EU steel safeguard quotas see 75% take-up

Around 75% of European tariff-free quotas for the period ending 30 June have now been filled, Kallanish learns from the latest European Commission (EC) official data. The quotas were set earlier this year as part of the EU’s permanent safeguard system.

Overall some 10.2 million tonnes of quotas were available in the period ending 30 June 2019. A total of 7.7mt of these quotas have now been used.

New quotas will be available from the beginning of July. Most key product categories however have seen the available tariff-free volumes exhausted, meaning that imports into Europe will remain mostly absent in the coming weeks.

In more detail, most of the quotas for the import of metallic coated sheet have been fully taken up. Those for rebar, organic coated sheet, stainless bars and sections, stainless wire rod, non-alloy wire rod, hollow sections and non-alloy wire have also been fully subscribed.

The EC is reviewing the system while steelmakers are vociferously asking for for more stringent measures. Importers meanwhile are expecting some changes in quotas for specific products such as rebar and wire rod.

Russia may implement scrap export quotas

The Russian Industry and Trade ministry is working on a proposal to restrict the export of ferrous scrap. This is to be done by implementing regional quotas, deputy minister Victor Evtuhov is quoted as saying on the fringes of an industry event in Lipetsk last week.

In addition, the ministry is considering moving scrap trade to the Saint-Petersburg mercantile exchange. “There are positive and negatives, and it is work in progress. But one way or another, we shall find a way to keep as much ferrous scrap within the country as steel producers need,” he says.

The work in progress quota proposal is based on the premise that some regions have plentiful scrap procurement resources and very low or no consumption, and these regions could export 100% of their scrap. But regions such as Far Eastern, north-western and central European parts of the country suffer from an outflow of the material due to high demand from steel mills in the area.

Russian Far Eastern scrap-based steel mill Amurstal is one of the steelmakers that had been suffering most from a shortage of scrap supplies. This eventually led to its bankruptcy and acquisition by a scrap procurement company. The mill had been lobbying for scrap export restrictions for many years, some of which have been temporarily implemented and cancelled on competition grounds by the Federal Antimonopoly Service (FAS).

The problem of feedstock supply eventually inspired Amurstal to re-visit the plan to switch to metallised feedstock such as iron ore pellets or nuggets.

Russian exports of ferrous scrap fell -18% in the first quarter of 2019 to 943,500 tonnes. South Korea imports from the Russian Far East took 16% of the total, with the largest importer Turkey taking 40% and Belarus, 26%. 

European Commission prohibits Tata-Thyssen merger

The European Commission will not allow the proposed merger between German steelmaker ThyssenKrupp and Tata Steel’s European operations to go ahead, because the firms did not adequately offer to remedy the expected reduction in competition and resulting higher steel prices.

The decision aims to protect competition in European steel markets and ensure that the automotive and packaging industries are not threatened, the commission said. Tata and ThyssenKrupp are the third and second largest European producers, respectively.

The commission began an in-depth investigation into the proposed joint venture at the end of October, but had to pause it in December because the firms did not supply certain information in a timely manner. It reopened the investigation on 15 January and on 1 April the two steelmakers submitted a package of commitments to address the commission’s concerns.

But on 10 May, ThyssenKrupp and Tata said they expect the commission to block the merger, as it required further commitments by the companies that they believed would make the joint venture economically unviable. ThyssenKrupp said it would instead focus on an initial public offering of its elevator manufacturing business, while Tata remains committed to deconsolidating its European assets.

The commission said that it received feedback from a large number of packaging and automotive industry customers who were concerned about higher steel prices for metallic coated and laminated steel products — notably tinplate — and hot-dip galvanised steel.

And the commission said that imports from third countries would not be able to compensate for increased local prices, because of quality requirements and longer delivery times.

In addition, the firms’ proposed divestments were inadequate to meet the commission’s demands, and did not include any assets, producing the raw materials necessary for galvanised products and tinplate.

European Commission to expedite steel safeguard review

The European Commission plans to accelerate its review of safeguard measures on EU imports of steel products, but the results are unlikely to be released before 1 July when the new quota period begins, commission sources have said.

The commission has been under pressure from EU mills to tighten the safeguard quotas, while buyers and traders have pushed for relaxation of the measures. It began the review of the measures on 17 May and previously expected to conclude the investigation before 30 September.

Finishing the review by 1 July would be difficult because of specific rules and procedures, but the commission intends to conclude it and modify the quotas if required as quickly as possible, the sources said.

The steel import quotas reset on 1 July, with exporters to the EU gaining access to the market again. The quota volumes for each product will rise by 5pc of the average of imports in 2015-17. The date is crucial for sellers of long products such as rebar and wire rod, as well as certain flats like galvanised steel used in the automotive industry.

EU buyers of steel products are lobbying for the loosening of the safeguards, while European mills are pushing to block the 5pc quota relaxation, as well as the addition of country-by-country quotas for imports of hot-rolled coils.

UK heavy sections buyers concerned about supply

Heavy sections buyers in the UK are concerned about availability of supply in the event that British Steel’s sections production ceases.

There are potential suitors for part of British Steel’s sections business, including the Skinningrove mill, which makes sections primarily used by yellow goods producers. But the heavier sections offering is largely viewed as inefficient because of the distance of the Lackenby rolling mill from the Scunthorpe bloom and billet casting operation.

Buyers’ fears are heightened by the European Commission’s definitive steel safeguard, which caps sections imports substantially below figures for two of the last three years. The tariff rate quota for 1 July this year to 30 June next year is 337,351t, below the 415,827t imported into the EU28 last year, and the 382,648t figure for 2016.

There is limited production of British Standard 4 category C imperial size sections, as many mills do not produce such sizes as they take longer to roll than lighter sections. There is more supply of lighter category A and B material.

Offers still come from South Korea, Bahrain and the UAE, the latter two of which can only sell into the other countries’ quota, which stands at 37,964 from July 1 this year to June 30 2020. Korea’s quota, at close to 26,664t, is a real concern for buyers and traders, who fear they could end up owing 25pc tariffs in the event that they clear customs once the quota is critical or exhausted.

One buyer recently wanted to place an order for Korean material, but did not because it was concerned about the existing quota being exhausted. As a result some traders and independent buyers argue that the safeguard should not be country by country because smaller quotas for some countries effectively act as a total trade barrier.

Traders and buyers also argue that mill ownership of distribution assets, across the European flats and longs complexes, creates the necessity for an import market.

In the UK the sole domestic rebar producer, Celsa, owns around 45pc of the downstream fabrication market. It can produce around 1.2mn t/yr of finished long steel at its nameplate capacity, and sources estimate its rebar capacity at 700,000-800,000t/yr. The UK and Irish rebar market is in excess of 1mn t/yr, necessitating a degree of imports. And independent fabricators and service centres in general dislike buying from their competition, and want other supply sources where possible.

It was this tension that led to the creation of the British Independent Reinforcement Fabricators Association in September 2015. Independent fabricators said that the existing British Association of Reinforcement was too focused on mill-tied operations, so set up their own association in conjunction with traders.

The UK rebar market also has other vagaries, such as its use of Cares-approved material — this high-tensile rebar has its own HS code, but has not been included in the European safeguard. UK buyers have thus rushed to secure third-country tonnage, with Turkey the largest source; the Turkish quota was used up within days of opening in the first safeguard periods since 2 February, and the other countries’ quota also fills up quickly upon opening, primarily as traders sell Turkish material into it. One trader had almost 60,000t of rebar to clear into the first quota period starting 2 February, when the total quota for Turkey was only around 117,000t. As a result it, and many other traders, held over material to deliver into the April allocation. This means buyers do not get their steel, and projects are being postponed as a result. Where construction projects are halted or delayed, it has a knock-on effect on the whole steel complex and the wider economy.

One rebar buyer in the UK is sitting on almost 20,000t of material that has not cleared customs, so he has had to source from a competitor to meet his immediate needs.

The UK’s sustainable steel scheme also includes a provision that rebar cannot be purchased from over 1,500 miles away; this would effectively mean primarily Spanish and UK supply would be viable Cares-approved material.