Viewpoint: Brexit weighs on UK rebar fabricators

UK rebar fabricators are concerned about the availability of Cares-approved material under the European steel safeguard, with Brexit potentially clouding the situation further once the transition period ends.

The UK has one sole domestic rebar producer, Celsa, which owns 40-50pc of the country's downstream fabricators. In previous years, the independent fabricators not owned by Celsa could source Cares-approved material from 17 mills in China. But this supply-source was closed when the European Commission introduced anti-dumping duties of up to 22.5pc in 2016.

Rebar imports to the UK from China totalled 279,438t in 2014 and 395,412t in 2015 — almost half the market — but this dropped sharply after the duties were imposed to just 6,836t in 2016.

When the EU quota system came into force in June, UK rebar importers were further restricted in terms of sourcing, especially when Turkey exhausted its quota in October and Russian and Ukrainian allocations reached critical levels this month.

The requirement to buy Cares-approved rebar applies only to the UK and Ireland, while other EU buyers are not bound by these same restrictions. "The issue is not the quota system per se, but the quotas combined with UK safeguards and additional burdens such as Cares. The problem is that legislators don't understand market nuances," one UK rebar importer said.

"Our overarching focus at Cares is to support all our partners in the steel industry, and to work with them to achieve continuous improvement in the quality and sustainability performance of reinforcing steel products entering the supply chain," Cares said, adding that the quota system was "a matter for the EU".

The fabricators not owned by Celsa prefer to source elsewhere when possible, given the company is their largest competitor in the downstream market. A Spanish-headquartered producer is another major supply source, but its offers are currently around £400/t delivered, while Turkish material is £30/t lower.

A Belarusian mill, which is subject to 10.6pc duties imposed by the commission in mid-2017, also has Cares-approval. The producer reportedly sold out all allocated rebar volumes until June 2020, but has access to the other countries quotas.

Imports from Belarus to the UK surged from 39,190t in 2017 to 61,099t in 2018 and to 96,966t in the first 11 months of 2019.

With a limited number of mills from Turkey and CIS, the two remaining countries with individual quotas remaining are Bosnia and Herzegovina, which have no Cares-certified mills. Moldova has one mill that lacks the flexibility to produce lengths suitable for the UK market.

Similarly, several Middle Eastern mills are Cares approved but do not provide the correct lengths required for UK construction. "We could source from EU mills and one Algerian mill, but they prefer to satisfy domestic demand first, which means we cannot depend on them," one UK importer said.

EU imports

British traders and fabricators are expected to return to new purchases soon, looking into material with March-April delivery.

There is still 175,000t available on the "other countries" rebar quota, with each country able to take a maximum of 30pc. This means that when the "other countries" quota opens up to those countries with individual quotas on 1 April, countries such as Turkey, Russia and Ukraine will be able to export around 40,700t of rebar each to the EU. But the Balkans region has recently purchased 40,700t of Turkish rebar ready to clear customs on 1 April, Turkey's entire allowance. Should others also clear customs, they could be hit with the 25pc duty.

Industry association Eurofer has launched a campaign to have the 30pc allocation per country reduced to 20pc in the commission's next review.

Turkish rebar exports to the Balkans have increased exponentially since 2015, going from 77,456t for the year to a high of 324,338t in 2018 and 271,602t in the first 11 months of 2019.

Transition period

Uncertainty surrounding Brexit and how the quota system will be applied to UK imports and exports is adding to sourcing issues.

The transition period for the UK will last until 31 December 2020, with an option to request an extension before 30 June 2020. All trade regulations will be revised gradually, and market participants believe some clarity with quota and tariffs system will be seen closer to the end of the summer period. This means the UK will be bound to the quota system until then, compounding rebar sourcing issues for importers.

Anticipating that quota issues with Turkish material will continue and prices may rise amid limited supply options, UK fabricators significantly replenished stocks at the end of last year up to March. In the meantime, cut and bent rebar surged by around £20/t over one month, to £495-500/t delivered, with construction activity remaining relatively stable.

Until the quotas renew on 1 July, it is unlikely any more rebar will be imported from either Turkey or Belarus aside from the bookings awaiting customs clearance on 1 April. This would lend support to European rebar prices because UK fabricators will have no other option but to buy from EU mills.

By Sara Warden and Elena Grebiniuk