European coil and green steel round-up: European coil prices inch up on CBAM, new quotas

The European coil market appears on the precipice of a bullish trend for second quarter deliveries as of 23 January, as market sources report declining availability for cheaper first-quarter material, and firmer offers for post-March lead times.

Market participants are now fairly unanimous that coil prices will rise once mills fully engage sales for Q2, with supply to be increasingly constrained by limitations to import accessibility from the Carbon Border Adjustment Mechanism (CBAM), and the EU’s upcoming replacement to its lapsing steel safeguards.

Hot-rolled coil prices (HRC) in Northwest Europe inched higher on the week, with first-quarter prices considered negotiable to EUR630-650/t ex-works by buyers, confirmed by mill sources. Levels are firmer for the first-quarter, seeing offers at EUR680-700/t delivered for April delivery and beyond.

“At the moment there is at least a 50 euro spread between coil offers, depending on lead time and mill,” said a German distributor, describing the market as “hectic.”

A mill source similarly attributed discrepancies to lead time differentials and a push for higher Q2 prices: “realistically mills are trading at stable prices if they have March material left, and all will claim to be firm on higher prices for the second quarter.”

Buyers are still skeptical in the near-term given poor demand conditions, with a Benelux distributor stating that “the mills really needed to do something to push prices higher as demand isn’t supporting higher rises – activity in the market is just not strong enough.”

Dynamics were similar in the Italian market, particularly on steel sheets, which are reportedly rising in price more rapidly than in North Europe due to additional sensitivity to CBAM costs.

Italian HRC prices were reportedly available between EUR620-640/t ex-works, with imports offered on a DDP Italy basis ex-Saudi Arabia at EUR615/t, and ex-Turkey at EUR620-630/t. CFR Italy offers were available at around EUR500/t CFR ex-India; EUR520-530/t CFR ex-Turkey (without AD duties); ex-Algeria at $670/t (EUR570/t); and ex-Indonesia at $550/t (EUR470/t).

Buyers are almost unanimously deterred from CFR-basis import purchases due to potentially existential CBAM costs if forced to use default emissions values and benchmarks. An Italian trader described how only minimal volumes could be traded CFR, even for larger importers like pipemakers:

“Importing on a CFR basis is still only possible for a small fraction of imports for any company relying on imports, able to dilute high CBAM duties elsewhere in their cashflow – maybe up to 10% of their total imports.”

Italian re-rollers have previously told McCloskey that they have “no choice” but to import under the assumption that requisite verifications for the use of ‘actual values’ for CBAM declarations, as default values otherwise pose too high a cost for continued operations.

Green Steel

While green HRC premiums continue to trade sideways at around EUR70-80/t, the low-carbon market saw its first sign of regulatory stimulus this week following the leak of the European Commission’s upcoming proposal for its Industrial Accelerator Act (IAA) – exclusively detailed by McCloskey in this series of articles.

The IAA introduces the EU’s first official “voluntary low-carbon label” for green steel standardization, and seems to incorporate the controversial ‘sliding scale’ mechanism in its classification thresholds on hot-rolled carbon steel products.

This label is to be incorporated into low-carbon local content mandates for both public and private procurement (where subsidised by state funds) in the EU, and could also assist spot market liquidity for green steel due to greater regulatory certainty as to what is – and is not – considered transparently low-carbon.

The IAA has been delayed again from its January timeline, and is now scheduled for presentation on 25 February.