The Egyptian government is expected to approve an additional 10pc duty on steel imports, which could have ramifications for the CIS, Turkey and Europe.
Market participants report that a draft proposal is pending approval by the prime minister, after parliamentary acceptance. Some expect the duty is likely to get the green light within the next week and could come into force immediately.
But as has been the case historically, buyers' pushback on import measures could see the plan scrapped or delayed. The most notable difference this time round is that the news comes during the global Covid-19 pandemic, which has already affected trade patterns and significantly increased uncertainty in the steel markets, while also hampering demand. While there are many factors at play, this import duty in Egypt could see traditional trade flows further disrupted, as the country is a major spot market player across products.
HRC
Egypt is one of the primary export markets for CIS and Turkish hot-rolled coil (HRC) producers. CIS exporters already face a 5pc duty, but they have still been able to continue selling into the country. In order to compete with Turkish and other suppliers, CIS mills would most often price their HRC to work out on par with or slightly below the rest, on a cfr basis and with the duty accounted for.
An additional 10pc duty will make no difference in terms of the competitiveness of one country to another, but is likely to see more buyers turn to domestic supply, unless importers are willing to discount material further to compete with the only Egyptian producer of HRC. Egypt is not only a big market for mills directly, but also for a lot of traders. When duties were introduced on Turkish rebar, of which Egypt imported a significant volume, this trade route ceased to exist.
Egypt is also an important market for European mills. Amid sluggish European demand for HRC — as has been the case during the Covid-19 outbreak — EU suppliers, and most notably mills in northern Europe, have turned to Egypt for exports, where they have offered at a huge discount in comparison with EU prices. In 2019, 245,249t of HRC was exported from the EU to Egypt, out of total exports of 3.8mn t, Eurofer data shows. This places Egypt in the top three export destinations for the EU, behind Turkey and the US. At the same time, Italy and Spain sometimes import HRC from Egypt — in 2019 this amounted to over 110,000t, and a duty could see reduced export market allocation out of Egypt.
Billet and longs
An additional 10pc duty on top of existing safeguards in place for long products is unlikely to have much effect as demand in Egypt for billet and long product imports remains fairly muted. Egypt was previously a significant market for billet imports, especially from the CIS and Turkey, given its high proportion of re-rollers. But after the government imposed safeguards of up to 25pc on imports, purchases dropped off.
In 2016, Egypt imported almost 2.8mn t of semi-finished steel but in 2017 this dropped significantly. In 2019, the country imported just 27,120t of semi-finished steel products.
At the end of the first quarter of 2020, as billet prices began to slide, an arbitrage began to open and Egyptian re-rollers began to buy billet once again. The Argus daily Black Sea steel billet assessment lost $64/t over March, reaching a low of $326/t fob on 3 April, at which point re-rollers were heard to buy some billet cargoes. But this was short-lived as the assessment once again began to climb on 8 April, reaching $360/t fob by the middle of the month.
As billet prices begin to show signs of weakening once more, an extra 10pc duty is likely to stem any buying appetite from Egypt, despite the lower price levels. From 23 April, the Black Sea steel billet assessment lost $28/t to reach $332.50/t fob at the end of the month.
