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Europe considers quotas on world steel in response to US tariffs

The European Commission is under pressure from domestic steel producers to quickly impose an import quota on the metal from the rest of the world in a potential response to U.S. tariffs, which would heighten fears of a global trade war.

The EC launched a safeguard investigation for steel imports March 26 over fears of a massive redirection to the EU of production from third countries following U.S. President Donald Trump's introduction of a 25% steel tariff. But while the commission has nine months to decide whether or not to introduce a safeguard, a spokesperson for European steel association EUROFER said the industry is pushing for the measures this month.

"They're working on it, we would like it pretty damn quickly," the spokesperson said.

The possibility of a steel quota will be considered by the commission's college June 6, an EC spokesperson said. "According to WTO rules, we could trigger our measures at the soonest 30 days following our notification of measures to the WTO."

A European reaction targeting third countries would intensify fears that Trump's aggressive moves to protect U.S. industries from competitors in China, the EU and NAFTA countries could trigger an escalating trade war. A full-blown tit-for-tat trade conflict could knock 1 percentage point from global economic growth, S&P Global chief economist Paul Gruenwald said.

The U.S. imported about 34.6 million tonnes of steel in 2017, and EUROFER has warned that as much as 13 million tonnes could be redirected into the European market after Washington granted only limited bilateral exemptions. Steelmakers are calling for a quota based on an average of imports over the last five years.

Even a small proportion of that volume would be hugely significant for European steelmakers, which have faced increasing import competition in recent years. In 2017, Europe imported 40 million tonnes of steel, accounting for almost 25% of the region's total apparent demand.

Trade flows have already shifted in advance of Trump ratifying the Section 232 tariff, with countries such as Turkey redirecting their exports to the European Union — primarily Italy and Spain — and away from the U.S., Eurostat data shows.

In the first four months of 2018, EU steel imports rose 8.4%, which EUROFER attributed to the Section 232 effect.

"EUROFER calls for a quickly-deployed safeguard that covers the full product scope that will be affected — and warns that there cannot be country exclusions if the safeguard is to function. However, the purpose is not to exclude imports: it is preventative remedial action against the threat posed by import surges," Director General Axel Eggert said.

The potential import quota is a concern to the wider manufacturing base, which has already seen raw material costs rise in recent years, and fears will increase further with reduced import competition.

Seth Rosenfeld, an equity analyst at Jefferies, noted EU steelmakers recorded a fifth-consecutive quarter of improved margins in the first quarter, with EBITDA per tonne of $127, up 17% on the previous quarter and well above the post-financial crisis average of $74.

Turkey has said it is also contemplating an import quota in another sign that international trade routes are closing off in the sector.