Exhaustion of import quotas for HRC in the EU will promote demand for local products

The market believes that European producers may try to raise prices

The near-critical exhaustion of the EU’s other countries import quota for hot-rolled coils (HRC) for the third quarter will boost demand for European products and may prompt EU producers to try to raise prices. Argus.Media writes about it.

As of July 25, the remaining HRC quota in this sub-category was 12%, but 10% of imported HRC was already waiting for allocation, after which only 2% would remain available. When the balance of the quota is less than 10%, the authorities require the importer to provide a bank guarantee for the payment of the protective duty of 25%. As the Argus notes, some buyers are likely to refrain from trying to clear their tonnages for now.

In addition, several importers expect the arrival of vessels from HRC, which is subject to customs clearance in the category other countries, to the EU in August-September. So they will have to wait for a new quota period to use the material.

It is expected that buyers will face a number of other problems. In October 2023, customs delays are predicted due to the registration of the remaining roll from the quota for the III quarter and the likely arrival of large volumes in October-December. In addition, importers will have to provide evidence of the absence of Russian material in the manufacture of products. Market participants stated that there was no clarification from the EU authorities as to which documents would be acceptable.

Buyers react differently to the situation. Some have changed the destination of their vessels to less busy or closer EU ports. Others sent orders to European firms for more tonnage in September and increased contract requirements for the current month.

Importers, who will not be able to use their material at the moment and will wait for the quota for the IV quarter, in order not to allow stocks to run out, will probably have to purchase more material either from the EU or from countries that have their own quotas (India, Turkiye).

Some market participants expect that the situation may stimulate EU producers to try to raise prices. However, others hold the opposite opinion. They believe that the exhaustion of quotas indicates an oversupply in the EU market. Therefore, European producers will not be able to raise prices and significantly intervene in the situation due to the terms of order fulfillment. Only a few EU companies have September supplies available, most offer October.

«In July, the quotas of Asian countries for hot-rolled coil are filled very quickly. However, we will no longer see pressure on prices. Indeed, after Asian quotas are filled in August-September, products will have to be more actively ordered from India and Turkiye, which offer their HRC at higher prices. At the same time, the increase in import prices is a positive factor for local prices. The surplus of products on the market, which is associated with a large influx of imports, may be short-term, as stocks are running at a low level», notes the chief analyst of GMK Center Andriy Tarasenko.

In general, in the new quota period from July 1 to September 30, notes SteelOrbis, more than 80% of EU import quotas for some steel products have already been exhausted. In particular, they are actively used by China. The PRC has already closed 90.99% of the quota for electrotechnical sheet, 99.85% – for large welded pipes.

As GMK Center reported earlier, for the second quarter of 2023 almost 2.3 million tons of HRC was imported to the EU. In January-May 2023, the total import volume of HRC decreased by 25% in annual terms – to about 8 million tons.