EU HRC: Market mulls Turkey S232 tariff cut

The European hot-rolled coil (HRC) market was assessing the impact of the US Section 232 tariff on Turkish steel being reduced to 25pc today from 50pc.

The cut is beneficial for domestic European mills, as Turkish HRC shipments to the EU were up by more than 50pc on the year during the first quarter at 1.07mn t, from 712,991t.

But the unpredictability of US trade policy still remains an issue with the delay of the Section 232 automotive decision prolonging uncertainty for an important end-use market.

The Argus daily northwest Europe HRC index slipped by €3.50/t to €470.50/t ex-works today. One buyer said it was offered at €465/t ex-works for commodity grade S235, while a seller said value was around this level. A trader reported buying from a large north European mill at €450/t ex-works.

Traders have sensed a buying opportunity for third-country material in the past week or so, with Turkish prices slipping to become more competitive with European levels. But Turkish mills will push up offers on the back of the tariff cut news, and following the recent increase announcements from producers ArcelorMittal and Marcegaglia.

One Turkish mill was reportedly going to return to market with offers around $520/t fob, up by around $40/t on the latest transactions. Another mill said it was seeing demand at around $500/t fob, up from $480-490/t fob levels during an industry event in Milan, but it was not sure that it would accept these levels because of potential price upside. The chances of the mills selling at $520/t fob levels are slim and traders that had previously been ready to bid decided to hold off as a result. Northwest European buyers are bidding around €470-475/t cfr levels, and mills and traders are seeing increased enquiries from some buyers.

Those that do not need to buy continue to wait and see how events unfold.

Although there is little price arbitrage for Turkish mills to sell HRC to the US at current levels, the 25pc tariff makes it more likely that they can sell cold-rolled coil and hot-dip galvanised. This could provide some much needed domestic demand for HRC producers from re-rollers. Turkish mills have seen their domestic market contract by around 50pc in the past year or so.

The reopening of the US also gives mills leverage in their talks with European buyers, and another region to target should they wish to reduce shipments to the EU during the now open safeguard review. Vietnam has closed as a market for Turkish — and European — mills given softer Chinese pricing.

EU mills target contract rollovers

European mills are trying to delay their contractual negotiations for the second half of the year in the anticipation of more production cuts and firmer prices. As justification for their firmer spot offers, mills point to rising costs, with 62pc iron ore now above $100/dry metric tonnes for the first time in around five years. At current cash costs, steelmakers are losing money on every tonne they sell.

Some mills have indicated that they may try to get a rollover for contracts in the second half of the year, whereas buyers are looking for large declines mirroring the spot market drop. The Argus headline northwest EU HRC index is down by €65.25/t since mid-November.

One automotive sub-supplier said it would begin negotiations at €60/t lower than its last contract levels, of around €520/t, but did not expect to achieve the full fall. Mills heavily linked to contractual business could take a hit in the second half of the year if they acquiesce to large declines, especially given high costs.