EU steel safeguard measures could disadvantage independent distributors, sources say

Measures taken in conjunction with the safeguard case against a number of imported steel products in the EU will have a negative impact on Europe’s independent distributors, sources have told Metal Bulletin.

The European Commission (EC) launched a safeguard case into 26 carbon and stainless steel products imported into the EU on March 26. The EC claims that the investigation was started to prevent injury to domestic industry from imports redirected from the US.

Material targeted by US Section 232 import tariffs from countries such as Turkey could try to find a new home in European markets, European market sources have said.

While European steel association Eurofer, which represents steelmakers, welcomed the trade case and called for a swift decision on the measures, EU trading sources told Metal Bulletin that they were confused by the evidence used to open the case and that the measures imposed could have negative effects for Europe’s distributors.

The EC is considering options such as a blanket tariff, a blanket quota or targeted quotas on certain countries, sources said.

Although it is difficult to fully evaluate any consequences at this early stage of the investigation without knowing which trade remedies might be employed, sources said any safeguard measures are most likely to result in a shortage of material and significant price rises.

These price increases may not be fully accepted by end-users, thus squeezing the margins of Europe’s distributors, sources said.

Prices to rise

European domestic mills would be the main beneficiaries, and are likely to raise their steel prices as a result of any trade measures taken, sources said.

“If it happens, prices will go up in Europe. It’s a small group of producers so, when one [puts prices] up, it’s easy for the others to follow,” one Northern European tube stockholder said.

“Mills will increase [flat steel] prices after Easter in Europe, speculating on the trade case,” a German flat steel distributor said.

“But the artificial price rise will be no good to anyone but mills, as traders, service centers or end-users were not able to fully transfer the previous price rise through the production chain. So the margins of any processor not affiliated with steelmakers will see margins drop,” he added.

Metal Bulletin’s weekly price assessment for domestic hot-rolled coil (HRC) in Northern Europe has increased 7.41% since the beginning of the year to €570-590 ($705-730) per tonne ex-works on March 28.

US domestic HR sheet prices rose 29.71% since the start of the year, and by 15.14% since the Section 232 recommendations were made on February 16 by the US Department of Commerce, according to Metal Bulletin prices.

Price increases could be particularly stark in countries that rely on steel imports due to a lack of domestically produced material such as the UK, one UK distributor said.

“In the UK, what we do produce is monopolized, so you’d see a huge increase in price,” he said, adding that domestic UK rebar and hollow sections prices could rise as much as €100 per tonne if tariffs are applied to non-EU imports.

Tightening supply
In the past few years, the EC has applied a number of anti-dumping measures on imports of all main commodity steel products including HRC, cold-rolled, hot-dipped galvanized coil, heavy steel plate and rebar from a number of countries.

The measures already in place are enough to protect the EU steel industry, but any additional blanket measures would place too much cost pressure on distributors and end-users, according to market sources.

“We cannot understand the imposition of quotas on a product like wire rod where there isn’t enough supply and where imports are necessary. I don’t think the EU will kill downstream fabricators of wire rod,” one Northern European rod buyer said.

A European wire rod duty of 24% on imports from China has been active since 2008.

“The number of HRC sources has already been limited after the EC set duties [into the material from four countries], so any other measures will force distributors to deal exclusively with European mills and there will be no alternative source,” a Northern European trader said.

The number of offers of overseas HRC to the EU was limited after the EC settled definitive anti-dumping measures on HRC imports from China in April 2017, and on imports from Russia, Ukraine, Iran and Brazil in October of last year.

“In my opinion, the steel market in the European Union is already protected to a large extent, so further restrictions may have an adverse effect on steel consumption in Poland, which is constantly growing and reached another record last year,” spokesman for the Polish Union of Steel Distributors said.

“We are probably more concerned about the purchase of coil than the sale of tubes,” one Southern European hollow sections producer said.

Necessity of applying duties
Along with possible problems for Europe’s independent distributors by way of tighter material supply, sources questioned whether any additional trade measures should even be applied.

“In the short term, I don’t see China increasing exports of wire rod to Europe and depressing global prices as a consequence of Section 232,” the rod consumer said.

“In the document on the investigation’s start, the EC stated that imports have increased significantly since 2013. This is true, but 2013 was one of the worst years for the steel market in the past couple decades, so it looks like a manipulation to use the worst year for a comparison,” a Northern European coil distributor said.

Market sources also believe that the threat of the European market being flooded with imports redirected from the US is exaggerated.

About 10 million tonnes of steel products that could be redirected from the US market to Europe are supplied by countries such as China or Russia, according to Italian steel distributors association Assofermet. Other countries were either permanently excluded or exempted from Section 232 measures for a certain period until the final decision is made.

In the meantime, neither China nor Russia, which could redirect about 3.9 million tonnes to the EU, are posing any threat to Europe due to the trade defence measures already in place.

“It is clear that, as from the initial 32.7 million tonnes [of total steel import to the US], only 6.1 million tonnes are in some way attributable to countries subject to US measures and at the same time potentially interested in the European market,” Assofermet said.

A significant part of the 32.7 million tonnes of steel imported to the US are products that local steel consumers cannot buy in the domestic market.

“Therefore it is logical to expect that a large part of these flows will also be maintained following the safeguard measures introduced by the US Administration,” Assofermet said.

“Regarding the EU trade case – it and I find it vague. It mentions the increase in imports in the past years, but those figures have already been investigated thoroughly and addressed in the past years with various anti-dumping duties imposed against several importers and pretty much all flat products,” a Northern European trader said.

“The results of those duties are yet to be really seen. So what more can the old figures possibly tell us right now as support for any further trade barriers? As far as protection against diverted tonnages from elsewhere go. How can those be investigated by looking at past import figures? The damage would have to be investigated from future figures. As usual, this is rather political,” the trader added.

Likelihood of imposition
Market sources were divided over whether they thought that measures would be imposed by the EC.

“The EU steel industry is not ready for a trade war, which could eventually lead to imports of end products and no work for steel factories. So I think the EU will be reasonable in the end and treat each steel product group as is needed,” the rod consumer said.

“I am pretty sure they will take action, they have been moving much more aggressively, like with the famous case of [duties on HRC from] five countries,” the Southern European tube producer said.

“I don’t think the EU will introduce import duties [and] in the WTO, you can only use quotas on things from nature like fish,” one Northern European distributor said.

Although quotas are not welcomed by the WTO, the EU can set quotas based on import volumes from the past three years, a trade lawyer explained. This could be agreed upon by the WTO as exceptional measures.

European distributors are going to take action to fight against the safeguard measures, according to market sources, adding that it would be after the Easter holidays are over in Europe.

“As soon as the information about the case’s start became public we asked our clients to fill out the required papers and send them to the EC,” a Southern European trader said.

Viral Shah, in London, Metal Bulletin