The potential relaxation of US section 232 duties on steel imports is unlikely to result in tighter supply in the European hot-rolled coil (HRC) market.
The EU and US are in talks to replace section 232 and its 25pc duties, imposed by previous president Donald Trump in 2018. The most likely resolution will be a tariff-rate quota similar to the existing EU safeguard, under which there will be a duty-free allocation with taxes payable once the volume is exceeded. At present it is not clear which period the quota will be based on — the EU is hoping for a quota based on pre-section 232 volumes, while the US is angling for one based on more recent flows.
Irrespective of the period used to determine what constitutes traditional volumes, the quota will be much smaller than some anticipate — the US was not a huge market for European HRC producers even before the imposition of section 232 tariffs. The EU exported 1.67mn t of wide strip to the US in 2015-17, equating to an average of just 46,490 t/month. In 2015, the monthly average was 47,886t, falling to 46,051t in 2016 and 45,532t in 2017.
Cold-rolled coil (CRC) volumes have also been historically low. CRC shipments from the EU to the US in 2015 were 22,559 t/month, rising to 27,788 t/month in 2016 before dropping to 24,923 t/month in 2017.
This relative lack of historical importance of the US market for European mills could explain why there has not been an explosion in transatlantic shipments from Europe this year. It makes sense for EU mills to sell every spare tonne into the US at current prices, even with 25pc tariffs. Today there is a $955/t premium for the bellwether US Midwest market compared with northwest Europe, up from just over $419/t at the start of June. But the highest monthly volume sold into the US this year was just 42,948t in May.
The primary driver of sentiment in the EU flat-rolled market at present is reduced automotive production, which means companies throughout that supply chain are cancelling or postponing deliveries from mills, tier suppliers and service centres. This has seen mills trying to quietly offload steel to Turkey, and even Egypt, as they look to create more supply and demand equilibrium.
With automotive accounting for a huge chunk of some mills' sales, it seems highly unlikely that a relaxation of section 232 and a move to a US import quota will offset the surplus currently being created by reduced car output.
