Full take-up of EU import quotas could boost domestic wire rod, rebar producers

The rate at which the European Commission’s import safeguard quotas for wire rod and rebar are filling up is still accelerating, and may give domestic long steel producers an opportunity to raise their prices in the next few weeks despite lukewarm demand.

The European quotas were introduced in mid-July in response to the imposition by the United States of wide-ranging import tariffs on industrial goods including steel. They will initially run until February 3 before an expected renewal for a further year.

Already, 70.49% of the initial quota for wire rod imports has been used up, according to the EU tariff quota consultation on November 11, accounting for 745,894 tonnes. Rebar imports under the quota system have thus far totaled 436,455 tonnes, or 61.05% of the initial quota.

It is now certain that the wire rod and rebar quotas will be filled up well in advance of a renewal in February. Fastmarkets metals analyst Lee Allen estimates that this will happen in December for the wire rod market and January for rebar, leaving a one- or two-month window during which imported material will be taxed by the EU at 25% of its value.

This would price imports out of the market until the quotas are renewed, and would allow domestic producers to increase their market share or raise their prices, or both. And the cost pressures on imports will certainly begin before the quotas are filled.

“When safeguard quotas are filled by 90%, they are classified as ‘critical’ and we understand that [imports] will only be cleared [through EU Customs] with a [letter of] guarantee [from a bank saying that the exporter will pay the tariff if necessary], meaning that this threshold will be met later this month if run rates remain constant,” Allen said.

Constant run rates would, however, be a departure from the swiftly accelerating rates seen in recent weeks.

“Any new import bookings made now [will] come with significant risks of being hit by tariffs. This is giving EU mills an opportunity to raise their wire rod prices before quotas are reset in February,” Allen added.

“If final quotas are set on the same basis as the preliminary measures,” he said, “after an initial rush for imports, buyers would again face the problem of restricted import volumes. We would then expect EU mills to use their spare capacity to ramp-up wire rod output to take advantage of this.”

And there is room to do so. Wire rod mills in Europe are operating at an average capacity utilization rate of 67%, according to the Fastmarkets Capacity Database.

But successfully raising prices would require demand from consumers, and they have proven very reluctant to commit to large-volume purchases in recent weeks, given the sharply rising import volumes and the attentions of traders.

After the quotas have been fuly taken up, if consumers are able to hold back from making large purchases until February, then the opportunities for domestic producers will be limited.

“Customers are buying low volumes and not stocking up, relying on traders with prompt positions,” one trader said. “But that is getting harder and harder to do.”

Any price increases will be bitterly resisted by consumers that are facing their own low prices and underwhelming demand further downstream. But the larger the window between the filling of the quotas and their renewal in February, the harder it will be to resist higher domestic prices.

“The demand/supply balance will change,” one producer said. “The quotas are filling up fast, and people will have to buy sooner or later.”