Category Archives: Steel Tariffs

EU Steel Buyers Grapple with Safeguard Implications

The European Commission announced provisional safeguarding measures on imports of steel, prior to the start of the European summer holiday period. This created uncertainty at a time when many domestic mills are closed for several weeks, across July and August. Limited order volumes are usually placed, at this time. However, MEPS predicts higher than normal market activity across the industry, this month.

The provisional import quota system is designed to restrict the impact of steel being diverted into the EU market as a result of the Section 232 measures, introduced in the United States. Any steel brought into the European region, over and above specified tonnages, will incur a 25 percent tariff rate. The European Commission believes that this will protect the local steel industry from serious harm. The quotas are set for a period of 200 days from July 19 and have been calculated, on a pro-rata basis, from the average of the tonnages imported in the years 2015, 2016 and 2017.

The European Commission has excluded five steel categories from the provisional quotas and tariffs – stainless steel quarto plate, grain oriented electrical steel, non-alloy and other alloy cold finished bars, railway material and other seamless tubes. However, these products may be included when the definitive measures are decided. The Commission will continue to monitor the import volumes for these products. Conclusive measures are likely to be determined in December 2018 and will supersede the July announcement. A number of exclusions have been made for the 122 developing nations, albeit with exceptions for some steel categories in each country. These were determined if their previous import volumes exceeded 3 percent of total imports for each specified product.

MEPS notes uncertainty surrounding how the quotas will operate. Many buyers worry about whether foreign steel, ordered now, will be subject to the 25 percent tariff when the material is delivered to the port. A customer will not know if the quota will still be available, at the time of ordering the material.

An electronic monitoring system will be used to manage the quotas. The allocation will be made on the second working day following customs acceptance, in chronological order of the date of customs declaration. Consequently, material booked from overseas cannot be guaranteed to be tariff free until after it has arrived, been accepted at customs and allocated, under the relevant quota, by the Commission.

Concerns are being raised that exports from the EU to the US would reduce, because of the Section 232 tariffs, resulting in material being diverted back into the European market. However, this has yet to be realised. The large disparity between US and EU steel prices, at present, enables steel to continue to be sold into the United States, with the tariffs included. MEPS is forecasting a downward domestic price correction, in the US, in the autumn of this year. Despite this, exports, to the country, are likely to remain viable, in the near term, particularly for flat steel products.

Imports of steel into the EU were rising prior to the Section 232 announcements. It is feasible to conclude that volumes from third country sources would have continued to increase, with or without the US trade barriers. The European Commission’s safeguarding measures are expected to bring this growth in foreign material to a halt and could result in a reduction in imports, as European traders reduce purchases, for fear of falling foul of the tariffs by the time the steel arrives. This may restrict the buying options available in the market and give local producers increased pricing power.

European steel price increases are now forecast to extend into the autumn, with the MEPS EU average hot rolled coil transaction value likely to hit an almost seven-and-a-half-year high, in the coming months. Consequently, profits at the domestic steelmakers are expected to remain healthy, for the remainder of this year.

The upward price effects of the EU safeguarding actions are likely to be limited. The quotas are not designed to reduce foreign supplies but to restrict excessive growth in steel imports, which may result from the redirection of material due to the US Section 232 tariffs. Overseas material is an important source of supply for the EU market.

A degree of competition from third country suppliers will remain in the EU steel market. This may be tempered by tariff concerns. Nevertheless, if domestic mills were to push too hard for price increases, then imports, including any tariff costs, would become attractive to many EU buyers. The result of this would be a loss of market share for the local producers.

European domestic steel prices are forecast to weaken, marginally, towards the end of 2018. A negative trend in transaction values is anticipated throughout most of 2019. Declining raw material costs, coupled with reduced home and overseas demand, is predicted, next year. Nevertheless, a modest pickup in steel selling figures is possible, in the first quarter of 2019.

Source: MEPS European Steel Review

EU Safeguarding Measures Influence Stainless Steel Purchasing Behaviour

Slow Seasonal Demand and Trade Sanctions Affect Steel Prices in Emerging Markets

Mexico

Mexican steelmakers continually pressed for increased prices, in July, but mills offered a degree of flexibility and discounting when deals were finalised. The recent depreciation of the national currency against the US dollar has exacerbated the situation. Meanwhile, the National Chamber of Iron and Steel Industry (CANACERO) lobbied the new government for tougher measures to protect the manufacturing and steel industries from foreign competition. The previous Peña Nieto administration imposed commercial import duties on US goods totalling US$3 billion.

Brazil

Brazilian steelmakers struggled to raise transaction values to distributors, in July. End-users remain risk averse. The majority plan to continue with cautious purchasing strategies. Price support from export demand is limited.

Russia

Russian trading houses plan to persevere with conservative inventory levels, reflecting a seasonal slowdown in end-user demand. They expect domestic suppliers will concede further price reductions, to fill their rolling schedules. Meanwhile, Russian steelmakers criticised the European Union’s decision to impose restrictions on imports of steel goods, this month.

India

Demand is tepid throughout India. Sales volumes have slowed in the country’s northern and central states. Stockists operating in these regions have begun to offer discounts to facilitate deals. Traditionally, the monsoon season ends in September. Both primary and secondary steel producers were wary to offer price reductions and more favourable payment terms, fearing such measures would be counterproductive.

Ukraine

The Ukrainian steel market is described as “steady but slow”, as the summer commences. Manufacturing activity has improved, although businesses are still reluctant to invest. The mills are targeting overseas markets to offload their surplus output.

Turkey

Difficult business conditions persist in Turkey. Producers would like to implement a domestic price advance, citing the depreciation of the Turkish lira against the US dollar and rising international prices, but, so far, this has not proved possible. Sales to end-users and distributors remain tepid.

United Arab Emirates

Emirati service centres are wary of carrying too much inventory during the summer months. They note that it is risky to conclude any deals, at present, because of volatile import price quotations. Moreover, sales volumes are forecast to decline further, in August and September, as warmer temperatures are likely to curb construction activity. Export opportunities are limited outside the GCC region.

South Africa

The South African market is very quiet, with little business activity of any significance taking place during the holiday period. Domestic buyers remark that their suppliers’ current initiatives to lift prices are ill-timed, counterproductive and would only escalate import tonnages. We note little appetite for purchasing, at present, among construction firms. Labour unrest and union difficulties add to the uncertain climate.

Source: MEPS Developing Markets Steel Review

Temporary Safeguard Measures Unsettle EU Steel Market

Global Steel Sector in Turmoil

The implementation of Section 232 by the US authorities has created chaos in steel markets, worldwide. Since the investigation was launched, in April 2017, steel prices have rocketed. MEPS’ reported selling value for the main benchmark product, hot rolled coil, has increased by 40 percent, in North America.

Further tariffs are now being considered, by the US, for imports of a wide range of manufactured goods that have a high steel content. These include automobiles and associated spare parts. Other manufactured goods are under consideration for inclusion in the extended regime.

Numerous retaliatory actions have been announced by trading partners of the US. Furthermore, import restrictions are under consideration, by many national authorities, as they fear the distortion of trade flows. Protectionist measures, which started because of steel imports into the US, may spread around the world and affect a wide range of manufactured goods. This would undo years of careful negotiations towards free trade.

Source: MEPS International Steel Review

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Divergent Stainless Steel Price Trends Derive From Section 232

Stainless steel markets throughout the world have responded differently to the United States’ announcement, at the beginning of March 2018, of 25 percent tariffs on steel imports and 10 percent tariffs on aluminium.

Uncertainty persisted as temporary exemptions were granted to supplies from selected countries, until the end of May. A quota arrangement was agreed with South Korea. On May 31, the United States confirmed that tariffs will be imposed on imports from its NAFTA associates, Canada and Mexico, as well as the European Union effective from June 1.

In response, the European Commission has launched a safeguard investigation, in an effort to thwart the redirection of steel supplies, previously destined for the US market, into the European Union. This, like the US Section 232 action, is likely to lead to the imposition of import quotas or tariffs.

While some suppliers in Europe and Asia attempted to maximise shipments to the US, in advance of the application of trade measures, the attitude of most buyers and sellers has been cautious. Exports to the United States have declined. Meanwhile, we have many reports of producers elsewhere making competitive price offers in markets that they have not previously explored.

This has resulted in divergent price trends in the different regions. In the light of reduced import tonnages and the impending introduction of tariffs on future shipments, US domestic suppliers have met little resistance to substantial price hikes, in their home market.

Producers in Europe and Asia, conversely, have struggled, in recent months, to raise selling values, by even enough to cover the rising cost of raw materials.

Between February and May, MEPS’ North American average price, for grade 304 cold rolled coil, increased by 15.5 percent. During the same period, the corresponding Asian average rose by just 1.6 percent, in US dollar equivalent terms, while the EU figure dropped by 2.4 percent.

Source: MEPS – Stainless Steel Review