EU to extend safeguards until 2026, proposing restricted residual quotas access for HRC, wire rod

The European Union has notified the World Trade Organization (WTO) that steel safeguard measures will be extended for two more years, affecting residual tariff rate quota (TRQ) access for hot-rolled coil and wire rod in particular.

The proposed adjustments to the measures will come into effect on July 1, 2024. Member states will vote on the document next week, sources said.

The annual liberalization rate will change to 4% from 1%, with more restrictive adjustments for certain hot-rolled coil and wire rod quotas, effective July 1. The new measures will remain in place until June 30, 2026.

“Data shows that the liberalisation rate in the past has largely outpaced the evolution of consumption. While Tariff-Rate-Quotas (TRQs) have been increased by almost 25% since the measure was imposed (including the 5% top-up applicable since February 2019), consumption decreased by -17% over the same period. These opposing trends have therefore significantly widened the gap between the level of TRQs and the market demand,” the notice published on Thursday May 30 reads.

The existing measures have been in place since 2018 to protect EU steelmakers from a potential surge in imports.

The latest decision to extend the measures follows a review that began in December 2023.

The volume of steel imports into the EU remains high, especially in light of deteriorating consumption, according to the European Commission. Notably, in 2023, steel imports to the bloc totaled 24.721 million tonnes, down by 8.7% from 27.087 million tonnes the previous year, according to Eurofer data.

Meanwhile, Eurofer reported apparent steel demand for 2023 declined by 8.7% year on year to 126 million tonnes, from 138 million tonnes in 2022, marking the fourth annual downturn in the past five years.

Adjustments proposed
The major adjustment was proposed for product category 1, namely, hot-rolled coil (HRC) quota, which represents the largest share of imports to the EU (8.5 million tonnes in 2023).

“It [HRC] also represents 34% of the total production of the Union [steel] industry and around 25% of its domestic sales in terms of volume,” the notice reads.

Due to a recent surge in imports with certain origins – such as Vietnam, Japan, Taiwan – the residual TRQ for HRC had a tendency to be exhausted in the first couple of days of the new quarter.

“This has created an imbalance on the market throughout the remainder of those quarters by making available very large amounts immediately, thus generating substantial import pressure,” the notice reads.

As a result, the Commission has suggested imposing a limitation to the maximum volume that one single country can export under the residual TRQ. Notably, the Commission suggested a 15% cap per single country over the TRQ volume initially available in each quarter.

This would affect HRC imports falling under the “other countries” category. Notably, Vietnam, Japan, Taiwan and Egypt are the major HRC suppliers to the EU under that category, with Asian suppliers offering the most competitive prices, according to market participants in Europe.

For example, HRC imports in 2023 from Taiwan to the EU amounted to 1.25 million tonnes, 1.16 million tonnes from Vietnam and 1.09 million tonnes from Japan, according to GTT stats.

The total allowance for “other countries” safeguards category, where these countries belong, in 2023 was 3.7 million tonnes, according to the EU customs data.

If the Commission’s suggested 15% cap is applied, each country would not be able to supply more than 555,555 tonnes of HRC per year to the bloc.

European steelmakers speaking to Fastmarkets welcomed such a proposal, saying it was “necessary to protect the market”.

“If the measures remained in the current state, we wouldn’t have European steel production anymore,” a steel mill source said.

Distributors, on the contrary, said the decision was “a disaster” and was set to limit competition in the market.

“As distributors, we need to diversify supply sources. Importing was already painful with safeguards and CBAM adding up, with new limitations it will be impossible [to import coil] in Europe,” a distributor said.

Wire rod
Similar changes were proposed to product category 16: steel wire rod, with a 15% cap suggested per country over the TRQ volume initially available in each quarter.

“Import quotas [for wire rod] from Algeria, Egypt, Malaysia, Indonesia and India for the second quarter of 2024 were full in the first week after new period started. This has become a tendency,” a wire rod producer source said.

The total allowance for “other countries” categories in 2023 was around 472,335 tonnes, according to the EU customs data.

If a 15% cap is applied, each country falling under that category will be limited to delivering no more than 70,850 tonnes of wire rod to the EU in one year.

In 2023, Malaysia alone supplied 383,470 tonnes of wire rod to the EU, and Algeria 175,154 tonnes, according to GTT stats. Deliveries form Indonesia amounted to 168.781 tonnes.

Wire rod buyers in Europe were disappointed with the suggested adjustment.

“EU wire rod processors are experiencing shortages of the commodity and squeezed margins compared with fully integrated EU steel producers,” a wire rod buyer in Northern Europe said. “We need a continuous and uninterrupted flow of diversified sources of supply of steel products, both in the EU and overseas, from third countries.”

Published by: Julia Bolotova