Quota exhaustion could generate demand for EU HRC

The near critical level of the “other countries” EU import quota for hot-rolled coils (HRC) could generate additional and unexpected demand for EU material, but most EU mills are unlikely to be able to capitalise on this owing to their lead times.

The quota as of 25 July had a 12pc balance, with a further 10pc worth of HRC awaiting allocation, meaning that after that material is fully allocated a mere 2pc will be left over. When the quota has under 10pc balance left, authorities request a bank guarantee from the importer to secure that the 25pc safeguard duty can be paid — this had already probably deterred some buyers from trying to custom clear their tonnages as the quota was drawing down.

Several buyers are reported to still expect vessels to arrive in the EU in August-September, containing HRC, which was to be cleared under the non-country specific allocation. They will now have to wait until 1 October for their material to be in use.

But delays in customs are expected in October, as not only will there be leftover HRC from the current quota to be cleared, on top of the already probable high arrivals for the October-December period, but every importer will have to provide proof of no Russian substrate used in manufacturing. Market participants said that there has been no clarification from EU authorities about what documents will be admissible as evidence.

“Buyers will probably stop buying from imports and, on the other side, in the fourth quarter probably we will have some shortage,” a buyer said. “A part of my material, for example, is coming from Japan or Taiwan so probably we will have to custom clear it on 1 October, but I am not sure that there will be space for everybody, so I expect in September we will have a shortage,” they added.

Some buyers said that, after seeing the rate of imports over the first two weeks of July, they decided to change the destination of vessels to less busy or closer EU ports than the original point of custom clearance to make sure their purchases were cleared. Others said that they have directed more tonnages to EU mills than usual for September, and have increased their contract requirements for that month.

Those buyers that will not be able to use their material now and wait for the October quota, if not willing to run their stocks dry, will be likely to have to purchase more material either from EU mills, or from countries with specific own quota allocations such as Turkey and India.

There are only a handful of EU mills that have September deliveries available — most mills offer for October onwards. That said, several market participants expect that the quota exhaustion for July-September and the expected exhaustion for October-December will incentivise EU producers to attempt to raise prices even if they do not necessarily have the availability.

Not everyone is of the same view — some buyers said that the quotas exhaustion indicates oversupply in the EU market, with over 1mn t imported already in July alone.

“EU mills will try to increase prices owing to material stuck at ports, but what about the million tonnes already cleared? All this material will need to be digested in a bad market scenario,” a market participant said.

“This will not have a huge impact on demand for mills, it might impact on the ability to supply to end-users. Supply will be sufficient, but we will see lower stock levels. The material that was bought in the third quarter will be missing, but the EU mills will not be able to step in due to lead times,” another market participant added.

By Lora Stoyanova