EU steelmakers are blaming the bloc's policies for their inability to compete with Asian exporters, as they use a cost-push narrative to justify stuttering attempts to increase prices.
"European Commission policies are severely damaging the EU steel industry," one major mill executive told Argus, citing the cost of carbon, alongside other input prices.
Without accounting for the cost of emissions allowances, the price of key blast furnace raw materials — scrap, coking coal (coke) and iron ore — is currently at its highest level since April 2023, driven by strong Chinese output, which is in turn leading to competitive Asian offers into Europe on coil products.
Iron ore, at $119/dry metric tonne, is at its highest level since 20 April this year, despite talk of output cuts, according to Argus' headline 62pc Fe ICX index. At $271/t fob Australia, premium low-volatile coking coal is at its highest level since 14 April this year.
"They are solving an Asian problem in the European market," the same executive said, referring to high Chinese output and its impact in the regional marketplace. China's net steel exports reached an annualised run rate of around 92mn t in August, with 7.64mn t exported, aided by high output and competitive prices.
Under pressure from these Chinese volumes, other Asian sellers have been the most competitive into the European coil market of late, which is why the other countries quota exhausted quickly in July, and will fill rapidly once resetting in October. Taiwan, Vietnam and Indonesia were the largest overseas sellers of hot-rolled coil (HRC) into the EU in June, alongside Egypt.
South Korea has also been aggressive but is currently focusing on cold-rolled coil (CRC) and hot-dip galvanised. South Korean CRC has been offered around €30/t below Japanese material of late. Domestic producers suggest they have a €50-60/t cost disadvantage to these South Korean mills, and have little option but to follow on price or idle lines because of low demand.
It is difficult to ascertain the price European mills are paying for carbon, as they purchase yearly, not in the spot market, and some repo (buy and sell with a view to buying back later) allowances to release cash flow. Assuming an emissions price of €80-90/t, mills are probably outlaying €32-36/t for their payable allowances.
Costs for imported steel under the carbon border adjustment mechanism will not be payable into 2026, and mills argue that overseas producers do not face the same costs to decarbonise their operations, enabling them to sell at lower levels. They also have lower energy costs.
The strength of the US dollar against the euro is also punishing mills from a cost point of view at present. The spread between NW EU HRC and the main blast furnace raw materials was $280/t on 6 September, the lowest level since $270/t on 8 December 2022 — at that point apparent demand was down by around 20-25pc on the year and mills were idling significant capacity to try and stop prices falling.
