European Commission begins steel safeguard review

The European Commission has formally started the review of its steel safeguard measures today, focusing on all products except category 26, other welded pipes.

In its notice of the review, the commission identified certain products where quotas have been filled very quickly. For Turkey it cited coated sheet, rebar, wire rod, sections and large welded tubes, where country quotas have been exhausted within days or weeks of opening up. For China, it mentioned automotive-gauge, hot-dip galvanised and stainless wire rod, and for Russia wire rod and rebar.

The safeguard is a 25pc tariff rate quota, with duties payable once country and residual quotas are exhausted.

The commission said it will investigate why the country and residual quotas for some products have been filled so quickly, and whether this has been a result of increased EU demand, or stockpiling and trade diversion.

It also said it will investigate the "crowding out" of traditional flows in the residual quotas. For automotive-gauge galvanised, the residual quota has filled up quickly because of large Chinese shipments. At least two Chinese mills have sold large quantities into the quota, part of which represents the yearly galvanised requirement of one carmaker.

Turkey has also taken up a large portion of the residual rebar quota, after filling its own very quickly.

Sensing a tightness in some of the quotas, such as rebar and automotive-galvanised, traders have taken positions with a view to future price upside. Once Turkey's own country quota was full, some of this material sold into the residual quota as soon as it opened up.

The commission also said it will analyse whether the safeguard has had any detrimental impact on preferential trading partners. It is inviting written submissions over the next 15 days.

HRC impact

It is unclear how the review may affect hot-rolled coil (HRC), although market participants expect some changes.

Most perceive HRC as supplies ample, with the quotas have been exhausting, and domestic mills are lobbying hard for an amendment to the product category because of surging Turkish shipments.

Turkey has sold heavily into the EU since the US doubled its Section 232 tariff to 50pc in August last year. It shipped just over 1mn t into the EU in January-March, compared with 712,991t in the first quarter of 2018. The safeguard was established to prevent trade diversion from the US, given the Section 232 change.

The US has today relaxed its duty on Turkish steel back to 25pc, and traders would argue that net steel trade between Turkey and the EU will be fairly balanced because of high EU bookings into Turkey over the past month or so. The EU has been more competitive than Turkey for the past few months, and has been selling large volumes into the country as well as into north Africa. The soft European market has also resulted in German mills targeting Vietnam with commodity grade HRC — a very rare occurrence — but Turkey remains the largest export market for EU mills.