Import share, as a proportion of apparent finished steel consumption, in the EU, has been on an upward trend for several years. However, this largely remained below 20 percent, prior to 2018. The US government’s application of Section 232 tariffs, from March 2018, disrupted international trade flows. This caused concern amongst many steelmakers, in the EU, who feared that material would be diverted into the European market. Consequently, the European Commission introduced safeguard measures, from July 2018.
The safeguard measures may have been, at least partially, successful. Nevertheless, since the implementation of the quotas, imports into the EU have continued to rise, despite weakening demand in the region. Import share, of consumption, has since moved above 20 percent. Many domestic steelmakers have reported significant financial losses, in the second quarter of 2019. Consequently, a joint letter was submitted, via Eurofer, to the European Commission, expressing concerns regarding the state of the EU steel industry and the role that imports play in the market.
One of the biggest issues raised, was the way that imports of hot rolled coil were controlled. Under the current system, there is a single quota for hot rolled coil entering the region, from any country included in the safeguard measures. The annual quota tonnage is divided into quarterly amounts. This has drawn criticism from many steel industry participants. They feel that this has been abused by traders from some countries, who have been undermining European mill prices by taking a large share of this quota, to the detriment of others.
The European Commission is suggesting that the hot rolled flat products category be adapted, capping the volume that any one country can import, in each period, to 30 percent. This will be designed to better protect historical trade flows and prevent one country from utilising most, or all, of the quota, in any one quarter. The global, non-country specific, quotas will remain for this category.
Metallic coated materials were another contentious category – listed under sections 4a and 4b of the definitive safeguard measures. Steel consumers had previously complained about a lack of availability, with the Chinese quota being fully utilised very soon after the opening of the new period, for category 4b – which is for the automotive qualities. No new imports can now enter Europe, tariff free, from China, until the final period, in the second quarter of 2020 – when they gain access to the “All Other” quota.
The preliminary safeguard measures (prior to February 2, 2019) had not made the distinction between the different metallic coated grades. Splitting this product has created issues with imports in the 4b category as some imports arriving within this quota may not have been destined for the automotive industry. Consequently, the European Commission would like to restrict imports under the 4b section only to those who can prove that they will be used in the automotive sector. India will receive a country specific quota, only under the 4a category.
Under the current system, where the relevant quota is exhausted for one specific country, imports from that country can be made under the remaining part of the “All Other” category. However, that provision only applies during the last quarter of each year of application of the definitive measures. The period from April 1, 2020 to June 30, 2020 is classed as the final quarter of this year’s application.
This had led to criticism that smaller traders have found it difficult to import tonnages, in the final period. This has been particularly true for rebar and wire rod. In the case of these two products, the European Commission is proposing a cap of 30 percent, on each supplying country, when accessing the all “All Other” category, in the final period of each year. However, there is no clarification on how buyers will know if this limit has been reached and if they are still able to bring tonnages into the EU.
The original safeguard measures had a built-in mechanism to increase quota volumes by 5 percent, each year. However, this is to be reduced to 3 percent, for the current and succeeding years. Reductions in annual tonnages will be made to the quarterly volumes to ensure the annual tonnages are in line with the quotas set.
World Trade Organisation members will be asked to comment on the proposed amendments before being submitted for approval by the EU member states. This process is scheduled to be completed no later than September 30, 2019. Any changes will come into effect on October 1, 2019.
If these proposals are adopted, this could restrict availability of steel in the EU market, in the fourth quarter of 2019. Sentiment may improve and local mills will attempt to push through price rises, in the autumn of 2019. However, weak demand and high stock levels may delay any increases in steel selling values until the beginning of 2020.