EU steel oversupply rebalancing in 2018

The balancing of supply and demand in the European Union steel sector is reducing the market disruption from a widening trade deficit in 2018, according to calculations by S&P Global Platts.

Despite domestic production rising and imports increasingly outpacing exports, the World Steel Association’s latest forecast, released in April, that EU demand will rise 2% in 2018 to 165.6 million mt, will see the oversupply decline should current production and trade levels persist.

EU crude steel production underperformed relative to the rest of the world in the first quarter, according to worldsteel. While global output rose 4%, EU output was just 0.9% higher year on year at 43.1 million mt.

Should the EU keep this pace, the 2018 total will be 170.2 million mt. This assumption would result in an imbalance in supply and demand of 4.6 million mt, or 2.8%; down from 3.9% in 2017. However, this improvement ignores the trade deficit that widened at the beginning of 2018.

According to statistics published by Eurofer, EU exports of flat and long steel products totaled 22.9 million mt in 2017, down 2.7% from 2016. Imports fell, but just 0.6% despite a raft of antidumping duties on flat steel.

Higher exports at the start of 2018 were not enough to counter the swell in imports, with the trade deficit totaling 1.48 million mt in the first two months of the year, up 10.2% year on year.

Assuming this margin of increase persists for the rest of the year, the flat and long steel trade deficit would increase to 3.47 million mt in 2018, up from 3.15 million mt in 2017.

Adding the deficit in trade to the supply demand imbalance leaves an excess supply of just over 8 million mt of steel, or 4.9%. This would be down from 5.9% (9.5 million mt) in 2017.

The picture may improve if the trade deficit is squeezed – as is widely expected following a spike in the January import volumes – while stockholders and service centers have been holding low inventories in the face of uncertain price direction.

Yet there are also potential headwinds, with US tariffs expected to redirect steel towards Europe, as well as a general slowing of the EU economy following a weaker-than-expected first quarter.

This issue eases if companies are optimistic on pricing and are willing to hold stock, but that has not been the case recently.

Peter Brennan, PLATTS