Apr 07, 2022
Low EU HRC quota utilisation testimony to weak demand
2022-07-05
The low utilisation of hot-rolled coil (HRC) quotas so far this quarter is testimony to low demand for imported tonnes at the start of this year.
Out of available quotas of about 2.28mn t for HRC under the resetting EU safeguard for April-June, more than 2mnt still remain, suggesting utilisation of just 12pc.
All of the main overseas sellers into the EU have substantial tonnages left to be utilised, despite main ports still holding significant tonnages of coils.
The market was in destocking mode towards the end of last year and at the start of this year, in anticipation of further price declines. Argus' headline Italian index hit a peak of €1,130.75/t on 2 June last year, before falling over the rest of that year to €818.25/t on 11 January 2022. Argus' northwest EU HRC index reached a then-record high of €1,206.50/t on 22 June, before also slipping over the rest of that year, reaching €904.50/t on 11 January of this year.
Interest in imported tonnages, as a result, was low in the fourth quarter. Imports were also more expensive than they are now compared with domestic coils. Low automotive demand also meant service centre stocks were high, particularly in the heavily auto-exposed German market; the country's distributors had 3.9 months of stock based on sales in December, according to data from association BDS.
Demand for imports has increased since then, aided by the rapid jump in domestic prices amid supply disruptions last month. The discount for cfr Italian HRC compared with domestic prices reached an unsustainable level of €174/t on 24 March. At such levels, it was always likely that buyers would turn away from domestic supply and towards overseas tonnages.
These imports, likely to arrive in June and be cleared into July quotas, are now tempering demand, alongside the huge discount for Chinese material. Chinese HRC recently has been offered into both Italy and Antwerp at about €1,100/t cfr, including duties, more than €200/t below domestic NWE prices.
By Colin Richardson
Source: Eurometal
