EU protectionism to weaken entire value chain
According to Italian flat steel processors, a turn on the screw on the current protectionist measures are likely to bolster European steelmakers’ price increases; however, this trend is unsustainable without a resurgence in downstream consumption, multiple sources tell Kallanish.
All eyes are on the implications of the recent European Steel Association (Eurofer) proposals submitted to the European Commission regarding the enhancement of safeguard and other protectionist measures.
“In addition to other demands, Eurofer is suggesting halving the safeguard quotas. If their requests are accepted, it would represent a significant setback for the European manufacturing sector,” states a representative from the Italian trade association Assofermet. “We are collaborating with the politicians representing us in Europe to ensure that EU officials take into account the potential impact on manufacturing. Steel consumers are likely to scale back their capacities as they will struggle to keep up with the accelerating price increases in Europe. A boomerang effect is likely to affect European producers if the EU complies with all of Eurofer’s requests. They may enjoy high prices in the future, but since this will destroy the manufacturing sector, orders will be reduced. This is what happens when only one area of the industry is protected.”
Assofermet is advocating for the European Commission to archive the existing safeguard measures and refrain from extending them beyond 31 December 2025. This is to avoid any overlap with the Carbon Border Adjustment Mechanism (CBAM), which could result in further cost increases for the EU steel processing sector (see separate article).
A large re-roller expects that Eurofer demands will be granted and is implementing price increases in line with hiking hot rolled coil prices.
A mid-size service centre also notes widespread apprehension that demands will be granted.
“This will lead to a significant decline in imports, resulting in a substantial loss of competitiveness for both service centres and our clients,” he comments.
Amidst the ongoing review of EU steel import safeguard measures, Eurofer has provided recommendations to the European Commission on making the measures more restrictive, according to Yuriy Rudyuk, partner at Van Bael & Bellis. Eurofer is proposing reducing tariff-rate quota volumes to reflect declining EU steel demand, raising the safeguard duty to 32-41%. It is capping quotas for other product categories at 15%, as was done from July for HRC and wire rod, Rudyuk indicates in a LinkedIn post.
The association has suggested removing the carry-over option and replacing residual quotas with country-specific ones. It also advocates halting new exemptions for developing countries in the final year of the measures (see Kallanish passim).
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Italian market lambasts lagging HRC contracts
Italian steel sellers are increasingly displeased by lagging index-linked contracts, particularly for hot-rolled coils (HRC) and derivative products, as they position for an upturn in prices on the back of constrained import supply.
Service centres are currently shunning spot purchases in favour of contractual index-linked volumes, to mitigate against rising spot prices. Some sellers have actively tried to move away from index deals in recent years where they have perceived them as lagging fair market value.
Argus‘ domestic Italian index, which tracks spot market movements on a daily basis, has risen by €18.75/t so far in January, and a total of €29/t since the start of December. The market reached bottom at the end of September-start of October period, when it came close to €530/t ex-works, and in the last quarter was cautiously moving up, driven by signals of tightening import trade measures, to which Italian prices are particularly reactive, given the exposure to imported coils.
And mills see prices increasing further on reduced import penetration caused by the European Commission’s safeguard review, the results of which are expected later this quarter. European steel association Eurofer has requested a 50pc cut in flat steel import quotas as well as a melt and pour clause on Chinese steel, to protect against global overcapacity.
It is not only sellers that are displeased with the lag in indices — buyers of coils said that while they see the spot market moving up, and therefore try to align their offers to end-users, they are unable to pass on the expected increase in costs.
Source: argusmedia.com