UK hot-rolled coil (HRC) prices will surge in the coming months if the government goes ahead with a plan to reduce quotas by almost 90pc, attendees of the International Steel Trade Association (ISTA) forum told Argus.
A confidential provisional document from the UK business and trade ministry shows annual 1A HRC quotas of 68,226t for the EU, 12,405t for India 3,258t for South Korea and 18,452t for other countries. This equates to around 102,000t, compared with a current quota of almost 1mn t. Around 630,000t was imported into the 1A quota last year, substantially below the total volume, but much higher than the provisionally proposed quota. The final quotas could change, sources suggested, depending on how much access UK producers get to the EU, which is also establishing a new quota from July.
But UK market prices, which had already started to jump in response to Tata Steel UK's £125/t hike earlier this month, are already reacting. Service centres are now offering hot-rolled sheet above £800/t, up from around £550/t just a few weeks ago. More increases are likely in the coming weeks, with several service centres suggesting the inflation would severely hamper consumption given the already constrained demand environment.
One large service centre, which buys limited domestic material, said it could see HRC prices reaching £900/t. Argus' weekly UK HRC assessment was £645/t ddp yesterday. EU mills with spare capacity to sell into the UK before July are likely to push offers even higher — some offers were already at £700/t ddp before the document circulated.
UK prices were at a discount to EU levels late last month, but have already increased to a €37/t premium, which is likely to rise sharply in the coming months.
Should the quota be reduced to 102,000t, there would be large shortages on some grades, such as 2m wide HRC, which is widely used but not produced in the UK. Two large service centres, which both procure little domestically, could each easily buy more than the proposed quota, based on their current throughput.
A much smaller cut has been proposed for the hot-dip galvanised (HDG) quota — which would drop from around 1.9mn t to 1.1mn t but give more volume to low-cost suppliers South Korea and Vietnam — prompting some to suggest that HRC prices could outstrip HDG.
