hard to say. They had no impact in 2018 and it’s difficult to be optimistic,” it said.

Although the provisional quotas for cold-rolled stainless products were only three-quarters filled, import pressures were routinely cited as a key factor behind weakening European prices in the second half of 2018, along with falling nickel prices.

Between August 2018 and January 2019, prices for grade-304 2 mm stainless cold-rolled sheets fell by 20%. In February 2019, rising nickel costs led stainless prices to bottom out for a week before they began to pick up again, although distributors still complained of competition with imports.

Fastmarkets price assessment for grade-304 2mm stainless cold-rolled sheets was at €2,050-2,090 ($2,327-2,372) per tonne delivered on Friday February 8, up by €50 per tonne from the week before.