Hot rolled coil (HRC) producers in Turkey might face weaker positions in the mid-term, following the new amendments to the safeguard regulation recently announced by the EU. Along with the possibility that their sales to this destination might decline, Turkey’s own imports from Europe may go up.
According to the latest announcement, the EU authorities, while making adjustments to the HRC safeguard quota regulation, decided not to impose a quota on country-specific basis. Instead, the EU aims to limit sales from any country to 30 percent of the overall HRC import quota. The decision, once approved, is expected to come into force from October 1, with the calculation being made on a quarterly basis. “The EU has to limit imports more as capacity is higher now, but local production is down,” a trader said. In particular, the 30 percent of the quota for the last quarter this year amounts to 635,053 mt, while it is 628,150 mt for each of the first two quarters of 2020.
This latest development is expected to negatively affect Turkish HRC producers as the EU has been the key sales destination for them. In particular, according to EUROFER data, Turkey’s shipments to the EU totaled 1.647 million mt, indicating that the country’s share in the total incoming volume varied from 34 percent to 52 percent. “As I know, we have sold more than 45-50 percent of the quota in 2018 and in the first 5-6 months of 2019. So we will be talking about around one million mt less sales per year, maybe more,” a major trader told SteelOrbis. However, most HRC market players do not expect an instant negative effect, taking into account that end-user demand in the EU is slow. “We [Turkey] might have lost these 300,000 mt per quarter in H2 anyway,” a producer told SteelOrbis. Some sources do not exclude that Turkey might seek to intensify exports of CRC and coated steel to the EU in an effort to cover for the potential loss of HRC supplies.
Additional pressure might come from India as mills might continue being aggressive in their pricing for key sales outlets while demand in their own local market is subdued. “India is blast furnace-based so exporters can afford low pricing, while two out of three Turkish HRC exporters are limited by costs,” a trader said. Currently, India is in the market to sell for September production and is expected to remain active for at least one more month of sales.
Another threat is that the Turkish market remains wide open for European HRC suppliers. In the first five months this year, Europe shipped around 730,000 mt to Turkey and, moreover, is expected to be rather active in further sales to Turkey due to its high capacity and low demand domestically. “Turkey should impose restrictions against HRC imports from the EU as our local consumption is not enough for all sellers, especially now when exports might decline. But unfortunately, I don’t see it happening,” a Turkish HRC producer told SteelOrbis.