FOCUS: EU steel shortage to persist throughout 2021
The supply shortage in the European steel market, which has been driving up domestic prices since late 2020, will persist until the end of this year at the very least, market sources told Fastmarkets.
Finished steel distributors have said they have been struggling to get the necessary volumes of finished steel from either domestic or overseas suppliers, adding that they do not expect the situation to improve any time soon.
In addition, end users are also facing problems securing steel products while also having to contend with rising steel prices, sources said.
“So far, mills can get higher prices and distributors also manage to pass this rise to the end users. But we have yet to see the impact of the price increases on [end consumer] industries and companies,” an Italian flat steel distributor source said.
A source who trades material for the automotive industry said that he had to “fight for volumes, despite long-term agreements [that have been] settled.”
European steel buyers are also concerned about the possible extension of safeguard measures on imports of a range of steel products that are due to expire on June 30 this year.
Italian steel distributor association Assofermet has sent a letter to the EC to highlight how anti-dumping and safeguard measures distorted the European Union carbon and stainless flat steel markets.
Eight industry associations representing various steel consumers in Europe are also calling for the termination of the region’s safeguard measures because rising steel prices increase their production costs.
Rumors have been circulating that the EC is likely to extend the measures beyond the original three-year period - although they might be replaced with alternative measures that are less restrictive.
Two sources said that the European authorities might introduce elements of a “carbon border tax” in the review, which would make it more complicated to import steel.
Most sources expect a decision to be announced in late May at the earliest, which would give the EC enough time to make amendments.
“Initially, [former US president Donald] Trump’s Section 232 [case] triggered all this protectionism, but for now it doesn’t look like the new US president [Joe Biden] is going to terminate it. All trade barriers are set to remain in place, and so are the EU’s safeguards - and now Brussels is likely to use Covid-19 as a reason to justify them,” a long steel trader said.
Another trading source lamented the fact that, unlike steel producers, independent traders did not have a body like [European steel association] Eurofer to raise issues for them and lobby in their interests.
An Italian flat steel distributor source said mills were pushing for a continuation of the safeguard measures despite the supply shortage in the market.
“The European authorities tend to listen to steelmakers, giving less attention to the rest of distribution and consumption chain. We need to have an alternative to domestic coil; there is a shortage that will injure end users. We already have a number of anti-dumping measures in place, so the removal of the safeguards will not result in a flood of imports, but it would give consumers a breath of fresh air,” the source said.
Market participants also said that while European steel mills were strongly lobbying for an extension of the safeguard measures, end users were unlikely to unite to ask for their removal.
European long steel market participants have expressed deep concern over Eurofer lobbying to extend the safeguard measures. And Fastmarkets has heard claims among them that “importing steel has already become hell.”
Fastmarkets’ daily steel hot-rolled coil index, domestic, exw Northern Europe was €750 ($893) per tonne on March 5, up by €12 per tonne week on week and €40 per tonne higher month on month.
A supply-demand imbalance appears to be the main driver behind the price increases.
Lead times from European mills have been getting longer, which makes it challenging for buyers planning to restock.
Steelmakers across Europe are said to have sold out of HRC to be rolled in the second quarter and have started to offer and trade third-quarter material.
“It is impossible to make restocking plans. Getting coil is a challenge, so buyers will be ready to pay almost any price to get the volumes. This situation is not healthy,” a source in Northern Europe said.
Another distributor source in North Europe said: “Clients are screaming for material.”
Volumes offered in the third quarter are typically lower compared with the second quarter due to mills scheduling maintenance during the period, sources said.
Germany’s Thyssenkrupp will stop a blast furnace for maintenance in the third quarter, while several other mills are also idling their equipment for relining, according to sources.
In addition, a number of flat steel producers across Europe have been reported to be delaying deliveries amid overbooking. As such, they have not issued any new offers.
Market participants also do not expect a previously anticipated increase in production in Italy to materialize this year.
On February 13, an Italian court ordered ArcelorMittal Italia to close the hot area of its Taranto plant within 60 days over pollution concerns. On February 18, ArcelorMittal Italia said it had submitted an appeal to the council of state in Rome. Italian authorities should decide on the case on March 13, according to market sources, but the matter might not be concluded until mid-May.
The steelmaker had originally set a HRC production target of 5 million tonnes per year, compared with 3.4 million tonnes in 2020.
But after the court order, sources told Fastmarkets they expect the mill’s output to be kept at minimal rates to control emissions.
“ArcelorMittal Italia has not been offering any HRC to spot buyers for the past [few] months or even longer. Now, because the future of the plant is uncertain, there will not be an increase in production. In the best case scenario, the mill will get the funds to ‘go green’ and it will keep operating and start replacing equipment.
“But renovation is a lengthy process, so there is no chance that we will see more material [being produced],” an Italian distributor source said.
For HRC specifically, European authorities have toughened anti-dumping measures against imports from Turkey and Russia, and some sources have raised concerns over the EC not taking into account additional anti-dumping measures in its review of safeguard measures due to them not being definitive.
The EC imposed provisional anti-dumping duties of 4.8-7.6% on Turkish HRC in early January, with definitive duties scheduled to be set by July 13.
And definitive anti-subsidy duties on the same products might emerge by July 10.
Sources said an increase in duties would effectively halt imports of Russian HRC into the EU.
A shortage of HRC, which is used to produce hollow section, has resulted in the faster uptake of the import quotas for the latter product due to mills struggling to obtain the feedstock they require.
Buyers have also been struggling to find cargoes in the sizes and grades that they need, sources said.
The renewal of the quarterly import quotas for hollow sections at the start of the year brought some relief to the market and took some pressure off domestic mills, but this turned out to be short-lived due to the rapid exhaustion of the allowances for many countries.
One European producer source said the shortage was linked to demand recovering from 2020’s low levels at the height of the Covid-19 pandemic, when mills had to make structural changes to cut production that would take time to rectify.
Fastmarkets’ price assessment for steel sections (medium) domestic, delivered Northern Europe averaged at €865 per tonne in February. The monthly average has been increasing since August last year, when it was at €550.65 per tonne.
The Southern European price experienced a similar trend, with both markets being affected by the ongoing shortage of feedstock.
In the January-March period, Turkey, whose quota had been reduced quarter on quarter, used up its entire quarterly allowance of 66,578 tonnes of hollow sections on the first day of renewal on January 1.
Russia exhausted its 22,664-tonne quota for hollow sections on January 6, while Belarus had exhausted its entire 13,392-tonne quota by January 30 and Ukraine had used up its quarterly allowance of 16,653-tonne quota by March 2.
This mirrored developments in the preceding quarter when Turkey also exhausted its 101,163-tonne allowance on the first day.
Russia chewed through its 23,192-tonne quota in less than six weeks on November 11, while Belarus took a week longer to use up its 13,689-tonne quota.
The change from a yearly quota system to a quarterly one resulted in imports of hollow section surging every three months when the quota reset.
For some market participants, this meant that they had to plan their import purchases much further in advance, thereby running the risk of their shipments incurring a 25% tariff.
After safeguard measures were toughened in June 2020, importers of wire rod will have no further access to the residual quota once the 12-month safeguard period - July 2020-June 2021 - ends. Limited access was also given to rebar importers.
The access regimes to the residual quota for all product categories are a major concern among buyers.
“There is no access to the residual quota for wire rod and limited access for rebar. That makes importing hell,” one major buyer source said.
EU steel market participants claim that import volumes are already at “historical lows” and that an extension of safeguard measures makes no sense.
“Imports of any kind of steel has never been so low. During the past two years, imports have constantly declined,” one trader said.
Europe’s wire rod imports have been declining since 2018 despite a structural shortage of the product in the trading bloc, sources noted.
Nevertheless, major suppliers, particularly Ukraine, have been utilizing their quota for wire rod very slowly, they said.
By February 26, Ukraine had supplied just 27,432 tonnes of wire rod to the EU. This is 13.59% of its 201,755-tonne quota for the first quarter.
There are two major long steel exporters in Ukraine - ArcelorMittal Kryvyi Rih (AMKR) and Metinvest.
According to market sources, Metinvest sells only very limited tonnages of wire rod to Europe, preferring destinations such as Israel, Latin America and West Africa instead.
And most of Metinvest’s products are sold to Poland. The mill essentially does not export any rebar because it prefers to sell the product to its domestic market.
At the same time, AMKR’s long steel sales to Europe are scarce because, according to sources, the company “doesn’t want to compete with its own mills in Europe.”
By February 26, Russia had used up 67,502 tonnes (81.08%) of its 83,253-tonne wire rod quota for the first quarter.
And Turkey, one of three biggest wire rod suppliers to the EU, had shipped 38,342 tonnes by that time. This is equivalent to 36.54% of its 104,925-tonne allocation for the first quarter.
Limited availability of wire rod has been a key factor that has helped to push prices to historical highs recently, sources told Fastmarkets.
Fastmarkets’ price assessment for steel wire rod (mesh-quality), domestic, delivered Northern Europe averaged €673.75 per tonne in February, up slightly from €671.88 per tonne in January and its highest level since September 2008.
Steel wire rod prices in the region have been rising steadily since August 2020.
But sources said that there was no longer a shortage of wire rod from European mills.
“The supply shortage was a problem in the fourth quarter, partially because of the faster-than-expected recovery of the automotive industry, along with low stock levels at mills and among buyers,” one source said.
“[But] there is no longer a shortage on the European mill side. If you want to order 20,000 tonnes or 30,000 tonnes, it won’t be a problem. The problem is that buyers have no stock because they’ve only been buying on a hand-to-mouth basis over the past few months,” another trader said.
“And, of course, access to imports is restricted by quotas,” he added.
The situation with rebar quotas is “similar [to those for wire rod] for the same reason,” sources said.
All major rebar suppliers to EU states, apart from Ukraine, have depleted their first-quarter allowances very quickly.
Russia had already fully utilized its entire 56,951-tonne rebar quota for the first quarter in January.
Turkey has shipped 50,926 tonnes - or 86.57% - of its 58,826-tonne allowance, according to EU customs data on February 26.
Ukraine has been using its quota at a much slower pace. By February 26, the country had shipped only 8,770 tonnes of rebar to the EU - about 22.05% of its 39,775-tonne allowance for January-March.
Nevertheless, most sources told Fastmarkets they expect the safeguard measures in the EU to remain in place.