Concerns are mounting across the UK steel industry over EU import restrictions on steel products, with calls for clarity on just how the UK will be affected, particularly in light of Brexit. EU safeguard restrictions have recently moved from provisional to definitive, and this has presented both opportunities for some market players and threats for others. Given that the EU steel industry has not yet fully recovered from the global steel crisis, this fresh turmoil looks set to have repercussions for quite some time to come.
What are the EU steel safeguards?
Back in March 2018, the Trump administration issued what is known as a Section 232 Tariff on imports of steel and aluminium into the US, as part of the President’s ‘America First’ programme. Whilst most economists believe that these tariffs have had little effect on the US economy, they remain in place, and many countries have been forced to take action in response.
In the case of the EU, the action taken has not been retaliatory, as is the case with China and other global exporters, but instead it has been described as a ‘safeguarding’ measure. With the door effectively closed on steel imports to the US, those countries that had previously relied on the US market have had to find alternatives export targets, and this has been seen as a threat to EU steel mills, potentially leading to oversupply and downward pressure on prices.
The EU’s safeguarding quotas were provisional at first, but these moved to definitive status in February 2019. Essentially, each country importing into the EU has been given a quota for each steel product category, for example rebar and hot rolled coil (HRC). Most countries have received annual quotas, based on historical import levels. Once a country has used up its quota for a particular steel product category, further imports are subject to a 25% tariff, to deter dumping or redirecting. Some countries do not receive an annual quota, but instead, are lumped into a ‘global residual’ quota.
On the face of it, this seems a reasonable approach to protect the EU’s own steel producers who find themselves trying to compete against cheap imports from countries with weaker economies and far lower production costs. However, it is felt by many that the quotas imposed may have been set far too low to keep up with strong demand across the EU. Using historical import levels seems sound, but obviously it leaves little room for manoeuvre should demand actually pick up significantly in the coming years. If quotas do turn out to be too low, then rather than protect against falling prices, the safeguarding measures could have the opposite effect and actually push prices up or lead to shortages across the supply chain.
Turkey’s EU imports
One country that has recently been in the spotlight in terms of EU safeguarding quotas is Turkey. With a weak economy making its prices very attractive, and proximity to the EU bringing benefits in terms of freight logistics, Turkey is ideally positioned to take advantage of whatever opportunities arise from the EU safeguarding quota system. Already, imports of rebar and rod have risen sharply, in order to ‘grab’ the initial 2019 quota as quickly as possible. It’s likely that Turkey will now try to make use of ‘residual’ global quotas to export as much steel as possible into the EU. Eurofer, the EU steel association, has said that is is monitoring Turkey’s actions closely, to ensure that the country sticks to the rules and doesn’t cause undue instability across the EU.
The UK position
The picture may seem a little cloudy for the EU, but for the UK specifically, things are even more complicated, as Brexit looms large over all aspects of trade. With exit deadlines up in the air, and talk of a no-deal Brexit or even a second referendum, it really is anyone’s guess at the moment which way the UK will ultimately move, in terms of leaving the EU. That can only mean uncertainty for the steel industry. If we don’t yet know how we will leave the EU, we can hardly hope for clarity on the specifics of how the EU safeguarding quotas will affect our steel industry over the coming years.