Slab supplies from Russia to Europe may shrink in 2023 amid lobbying against transition quotas

Slab supplies from Russia to the European Union may shrink in 2023 amid opposition to a two-year transition period introduced in October, sevearl sources told Fastmarkets.
In October this year, the European Council voted in favor of an eighth package of sanctions against Russia in response to its unprovoked invasion of Ukraine in late February this year.

Among other things, the package included a ban on Russian semi-finished steel imports, with a transition period, including quite generous quotas, for a two-year period.

Between October 7, 2022 and September 30 2023, 3.75 million tonnes of semi-finished steel products under CN code 7207 12 10 (steel slab) would be allowed to enter the EU market without restrictions, with another 3.75 million tonnes allowed to enter the EU between October 1, 2023, and September 30, 2024.

The quota is almost equivalent to the historical slab volumes imported from Russia to the EU, with Russia having exported about 3.98 million tonnes of steel slab to the region in 2021, according to the International Steel Statistics Bureau (ISSB).

Since the quota was opened, however, some companies booking Russian slab, have been selling finished steel products – hot-rolled coils (HRC) and steel plate – at really aggressive prices, unsettling the market, several trading sources told Fastmarkets.

“Russia origin slab has recently been available at $490 per tonne CFR to Italy, so $55-110 per tonne lower than from all other [regions],” a trading source in Italy said.

Because of this, sources said, several European flat steel producers were lobbying for a reduction in the slab quota or, at least, a shorter transition period.

“It is quite scandalous that Russia was given two years to figure out slab deliveries; one year would have been more than enough,” a mill source in Europe told Fastmarkets.

Market participants agreed, however, that any changes to the semi-finished quotas would not happen quickly.

“The decision [about Russian slabs quotas] has been taken by the EU authorities in October, now they will need to start a review, which will take 6 month in best case scenario,” a source close to familiar with the matter, said.

Alternatively several sources said there had been rumors about the possible introduction of sanctions against NLMK – one of Russia’s major slab producers – and exporters, which is currently the sole steelmaker not subject to sanctions.

The latter variant was considered very unlikely, however, because NLMK owns a number of re-rolling mills across Europe (in Denmark, Belgium, France and Italy), so employment levels in those regions could be affected by any punitive actions. In addition, sources said it would not be easy to replace such substantial slab volumes.

In Belgium NLMK Clabecq has the capacity to produce 750,000 tpy of steel plate and NLMK La Louviere has a 1.8-million-tpy hot-strip mill.

In Denmark, NLMK Dansteel produces more than 700,000 tpy of steel plate.

In the first half of 2022 NLMK slab sales to third parties increased to 2.31 million tonnes, up 40% from 1.65 million tonnes in January-June 2021, according to a company report.

A European trading source suggested that at least 20% of these volumes were destined for Europe.

Slab sales to NLMK’s group companies and NLMK Belgium Holdings (NBH) reached 1.9 million tonnes in the first quarter of 2022, a decrease of 5% from 2.04 million tonnes in the first half of 2021.

NBH includes producers of plate NLMK Clabecq (Belgium), NLMK Verona (Italy) and producers of strip products NLMK La Louvière (Belgium) and NLMK Strasbourg (France).

NLMK group companies outside Europe include US-based NLMK Indiana, NLMK Pennsylvania and Sharon Coating.

Impact of quota opening on the European steel market
Market participants said the introduction of the quota had practically legalized the import of Russian semi-finished steel to Europe for some buyers.

“Before the 8th sanctions package there was some uncertainty: was it actually legal to book Russian semis, or would there be penalties? The introduction of the measures in October has paved the way for Russian semis to come into the EU,” a source in Italy said.

Sources pointed out that NLMK mills in Belgium, Italy and Denmark as well as some Italian re-rollers have been offering HRC and plate aggressively in November-December, because they were using Russia-origin slab and could, therefore, able to be quite flexible with offers.

Notably, sales of plate from Italy were reported at €810-830 per tonne CPT to the south of Germany at the end of November and in early December.

And NLMK Dansteel was said to be offering steel plate at €740 per tonne ex-works.