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Strong prices in the US and Europe attract imports

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The Chinese steel market started to wind down for Lunar New Year festivities from early February, with slowing activity in the domestic and export markets. Flat steel export prices rose thanks to buyers who wanted to secure material before the market came to a halt. Meanwhile, in the domestic market hot-rolled coil stock levels (combined volumes held at mills and warehouses) increased, as the supply chain started to prepare for a pickup in activity in March. However, as prices ticked up together with stocks, it seems that expectations of stronger demand have already been factored into the latest price rises, which might limit any future upside after the holiday period.

United States steel prices continued to accelerate, with gains seen in flat and long product categories. The key reason behind the steel price rally is an ongoing supply-side tightness. Although most of the scheduled US mill outages were finished in Q4 of last year, some producers were faced with unplanned interruptions in January. Elevated prices in the US were not unnoticed by other producers, drawing imports. According to the January license data from the US Department of Commerce (DoC), for the first time since July total steel imports increased on a month-on-month basis, with large gains in HRC and rebar shipments.

On Friday February 16, US Commerce Secretary Wilbur Ross revealed what recommendations were made after the Section 232 investigation was complete, with three alternative options, containing either tariffs or quotas. The main aim of proposed measures is to increase the crude steel capacity utilization rate in the US from 73% in 2017 to an 80% operating rate. However, if the proposed 63% quota is implemented, MBR estimates that US producers need to ship 90.4 million tonnes of finished steel to match 2017’s demand; an increase of more than 12%.

Looking at the proposed 24% tariff scenario in the HRC market, in the 2010-2017 period, it would have meant an average annual increase of spot import prices of $153 per tonne, exceeding US domestic prices during this period. With no competition from imports, it would have definitely led to a rise in domestic prices of a similar extent, with a knock-on effect down the supply chain. The White House has until April 11 to make a decision about Section 232 sanctions. It is not certain that it will follow DoC’s recommendations in full and we doubt the quota will work in today’s market.

European flat steel prices have also been on a rise and in southern Europe reached €565 ($697) per tonne by February 14, the highest level since Metal Bulletin started assessing regional prices in May 2012. Italian producer Ilva has been experiencing difficulties with deliveries of material and this led to shortages in the spot market. This is having a knock-on effect across the region, as countries such as France and Germany are important participants in the Italian market, supplying almost 700,000 tonnes of HRC between January and October last year, or 31% of all Italian HRC imports.

However, a price rally in Europe made it an attractive export destination, even for those companies that are targeted by anti-dumping duties. Recently Iranian Mobarakeh Steel (under the fixed rate duty of €57.5 per tonne) and Severstal (€17.6 per tonne duty) were heard making HRC sales to Italy, Spain and Portugal, absorbing levies. And competition from abroad will only intensify. An arbitrage between south European domestic and export prices out of India, Turkey and the CIS has been steadily growing, and for the CIS reached a record high of $121 (€98) per tonne, making a push by European mills for higher prices more difficult to achieve.

Analysis by Marina Maliushkina, Metal Bulletin Research

In this regular section, Metal Bulletin Research’s base metals team summarise their in-depth reports to highlight key factors driving the markets and their short-term price forecasts. The weekly service, Base Metals Market Tracker, provides independent analysis and forecasts for base metals markets and prices.

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