Imports of Chinese auto-grade hot-dipped galvanised (HDG) coil under the recently reset EU steel safeguard quotas have been atypically low compared with normal, which is testimony to continued weak demand from end-users.
China has used just 35pc of its 120,726t auto-grade 4B HDG quota since volumes refreshed on 1 January. The country has traditionally exhausted its 4B auto-grade quota within two weeks of the quarterly refresh — this has been the case since July 2021 when the Chinese 4B quota was exhausted after 57 days, as real demand from European carmakers fell amid semi-conductor shortages.
In the first three quarters of last year, the Chinese 4B quota was filled within four days of its refresh, or within one day on two occasions. This was despite stringent lockdown measures throughout the year — which limited Chinese steel production — and still weaker demand from the European automotive industry, with the EU passenger car market declining by 9.9pc in the first nine months of 2022.
In the last quarter of 2022, China used only 91pc of its 123,409t quota, with import appetite from the bloc largely diminished amid weak buying, which saw domestic prices fall from the middle of the year continuously until December.
There has been nascent price and demand recovery so far this year, with European mills reporting healthier order books and lead times, and many announcing price increases. After being desperate for orders in November, many European mills now claim to be booked into the second quarter and some claim to have limited availability for April.
Base HDG prices in Europe have risen on average by around €80/t ($87/t) in January so far. The Argus headline Italian and northwest EU hot-rolled coil indexes have increased by €33.25/t and €63/t, respectively.
The uptick was largely driven by apparent demand, sources say. After brutal destocking throughout most of the second half of last year, service centres have returned to market to replenish their inventories. But the historically low drawdown of China's auto-grade HDG quota highlights a potential red flag in the eyes of many participants — real demand remaining too weak to sustain the uptick in apparent buying, given sufficient stocks throughout the supply chain.
