Iron or Steel Flat-Rolled Product Market - Europe is Shielding Itself With a Steel Barrier

Basic Iron And Steel August 24, 2016
Author: Sergey Avramenko
Head of Global Markets Research Team

iron or steel flat-rolled product market

Photo: © khac thanh / Bigstockphoto

The countries of the EU area followed the USA's lead at the beginning of August 2016, by imposing an anti-dumping tax on Russian and Chinese cold-rolled steel for a five year term. Chinese companies are now facing an anti-dumping duty rate of 52.7-59.2%, and Russian companies - 18.7%-36.1%. This has caused by Eurofer, the European Steel Association, filed a complaint to the European Commission regarding the introduction of these restrictions.

Lower Russian and Chinese steel prices against the EU price of steel, classed as dumping, acted as the impetus for the investigation and the subsequent introduction of duties on cold-rolled steel from Russia and China. Restrictive measures then assumed the form of an anti-dumping tax, intended to enhance the position of the EU steel manufacturers at a time when the European steel industry is in crisis.

2015 year-end results indicate that steel output contracted in Germany (-0.5%), Italy (-7.2%), France (-6.8%), the U.K.(-9.9%) and Austria (-2.5%). An imports rise in Russian and Chinese rolled steel significantly intensified competition on the EU market. From 2011 through to 2015, therefore, the Chinese rolled steel share on the EU market increased from 8.3% to 8.7%, and the Russian share from 5.9% to 10.1%.

Major Steel Producing Countries, 2014-2015

It is worth noting at this point that the EU market is more important to Russian steel producers, than the Chinese. Most rolled steel exports from China (approx. 55% in 2015) were aimed at the ASEAN-block countries, South Korea, and the Gulf States. Approximately 18% of the Russian steel manufacturers' income (companies such as NLMK and Severstal) originates from the EU; for MMK, this EU income figure was 7%. 

According to data from the IndexBox Marketing research agency, losses incurred by Russian companies as a result of the anti-dumping tax will amount to approximately 1-2% of annual EBITDA. In response to this, Russian companies are considering the possibility of increasing hot-rolled steel exports to the EU, as these remain unaffected by the duties. In July 2016, however, the European Commission initiated an investigation into hot-rolled steel exports from Russia; the investigation is to be conducted over the next 15 months. Should anti-dumping duties be introduced on hot-rolled steel, the losses incurred by Russian steel manufacturers will be much more severe than for those regarding cold-rolled steel. 

It is expected that the incoming cold-rolled steel duty will weaken competition levels in the EU market, thereby resulting in a prices increase. Baosteel Group, therefore, one of the largest Chinese and international steel manufacturers, intends to raise the price of rolled steel by 100 yuan (approx. USA $15.6) per tonne in September 2016. This may act as a definite signal to the world's other steel producers, who may then also follow suit, by instigating a price hike, like the Chinese. A scenario such as this may be beneficial for those companies under the Russian holding NLMK, which are based in Belgium, Denmark, Italy and France: their production capacity is currently not at full stretch. 

The trend of putting protective barriers in place on the cold-rolled steel market has already passed way beyond the one year mark, but protectionist measures became more aggressive in 2015 and 2016. This is due to the fact that the global steel market is currently experiencing a crisis in terms of saturated output and capacity. The steel industry's global capacity utilization level fell in 2015 to 69.7% (in 2014, this figure stood at 73.4%). Combined with a slowing of economic growth in China, demand for steel in the PRC contracted, resulting in a decline in output (-2.3% in 2015 and -1.1% in the first six months of 2016). These conditions forced Chinese steel producers to step up export volumes (in 2015 Chinese steel exports increased by 19.9% to 112.4 million tonnes). This, in turn, accounts for the current steel surplus in many markets, making the governments of individual countries introduce import duties on rolled steel to ensure that local steel manufacturers are protected.   

China maintains that the anti-dumping duty is counter-productive. The Chinese Ministry of Commerce has made a connection between low prices for Chinese steel with lower costs and increased output levels, than those of their foreign competitors, so the Chinese steel maufacturers' pricing policy, therefore, is not dumping. 

In addition, Russian steel manufacturers do not support the European Commission's decision to introduce anti-dumping duties, and they have brought to light a number of violations of WTO regulations and standards that occurred during the anti-dumping investigation. A representative from Severstal's External Communications Department, for example, noted that the calculations are based on the ruble exchange rate as of the date of a contract's agreement, whereas WTO regulations state the requirement to use the exchange rate as of the sale date for this process. Maria Simonova, External Communications Manager at NLMK Group, said that information submitted by the company during the invesigation was ignored and replaced with information regarding other companies' products. Russian steel producers intend to dispute the European Commission's decision in the European Court, and the WTO's dispute regulation body.

Authors: Sergey Avramenko, Fyodor Yanukovich

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Source: EU: Flat-Rolled Products Of Iron Or Steel (Not Further Worked Than Cold-Rolled) - Market Report. Analysis And Forecast To 2020