EU safeguards to boost domestic coil prices, sources say

The preliminary measures taken by the European Commission (EC) with regard to steel imports will result in higher prices for steel coil, market sources told Metal Bulletin.

Some market participants are concerned, though, that quotas might cause a shortage of imported steel in the market.

The EC set preliminary measures in the safeguard case on July 18, in the form of a global Tariff Rate Quota (TRQ) on 23 product categories based on average import volumes over the past three years. Imports will only face a 25% tariff if the quota is exceeded.

The provisional safeguard measures can remain in place for a maximum of 200 days. A definitive decision in the case will be made by early 2019 at the latest.

The European steel association Eurofer, representing the EU’s steelmakers, welcomed the EC’s decision, claiming that the safeguards will protect the European steel market from redirected steel.

Domestic prices may rise
But market participants had their own views of the decision. “The mills always use any official announcements in trade cases to increase prices, and usually they manage to achieve it,” a German distributor said. In fact, at the end of last week, on July 12, the EU’s biggest producer, ArcelorMittal, increased its official hot-rolled coil offer in Northern Europe to €580 per tonne ex-works.

Metal Bulletin’s weekly price assessment for domestic HRC in Northern Europe was €555-565 per tonne ex-works on July 18, reflecting the latest transactions. “Big European mills will now gradually increase the prices, and others will follow,” a northern European trader said.

The price assessment for domestic HRC in Southern Europe was €535-550 per tonne ex-works this week.

Market participants across Europe say they believe that transaction prices for domestic coil will move up by at least €30 per tonne in September, when market activity recovers from the traditional summer slowdown.

“EU mills [in Southern Europe] are in a stronger position and I am convinced they will start raising prices in September. Also, integrated distribution will enjoy priority in getting what they need from either the domestic market or imports,” a southern European source said.

Rise in demand for imported coil
In the meantime, since the EC announced its decision in the case, buyers have started to look for imported coil, while before the decision they had been holding back from buying non-EU material, according to market sources.

“Demand for imports has increased now, as in the last 6-8 weeks concerns about the safeguard suggested to wait before making any decision,” a southern European distributor said.

The increased demand for overseas coil is not having any negative impact on domestic prices, as the prices for imported coil are comparable to those of European mills.

Metal Bulletin’s weekly price assessment for HRC imported into Northern Europe was €550-560 per tonne cfr main ports and in Southern Europe the assessment for similar products was €535-550 per tonne cfr main ports this week.

In addition, demand growth for imported coil will start to gradually deteriorate as soon as lead times will become longer and a bigger share of the quotas will already have been used, according to market sources.

October deliveries will be considered safe, in the words of market sources, but buyers will start to show less interest in imports beginning with November arrivals. Therefore, the buyers will show less interest in coil from the Far East sooner, while demand for Turkish material will remain relatively strong for a longer period due to shorter lead times. “The closer we will be getting to the end of the year, the more cautious the people will become. They will watch the quota utilization and then decide whether it is worth importing. And therefore there will be more space for the steelmakers [in Europe] to increase [domestic] prices,” a German trader said.

Are quotas sufficient?
As the quotas were set based on average steel import volumes from 2015-2017, the majority of coil importers say they believe that the volumes set should be enough to cover demand, but some buyers are concerned that there might be a shortage of coil and that small and independent distributors might end up with less material then they need, according to market sources. In addition, buyers are unlikely to use the whole quota due to the increased risk of being hit with tariffs when material arrives, market participants said.

“The quota is adequate in terms of volume and demand for imports will be stronger for material arriving in the first four to five months from today,” an Italian trader said. Another source agreed. “The quota is sufficient but buyers will not take the risk of purchasing material for December-January arrival and in the end some quantity of the quota will not be used. The buyers’ concern is to land the material too late when the quota is getting thinner or completely exhausted,” he added.

A trader in southern Europe said there are other uncertainties with the quota system but that larger distributors will have an advantage. “The quota is set per product, but there is no control over who is going to get volumes within the EU. Therefore big distribution companies, especially those affiliated with steelmakers, have more means to get bigger lots of material and get it sooner than smaller companies,” he added.

A couple of big buyers in Southern Europe have been reported to either finalize deals or be in negotiations with Turkish HRC suppliers for big volumes of coil, according to market sources. Some independent distributors are concerned that by the time these deals are finalized, a significant share of the quota will have been booked.