No coil glut in EU after Section 232 with US buyers likely to pay tariffs, sources say
European markets will not be flooded with imports of steel coil products after the United States applies its new import duty later this week, because US buyers of flat steel will be forced to pay the tariff, EU market sources have told Metal Bulletin.
US President Donald Trump has approved the application of a 25% import tariff on steel imports from all countries apart from Australia, Canada and Mexico, starting from Friday March 23.
European steel association Eurofer fears that a supply glut of redirected steel volumes could severely injure European steelmakers, but EU sources said that this was unlikely to happen on a large scale for products such as hot-rolled coil (HRC).
“There will be no flood of imports redirected from the US to Europe in the short term. The US mills are not able to meet local demand and they will continue to import,” one German HRC trader said.
“I believe that Eurofer is making a lot of noise but, because prices in the US have been growing fast, and it seems that a price of $1,000 per tonne for HRC is achievable, whoever has been exporting to the US will be able to continue [to do so] even with a duty of 25%,” one Italian trader said.
“I do not think that all the [deflected] volumes would be redirected from the US to the EU, because the prices [in the US] are likely to reach a level that will allow their traditional exporters to continue to sell there, even with [the new] duty,” one major Italian distributor said.
Flat steel is more expensive in the US than in Europe so mills, including those in South Korea and Japan, will keep selling to the US in the same volumes, one Spanish trader said.
American Metal Market’s price index for US domestic HRC was $835.60 per short ton fob mill on March 16. This was up by 0.50% week-on-week but up by 28% since the beginning of the year.
In comparison, Metal Bulletin’s price assessment for Northern European domestic HRC was €570-590 ($701-726) per tonne ex-works on Wednesday March 21, stable week-on-week and up by just 7.4% since the start of 2018.
The average premium of US HRC over European HRC on a per-tonne fob-mill basis has been around $100 per tonne over the past five years, Alistair Ramsay, research manager at Metal Bulletin Research, said.
But since the US made its Section 232 tariff announcements in early February, the spread between US domestic and import HRC prices over Southern European domestic and export prices has widened considerably, making imports more viable, even with the new 25% tariff.
Some still require imports
The global export price for HRC is currently $630 per tonne, up by 9% from $578 per tonne at the beginning of the year, according to data from SteelBenchmarker. A 25% tariff would bring that price to $787.50 per tonne, a figure that could be competitive with US prices.
As a result, HRC imports are likely to return to the US market once the Section 232 remedies are known in greater detail, market sources in the country have predicted.
Along with difficulties in supplying the extent of local US demand for coil, another significant reason why some US buyers will continue to buy imported material is that their requirements cannot be covered by domestic mills, sources have said.
“Section 232 is all about what products are available locally. Certain automotive companies may need grades of flat steel that are not available from local mills,” one Belgian stockholder said.
“There are countries delivering oil country tubular goods [OCTG] and material for automotive [uses] which the US doesn’t have. Either [end-users] will postpone projects or [they will] have to pay [the tariffs],” one Dutch stockholder said.
Imports from Turkey
Despite the likelihood that much of the coil import volumes into the US will persist despite the tariffs, some sources have voiced concerns about the likelihood of more Turkish material coming into the European market.
European market participants are afraid that 2.5 million tonnes per year of Turkish steel - including coil, tube and plate - will come into the European market, the Dutch source said.
Anti-dumping duties on HRC from countries such as China, Ukraine and Russia have created a “big highway” along which Indian and Turkish material can flow into Europe, and these imports will continue unless action is taken to prevent them, the Spanish trader said.
There were market rumors that a request has been filed for an anti-dumping case against Turkey-origin HRC, but a trade lawyer told Metal Bulletin that this was unlikely because Eurofer is busy trying to secure an exemption for the EU from the US tariffs.
Further exemptions from the tariffs are likely to be made, the Dutch source said.
“I think the tariffs will not be as much as [Trump] announced and I think other countries will be exempted [beyond Canada, Mexico and Australia],” he said. “The total effect will be smaller than first thought.”
But if the EU is not one of the markets made exempt, there could be an oversupply of material in the home market, the same source said.
Tata Steel ships around 600,000 tpy to the US, which is about one-tenth of its Dutch output, he said, adding that “more tonnage staying in Europe could also put pressure on prices.”
And imports into the EU might increase by the year-end because some idled US mill capacity is to be restarted by the end of the year, the German source said.
US Steel plans to restart a blast furnace at its Granite City Works in the state of Illinois by April, amid expectations that there will be steel shortages after the country’s new tariffs are applied.