Chinese HRC may take place of Severstal Steel's product in EU market

As expected, Severstal Steel has announced that it will suspend sales to Europe due to sanctions on Russian companies and businessmen. EU customers are looking for alternatives and China is expected to return to the European market.

Of the roughly 10 million tonnes of HRC imported into the EU from third countries in 2021, 2 million tonnes came from Severstal Steel, according to Eurostat. The removal of around 170,000 tonnes of HRC from the market each month will lead to a supply shortage. To make up for their losses, European buyers are looking for alternatives, not only looking for traditional Indian and Turkish suppliers, but also considering China's return to the market.

Turkish HRC was reported to have been sold to the UK at 1,000 dollars/t FOB this week, and two large Italian buyers last week at euro 1,045/t CFR (euro 1=euro 1.11) bought product from India. Indian HRC was sold to Europe at 1,060 dollars/t CFR this week. However, none of these transactions have been confirmed so far.

Due to higher prices affected by the instability caused by the war, Chinese HRC is expected to return to the European market despite tariffs (10.3-31.3% for anti-dumping duties and 4.6-35.9% for countervailing duties). A viable export price for Chinese HRC is estimated at 870 dollars/t FOB. “All the Chinese factories I have contacted are preparing to fill the gap in the EU. At the current price level in Europe, the customers can afford the tariffs,” an EU-based trader told Metal Expert.

According to some sources, in the long term, the supply shortage will only be felt in Europe. "I don't think we will feel a strong shortage in the short term because we have enough stock. The main problem will be in the third and fourth quarters," a local source told Metal Expert. Others are reluctant to assess the extent to which this factor affects the market, as it depends largely on consumption levels. Actual consumption has been quite low over the past few weeks.

Some service centers are now reporting that apparent demand has increased due to higher prices, while others say their customers are refusing to buy at current levels. “We are now seeing an increase in apparent demand and many service centers and all coil producers have stopped sales. Flats prices have risen by 150 euro/t since Ukraine was invaded. We are waiting for producers to resume sales and see how much demand is there," a representative of an Italian service center told Metal Expert. "My end users don't want to buy at the new level even by a ton. So the demand isn't strong these days. Even there will be material shortages, it's only noticeable if there's a lot of market activity. If not, a slight reduction in supply would not be a big problem," said a representative of the Spanish service center.