EU scrap sellers look to CBAM as prices sink

: Metals
25/07/11

European stainless steel scrap prices fell sharply in the second quarter on a steep decline in steelmaker demand and the impact of global trade tensions that followed the US' decision to double steel import tariffs to 50pc in April.

Although some price weakness in June was always expected as part of the summer season slowdown, market fears are more pronounced this year because of an accelerating trend of European stainless steel producers buying low-cost alternative inputs from Asia. Imports of stainless steel slab and nickel pig iron (NPI) have risen sharply as weak or sometimes negative profit margins have pushed mills in the direction of cheaper substitutes.

The Argus assessment for stainless steel scrap 304 (18-8) solids cif Rotterdam shed 15pc during the April-June quarter to end the quarter at an average €1,030/t ($1,203/t). The assessment fell further to a midpoint of €975/t this week, its lowest average since June 2020. The Argus assessment for stainless steel scrap 316 solids cif Rotterdam fell by 12.8pc during April-June to end the quarter at an average €1,030/t.

European buyers have lapped up NPI in the second quarter as price falls in China and Indonesia — mainly caused by weak domestic demand — have presented them with a significant cost advantage over scrap. Excess supply has driven sellers to look for new markets and buyers, with European steelmakers obliging as they look to offset the impact of high energy costs and take advantage of a weak US dollar.

The Argus assessment for NPI 10-14pc cif China main port duty unpaid fell by 10pc during April-June to $11,350/t at the end of the quarter, while the NPI 10pc ex-works China assessment fell by 9.5pc over the same period to $12.83/kg on 26 June.

Market participants told Argus that alongside NPI, Indonesian-origin slabs have penetrated the European market — particularly Italy — as low prices and no quotas ensure the product can flow easily. Rerolling with slab has become a more cost-effective alternative to the use of electric arc furnaces in stainless steel production to drive a rise in slab use. Although the UK has historically been the primary consumer of imported stainless steel slab in Europe, market participants said consumption in the EU is steadily rising and has almost matched UK use so far this year.

"The ratio last year was 3:1, UK imports of stainless steel slab were three times that of the EU," a representative of an Italian service centre group said. "But EU imports were equal to that of the UK in the second half of 2024, and we see them to be only just behind the UK this year."

European scrap sellers surveyed by Argus said a turnaround for the domestic market is likely to come with the rollout of the carbon border adjust mechanism (CBAM) from 1 January 2026, given raw materials such as slab and NPI will be subject to the proposed carbon taxes while scrap remains free from them.

"CBAM is a game-changer as far as we are concerned," a scrap trading group said. "The price gap should disappear while the effect of scrap incentivisation should result in price and demand increases."

The scrap market is closely watching action by the European Commission, which is due to decide the level of CBAM costs attached to stainless steel and semi-finished product imports such as slab in the third quarter. Argus has heard unconfirmed reports that the commission will set the CBAM benchmark for blast furnace-based imports at 1.4t. This would add nearly €53/t to the cost of importing hot-rolled coil with a carbon intensity of 2.1t, assuming a carbon cost of €72.07/t.

Italian stainless steel and scrap association Assofermet has welcomed CBAM as it stands to increase EU steel import prices, while European steel association Eurofer further wants current steel safeguards, set to run until June 2026, to be replaced as early as January 2026 to reduce finished steel imports as well as offset any risk of trade diversion from the US. The European market is firmly of the view that stainless steel scrap prices will only rise if demand from European steelmakers improves, and this is closely tied to CBAM raising costs of imported finished steel, slab and NPI, and safeguards that further incentivise the domestic value chain.

By Raghav Jain

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25/12/19

Mexico central bank cuts target rate to 7pc

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Viewpoint: Al industry faces structural Europe decline

25/12/19

Viewpoint: Al industry faces structural Europe decline

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Viewpoint: Indonesia’s MHP surge to hit nickel prices

25/12/19

Viewpoint: Indonesia’s MHP surge to hit nickel prices

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US inflation slows to 2.7pc in November

25/12/18

US inflation slows to 2.7pc in November

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Traders offer CBAM paid import at discount to NW EU HRC

25/12/18

Traders offer CBAM paid import at discount to NW EU HRC

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