Large quota balances weigh on EU hot-rolled coil market

London — The flow of hot-rolled coil imports into Europe from Asia has dried up over September and October despite plenty of safeguard quota allowances still available, with material fetching better prices in local Far East markets than in Europe following China's Golden Week holiday.

With imports largely absent from the EU due to high prices and longer lead times -- coupled with a severe supply shortage on several core flat steel products -- European mills are determined to hike up prices going into Q1, with offers anticipated at Eur550/mt ex-works Ruhr.

A Benelux-trading source said he didn't expect any decrease in hot-rolled coil prices in the near-term as "China has returned to the market, iron ore prices went up in the last week so I don't see why prices would fall," the trader said.

Asian-produced hot-rolled material was expected to remain within its domestic markets, a German mill source said, with demand and prices in the Far East "doing a lot better than here [Europe]."

Northern European HRC prices were assessed at Eur496.50/mt ex-works Ruhr and in Italy at Eur486.50/mt ex-works Italy Oct. 19, while HRC imports were assessed between Eur475-485/mt CIF Antwerp Oct. 19 and into Italy at Eur470-480/mt CIF Italy Ports Oct 9.

In China, SS400 HRC 3 mm thick was assessed at $510/mt FOB China, on a CFR Southeast Asia basis, the same grade of coil was assessed at $516/mt, Oct. 19

Although hot-rolled material is technically available from Egyptian, Turkish and Russian steel suppliers, concerns loom over ongoing anti-dumping investigations concerning the latter two countries.

An Italian service center source said customers would be liable for "hefty duties" if the material were to arrive next year from Turkey and Russia, adding that March delivery times were too far out to mitigate risks.

"Egypt is alright, but usually they are allocated a [minimal] quota volume for the [Italian] market," said the same service center source, making Egypt a less than ideal option for hot-rolled coil.

A German mill source also echoed imports remained unappealing to buyers and said, "even if you buy from Turkey now, you'll get [material] next year -- India even longer."

According to a German distribution source, hot-rolled coil imports were now relatively "on the same level" as European prices, and said if European prices increased further whilst import prices declined, there could be renewed demand for foreign material, but said for now, he saw no import purchases.

Options for imports of hot-rolled coil material from Russia, South Korea, Serbia and "non-country specific" destinations are fairly ample, with remaining quota allowances not dipping below 60%, European Commission data showed Oct. 20.

Russia's quota balance is relatively high at 367,765 mt, or 87% left as of Oct. 20, and Serbia's allocation is also plentiful at at 92,763 mt, or 80% of its quota balance remaining. South Korea has 82,140 mt (60%) left, and European Commission data showed the "non-country specific" quota stands practically unused at 1,001,558 mt left, or 99%, with 3,864,842 mt awaiting allocation at European ports.

Turkey and India, however, are on their way to exhausting their quotas, with 158,541 mt (46%) still available for Turkish material and 94,270 mt (56%) left for India as of Oct. 20. Once a quota balance dips below 10%, importers are obliged to deposit with customs authorities a 25% bank guarantee to cover any potential duty liability.

In the fourth quarter of a year, named countries that have exhausted their own allocations are permitted to utilize the "non-country specific" available balance.

With imports largely absent from the domestic EU market, mills are choosing to tread cautiously around capacity ramp-ups, an Italian service center source noted, adding that mills were behaving wisely.

"Since imports are out of the game, they know they can create these shortages and stay firm on their offer prices," he said.