Metal Movers: Reacting to EU steel safeguards

Author Argus

This episode explores the European safeguard quotas and their impact on the market.

Tune in as Siew Hua Seah, Global Editor – Argus Ferrous Markets, Lora Stoyanova, Deputy Editor, Argus Ferrous Markets, and Elena Grebiniuk, Senior Reporter share how EU buyers are shifting their procurement strategy in the face of the Russian steel import ban.


Transcript

Siew Hua Seah: Hi, and welcome to the podcast, brought to you by Argus Media, a leading independent provider of energy and commodity pricing information. In this episode of Metal Movers, we talk about the European safeguard quotas and their impact on the market. My name is Siew Hua Seah, the global editor for Argus Ferrous Markets at Argus Media. And I'm joined by Lora Stoyanova, my deputy editor on AFM, and my senior reporter, Elena Grebiniuk. In the last few weeks, we have seen a change, a shift in trade flows as European buyers recalibrate and review their buying habits with the Russian steel import ban in mind. Lora, what are your views on how the market has reacted to this?

Lora Stoyanova: Okay, so let's start with what happened in March. So the commission banned imports of finished steel products from Russia and, yeah, Russia has been a very important supplier of finished steel and also semi-finished steel in Europe over the years, even though there have been anti-dumping duties on many of their products. And yeah, particularly for HRC and fat products, Russia has been a very important player in northern, central and eastern Europe. So with the ban, the European Commission gave a three-month grace period on imports from Russia. So that meant that contracts concluded before 16th of March would have until the 17th of June to be delivered.

And then what the commission also did was that it redistributed Russian and Belarusian safeguard quotas to other suppliers based on their market share. So the market reacted very quickly to the ban and just to the conflict in Ukraine in general. European mills increased their offers by the day, almost by the hour, in some cases, as they were unsure what their production costs would look like, what their raw material costs would be. And in addition, they were receiving demand from European buyers as they were panic buying because they were afraid that there would be a shortage of material in Europe.

So as a result, European HRC prices increased by around 500 Euro in a matter of just a few weeks. And yeah, the market is still coming to terms with what's happened. The dust hasn't fully settled yet, I would say.

Siew: And Elena, I mean, how are you seeing the ban on Russian steel and Belarusian steel affect the market?

Elena Grebiniuk: So it has affected mostly long products because Belarus and Russia supplied a lot of rebar and wire rod to Europe. And we've seen that Belarusian banks were also sanctioned and excluded from the financial system, so this affected most of all the Baltic region and the nearby countries in Europe because they used to cover their mostly rebar needs from Belarus and some from Russia. And they rushed to seek new overseas suppliers, and despite Russian and Belarusian allocations were distributed, as Lora mentioned, they faced other issues. For instance, European mills limited production amid disruptions in same and central material supplies and energy cost surge. So we've seen that prices for longs increased by more than 300 Euros within the month.

And many buyers were willing to pay 25% duty to receive any material. And that's why they rushed to import from Turkey because many producers, they had required certifications to export to Germany, Benelux and other countries. And so, for rebar, this was the main indicator why they preferred to import from Turkey.

Siew: So in terms of, say, Europe's steel safeguard quotas, I guess we're seeing some countries, quotas filling up a bit slower and others being exhausted. What are your views on what we can expect with these quotas going forwards?

Elena: So as for the quota, in early April Turkish rebar and wire rod quotas were exhausted immediately, and we've seen that other quarters reach critical level in early April, but you've seen that some suppliers, not only in Turkey, they started to explore opportunities. We've heard about many offers from UAE and from other GCC suppliers, for instance, and we expect that these volumes will be replaced with other sources too. But the only issue is long lead times from GCC, then from Turkey. So that's why probably we've seen large quotas. So I would say that Europe should revise quotas and increase allocation for Turkey because with all these restrictions, this will be the main source for Europe, for many European customers now.

Siew: Thanks, Elena. And Lora, how are you seeing these safeguards play out on flats?

Lora: Well, different than for longs, for sure. The quota has been set on the 1st of April, and for HRC the take up of the quota has been slower than in previous quarters. But something that this is an indicator of slow demand in Europe, but it's not the full picture because the differential between import prices and local prices back in the day when the deals for April delivery, for April customs clearance were concluded, the differential was not wide enough. And yeah, right now, I think apart from some HDG quotas, for example, O to grade Chinese galvanized, Korean galvanized, no other flat safeguard quotas have been exhausted.

And it also shows, I think that the market for flats has been quite uncertain over the first few months of the year. And the market confidence of buyers has not been particularly strong. So yeah, people just prefer to buy on a short lead time from European mills rather than import on long lead times from, say, Asia when the price was not much lower than the European price.

Siew: So the safeguards are currently being reviewed. What are your thoughts on how this is going to affect the longs and flats markets?

Lora: So on flats, so, yeah, the quotas are being reviewed and after the 1st of July, they will be in a different structure or form, different volumes. Something like this. The most important change for the flats market will probably be the list of excluded countries. So, Vietnam is almost certainly going to be taken off that list. So the safeguard quotas are going to start being applicable to it. And that makes a big difference for the galvanized market again, because Vietnam has been the only origin of galvanized steel that is free of safeguards, free of duties, free of any sort of things that stop it from being imported. And it would be interesting to see what other countries get taken off that list.

I think Egypt might be taken off as well because they have also exceeded the 3% threshold for HRC which determines if a developing country is excluded, if its share is lower than 3% of European imports and it's a developing country, then it's excluded from the safeguards. But yeah, Egypt is now at 8.4% share as of 2021. And yeah, it would be interesting also to see how the commission takes into account the, well, Russia and Ukraine's absence from the market in respect to the anti-dumping investigation it's currently doing on Turkish and Russian galvanized steel. But yeah, we'll know more about this over the summer.

Siew: Thanks, Lora. Elena.

Elena: In the longs market, I suppose that if all European mills continue facing all these issues as resource in feedstocks, Europe should revise other quotas first of all, and I suppose that many suppliers from GCC, from Northern Africa, they will be able to replace all these volumes and to cover needs of European suppliers.

Siew: Thank you both. I guess we can look forward to seeing how this plays out in terms of how trade flows adapt and change in the coming months. So, if you enjoyed this podcast, please tune in to our other episodes to learn about the metals market. For more information about European steel safeguards, please visit argusmedia.com. Thank you.

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