EU HRC price rise unlikely to open Turkey arbitrage

The uptrend in European hot-rolled coil (HRC) prices since the start of December, and EU producers' January sales target prices, are still unlikely to open export opportunities for Turkish sellers into Europe at the start of the new year, and India will most likely dominate the EU import market at least in the short term.

The uptrend in European hot-rolled coil (HRC) prices since the start of December, and EU producers' January sales target prices, are still unlikely to open export opportunities for Turkish sellers into Europe at the start of the new year, and India will most likely dominate the EU import market at least in the short term.

Elevated production costs for Turkish producers amid low scrap availability and less slab purchasing options, as well as higher energy prices, have kept mills at bay from the European market. Asian producers increased their share of EU imports, and EU sellers slashed prices in November to attract demand.

The share of Turkish-origin HRC imports in the first 10 months of the year stood at 14pc. Safeguard quotas data tracked by Argus shows that just under 150,000t of HRC was imported into the EU from Turkey between October and 16 December. With official data for October out at 71,716t, this indicates that from November-mid December, around 76,000t have been imported.

At the current rate, imports from Turkey in the last two months of the year could be just around 100,000t, Argus estimates, but likely lower, considering the lack of deals reported by market participants. This means that imports into the EU from Turkey could post a decrease of north of 15pc for the full 2022 figures.

Turkey's lack of competitiveness, which started diminishing even before high production costs, pushed the country's mills to the sidelines. This meant the benchmark import pricing in Europe underwent some changes, with India initially taking the spot as the price-setter. But the Indian government in May introduced export duties on steel, which were then removed in mid-November. As a result, for around six months, Japan was instead considered to be the import benchmark.

Market participants expect India to become the benchmark again in 2023, and more offers and deals have already been reported since the end of November. But this could change once more, should Turkey become competitive in Europe at some point next year.

As it stands, even if EU mills were to reach their January targets, Turkish prices would still not work. A leading European mill has now started offering HRC at €680/t ex-works or delivered basis depending on the market, which customers say will likely be increased further up to €700/t at the start of 2023.

Turkish offers have hovered around $660/t fob for a few weeks now, which with lowest anti-dumping duties of 4.7-4.9pc, a low freight rate of $30-40/t and an exchange rate of €1:$1.06, would still come to around €680-690/t cfr south Europe. Even if a $20/t discount was obtained, the lowest possible price would be €660/t cfr inclusive of duty, but that would only be the case for producers Habas and Erdemir. Colakoglu, which has a higher duty of 7.3pc, would need to drop to $620/t fob to compete, because at $640/t, the mill's price would equate to €680/t cfr south Europe.

In a scenario of willingness to sell at €660/t cfr by Turkish mills, the European market would need to have settled solid at or over €700/t delivered south Europe levels, which is far from achievable yet. Buyers say that they would consider imports workable at €40/t below domestic prices, so Turkish prices in the short term will only work if EU mills succeed in pushing prices up, and Turkish sellers are more susceptible to negotiations at $620-640/t fob.

By Lora Stoyanova