EU quotas, weak prices impact trade flows

Market: Metals
15/11/19

Drops in steel prices and quota exhaustion changed the trade flows for certain products in and out of the EU in September, Eurofer data show.

Wire rod

Exports of wire rod to Algeria were down to 2,050t in September from 16,869t in August — and from 4,975t in September 2018 — as the country tried to reduce its dependence on steel imports. Algeria Qatari Steel said that the steelmaker received its second Supramax of DRI pellets and plans to bring one of two new EAFs online during the next week. The steelmaker plans to increase capacity of wire rod and rebar to 4mn t/yr.

EU wire rod exports to Israel were also up to 32,246t from 16,777t on the month and 7,158t from the same month last year. Israel's long steel demand is one of the factors supporting Turkish rebar prices, although it seems that the EU is also targeting the country as a market for longs.

In terms of imports into the EU, Belarus seems to be taking the biggest advantage of the EU quota system,although it is also at risk of running down its remaining allocation well before the renewal period on 1 July 2020. It currently has 127,551t remaining and 424t awaiting allocation of the initial 250,620t allocated on 1 July 2019.

Rebar

Belarus seems to be adopting a similar strategy for rebar as it has ramped up exports to the EU since the quota opened, sending 57,473t in July, 30,522t in August and 25,845t in September. Although exports to the EU have dropped slightly, the country is still taking advantage of Turkey's inability to sell to the EU after exhausting its quota. Belarus now sells rebar under the "other countries" quota. Currently, just 98,108t remains on this quota with 700t awaiting allocation. Unlike the individual country quotas, however, this quota renews each quarter, with the next renewal scheduled for 1 January 2020.

The EU sent more rebar to Ethiopia in September, with 5,337t of exports recorded compared with 3,707t for the whole of 2018 and 6,063t for the whole of 2017. Turkey is a regular seller of rebar to the Ethiopian market and this ramping up of exports by the EU could jeopardise Turkey's foothold there, depending on the price levels EU mills can offer. The Turkey rebar price is climbing, with the Argus daily assessment reaching $422.50/t fob today, up $25.50/t since the end of September. Turkey remains Ethiopia's largest rebar seller, with 241,438t sent in the January-August this year.

Hot-rolled coil (HRC)

Egyptian HRC exports to the EU are up significantly in September to 23,558t from 4,800t in August and 3,937t in September 2018. But the trade balance is shifting as EU exports to Egypt are declining — 6.519t in September from 8,456t in August.

The EU's HRC exports to Malysia are also down to 3,057t in September from 7,299t in August and 9,393t in September 2018.

One of the largest HRC exporters into the EU was India, which ramped up sales in September to 116,604t compared with just 4,447t in August. But sales are still down to 631,178t in the first nine months of 2019 from 737,366t in the third quarter of last year.

Turkey's sales of HRC to the EU have fluctuated this year, but in September they totalled 225,430t as producers tried to offset their inability to sell rebar into the EU. Turkish HRC exports to the EU are up on the year to 225,430t in September from 206,428t last year. With 2.3mn t in exports to the EU in the year-to-date period, Turkey looks set to match the 2.9mn t of HRC sent in 2018, maybe even outpacing this as Turkish HRC prices climb. The Argus weekly Turkey HRC assessment stands at $415/t fob today after a dip to $395/t fob on 25 October. There are also fewer quota restrictions on HRC, with just one large quota for all countries that is renewed each quarter.

Cold-rolled coil (CRC)

Ghana's consumption of CRC from the EU is up significantly for September to 3,896t — more than the volume exported in any full year, with the exception of 2013 when 5,200t was shipped over the year.

Consumption of EU CRC is down for both Mexico and the US for the nine-month period. Mexico imported only 76,453t from the EU compared with 102,034t in the first nine months of 2018. Similarly, the US imported just 172,744t in the first three quarters, down from 264,468t in the same period last year. The automotive sector has experienced a prolonged slowdown over the past few years and US steel prices have dropped. The Argus weekly US Midwest domestic steel HRC assessment stood at $900/t ex-works on 7 August 2018, but has since lost much of its value to reach $530.75/t ex-works today.

Elsewhere in the Americas, weakness is also seen in Brazil, where CRC exports to the EU are typically relatively strong. But Brazil exported just 830t of CRC in September, down from 4,855t on the year. For the nine-month period it has so far sent just 166,224t, compared with 240,561t during the same period last year.

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