Hot-dip galvanised coil is a steel product used in a variety of sectors, including automotive, construction and agriculture. In recent years it has been the darling of the coil suite, certainly in Europe, helped by the strength of the carmaking industry.
It has also benefited from a move towards higher value-added product and away from more basic commodity grades.
One chink in the armour for European mills last year was the continued presence of Chinese HDG, despite the implementation of preliminary dumping duties in the autumn. Some ascribe this to automotive-galv being exempt from the duties. China shipped 2.14mn t of HDG into the European Union last year, not too far below the record 2.34mn t in 2016.
This year to October, however, Chinese volume slumped to 1.14mn t, compared with 1.99mn t in the same period of last year, after definitive duties of 17.2-27.9pc were confirmed in February.
One mill executive says there is a certain "alchemy" to steelmaking; make the bonnet of a car out of steel from one mill and it looks great, but use the exact same gauge from another mill and the finish is not as sleek. So original equipment manufacturers typically stick to their tried and tested suppliers, with around 90pc of steel feedstock sourced domestically.
Despite the reduction in import penetration, galvanised prices have been hammered in the second half of this year. New emissions testing legislation, the Worldwide Harmonised Light Vehicle Test Procedure (WLTP), has bitten into automotive production and sales in the fourth quarter, particularly in Germany. Steel stocks in western Europe's largest consumption market have risen to multi-year highs as a result.
Automotive companies consumed 43.3pc of all EU strip mill deliveries last year. On galv alone they took more than 60pc, so the carmaking slowdown has been a big issue. Mills that typically do not dabble in the spot market have been fiercely aggressive this year, particularly some from Germany and surrounding countries. And across the EU 28 auto-galv stockists have been looking to sell material into other sectors that typically take lower gauge material, which is highly unusual.
The slowdown in contractual deliveries has led to high galv stocks. This, combined with the typical destocking that goes on in 4Q, has pressured HDG outsell prices and replacement costs.
This decrease in spot prices has led to protracted annual 2019 contractual talks between European mills and their automotive customers. Some have rolled over at 2017 levels, while other mills claim to have gained increases of up to €15/t. A rollover represents a margin squeeze for mills, given the increase in higher-grade raw material costs over this year. Certain carmakers were clamouring for declines of up to €60/t.
Some carmakers will certainly be taking less steel volume in 2019 than this year. Those in the UK look particularly vulnerable as the spectre of a no-deal Brexit threatens to disrupt seamless just-in-time deliveries from the mainland.
"No deal with the EU would have an immediate and devastating impact on the industry, halting production, undermining competitiveness and causing irreversible and severe damage", the Society of Motor Manufacturers and Trader said yesterday. A no-deal scenario could inflate the cost-base of UK autos by up to £4.5bn, it said. UK car manufacturing fell by almost 20pc in November because of Brexit uncertainty and the move away from diesel engines.
The clampdown on diesel sales will continue to hamper the automotive sector in the next few years. And any move to electrical vehicles is a threat to steelmakers because of the potential substitution for other, lighter metals.
On top of a potential contraction in demand from a key end-use sector, galv supply is likely to rise in and around Europe. ThyssenKrupp will start a new 500,000t/yr line in Dortmund in Germany in 2021, designed to serve the auto sector. Salzgitter will start a third line in the second half of 2020, capable of production of 500,000 t/yr, on top of its existing 1.3mn t/yr capacity.
Turkish mills are looking to ramp up galvanised capacity too. Three mills will bring online around 1.2mn t/yr of galv capacity in the next few years.
The European Union's definitive safeguard, to be announced by 1 February, could provide some relief for EU mills, with quarterly and country-by-country quotas purportedly likely to tighten the market. But as the safeguard deals with fairly traded imports, it cannot restrict the amount of duty-free material buyers are able to import compared with recent years.
