UK heavy sections buyers concerned about supply

Heavy sections buyers in the UK are concerned about availability of supply in the event that British Steel's sections production ceases.

There are potential suitors for part of British Steel's sections business, including the Skinningrove mill, which makes sections primarily used by yellow goods producers. But the heavier sections offering is largely viewed as inefficient because of the distance of the Lackenby rolling mill from the Scunthorpe bloom and billet casting operation.

Buyers' fears are heightened by the European Commission's definitive steel safeguard, which caps sections imports substantially below figures for two of the last three years. The tariff rate quota for 1 July this year to 30 June next year is 337,351t, below the 415,827t imported into the EU28 last year, and the 382,648t figure for 2016.

There is limited production of British Standard 4 category C imperial size sections, as many mills do not produce such sizes as they take longer to roll than lighter sections. There is more supply of lighter category A and B material.

Offers still come from South Korea, Bahrain and the UAE, the latter two of which can only sell into the other countries' quota, which stands at 37,964 from July 1 this year to June 30 2020. Korea's quota, at close to 26,664t, is a real concern for buyers and traders, who fear they could end up owing 25pc tariffs in the event that they clear customs once the quota is critical or exhausted.

One buyer recently wanted to place an order for Korean material, but did not because it was concerned about the existing quota being exhausted. As a result some traders and independent buyers argue that the safeguard should not be country by country because smaller quotas for some countries effectively act as a total trade barrier.

Traders and buyers also argue that mill ownership of distribution assets, across the European flats and longs complexes, creates the necessity for an import market.

In the UK the sole domestic rebar producer, Celsa, owns around 45pc of the downstream fabrication market. It can produce around 1.2mn t/yr of finished long steel at its nameplate capacity, and sources estimate its rebar capacity at 700,000-800,000t/yr. The UK and Irish rebar market is in excess of 1mn t/yr, necessitating a degree of imports. And independent fabricators and service centres in general dislike buying from their competition, and want other supply sources where possible.

It was this tension that led to the creation of the British Independent Reinforcement Fabricators Association in September 2015. Independent fabricators said that the existing British Association of Reinforcement was too focused on mill-tied operations, so set up their own association in conjunction with traders.

The UK rebar market also has other vagaries, such as its use of Cares-approved material — this high-tensile rebar has its own HS code, but has not been included in the European safeguard. UK buyers have thus rushed to secure third-country tonnage, with Turkey the largest source; the Turkish quota was used up within days of opening in the first safeguard periods since 2 February, and the other countries' quota also fills up quickly upon opening, primarily as traders sell Turkish material into it. One trader had almost 60,000t of rebar to clear into the first quota period starting 2 February, when the total quota for Turkey was only around 117,000t. As a result it, and many other traders, held over material to deliver into the April allocation. This means buyers do not get their steel, and projects are being postponed as a result. Where construction projects are halted or delayed, it has a knock-on effect on the whole steel complex and the wider economy.

One rebar buyer in the UK is sitting on almost 20,000t of material that has not cleared customs, so he has had to source from a competitor to meet his immediate needs.

The UK's sustainable steel scheme also includes a provision that rebar cannot be purchased from over 1,500 miles away; this would effectively mean primarily Spanish and UK supply would be viable Cares-approved material.