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EU Steel Buyers Grapple with Safeguard Implications

28 August 2018

The European Commission announced provisional safeguarding measures on imports of steel, prior to the start of the European summer holiday period. This created uncertainty at a time when many domestic mills are closed for several weeks, across July and August. Limited order volumes are usually placed, at this time. However, MEPS predicts higher than normal market activity across the industry, this month.

The provisional import quota system is designed to restrict the impact of steel being diverted into the EU market as a result of the Section 232 measures, introduced in the United States. Any steel brought into the European region, over and above specified tonnages, will incur a 25 percent tariff rate. The European Commission believes that this will protect the local steel industry from serious harm. The quotas are set for a period of 200 days from July 19 and have been calculated, on a pro-rata basis, from the average of the tonnages imported in the years 2015, 2016 and 2017.

MEPS notes uncertainty surrounding how the quotas will operate. Many buyers worry about whether foreign steel, ordered now, will be subject to the 25 percent tariff when the material is delivered to the port. A customer will not know if the quota will still be available, at the time of ordering the material. 

Imports of steel into the EU were rising prior to the Section 232 announcements. It is feasible to conclude that volumes from third country sources would have continued to increase, with or without the US trade barriers. The European Commission’s safeguarding measures are expected to bring this growth in foreign material to a halt and could result in a reduction in imports, as European traders reduce purchases, for fear of falling foul of the tariffs by the time the steel arrives. This may restrict the buying options available in the market and give local producers increased pricing power.

European steel price increases are now forecast to extend into the autumn, with the MEPS EU average hot rolled coil transaction value likely to hit an almost seven-and-a-half-year high, in the coming months. Consequently, profits at the domestic steelmakers are expected to remain healthy, for the remainder of this year. 

The upward price effects of the EU safeguarding actions are likely to be limited. The quotas are not designed to reduce foreign supplies but to restrict excessive growth in steel imports, which may result from the redirection of material due to the US Section 232 tariffs. Overseas material is an important source of supply for the EU market.

A degree of competition from third country suppliers will remain in the EU steel market. This may be tempered by tariff concerns. Nevertheless, if domestic mills were to push too hard for price increases, then imports, including any tariff costs, would become attractive to many EU buyers. The result of this would be a loss of market share for the local producers. 

Source: MEPS - European Steel Review - August 2018 Issue

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