The recently published European Commission quota allocations under the new trade measure regulation are being described as a bombshell by Italian coil buyers and end-users.
Market participants tell Kallanish they did not expect the regulations to be this harsh, and say the move is completely reshaping the supply chain landscape, which will need to be rethought. They add that the new regulation is seen as a huge gift to EU producers.
The architecture of the regulation is notably fragmented, with some countries allocated minimal quotas, such as Australia at 11,000 tonnes for hot rolled coil for the quarter, while Turkey, a long-standing EU supplier, has seen its allocations slashed from 390,000 t/quarter to just 160,000 t/q.
“From Australia you can’t even buy a single vessel. Other countries such as Japan have been heavily penalised too, with 551,000 t/year [for HRC] and anti-dumping duties of 30%. It’s a strong message,” one buyer comments.
Another buyer expects the reduced quotas to be exhausted within hours by large trading companies and European steel processors, making it increasingly difficult to source from Asia.
Another large buyer describes the impact on HRC imports as severe, with an immediate effect on prices. Some Asian producers have responded to the publication of the document by raising HRC offers to €680-700/tonne ($775-798/t) cfr.
A trading company describes the mechanism as particularly complex, with buyers left with little alternative but to purchase in Europe. “There will be very little room to manoeuvre. Prices will increase significantly, but the rest of the supply chain will suffer,” a trader says.
All sources agree the downstream sector will not be able to absorb the expected sharp price increases or maintain volumes. Many end-users, including white goods makers and the automotive sector, have been implementing production stoppages to balance supply and demand.
Another large buyer believes the need to rethink the supply chain will only become a pressing issue in the fourth quarter. HRC stocks remain high, he explains, including his own, with enough material to cover demand until around December.
Any price increases announced this month in Europe for September delivery are unlikely to translate into contracts, as all sources confirm they currently have no need to buy.
In Q4, however, European coil prices are expected to rise to €750/t base delivered, up from the current €700/t base delivered.
Half of the 18.3 million tonne annual quota has been allocated to Free Trade Agreement partners, with the other half accessible for all countries, including FTA partners. FTA partners will therefore retain a higher share of EU market access than the average quota volume reduction of 47%.
A significant number of partners have provisionally agreed to their allocated quotas following negotiations, the Commission says.
However, it adds it will continue engaging with trading partners at the WTO under the ongoing Article XXVIII GATT negotiations. Because the regulation is being adopted by urgency procedure, it is initially valid until end-2026 (see separate article).
Author: Natalia Capra
