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EU stainless steel duties do little for embattled mills

2015/9/2      view:
LONDON — A European Union (EU) move to cut nearly a fifth of stainless steel supply via antidumping duties has given the bloc’s mills only modest support as they continue to battle stubbornly poor demand and a China-led growth slowdown.

The EU in March slapped antidumping duties on cold-rolled stainless imports from China and Taiwan, and sources say sales from the two countries, which made up 17% of the market in 2013, have since collapsed.

Also a boost for mills, Europe’s top stainless steel maker, Outokumpu, shut down its German Bochum melt shop in June, removing about a tenth of EU "melt" or crude capacity.

The two factors mean mills are now using about 80% of output capacity, analysts say, versus about 70% in 2013. In theory this should boost their pricing power, but stainless base prices have been flat this year on lacklustre end-use demand and as distributors have held off restocking in the hope of further nickel price falls.

Nickel, used primarily to make stainless steel, accounts for a third to a half of its final price.

"Protectionist policies have allowed EU players to increase their market share but the market itself is doing nothing in volume terms," consultants CRU analyst Mark Beveridge says.

"Where is the incentive for people to restock? Nickel prices are horrendous, China is a disaster."

Longstanding concern over global contagion from slowing Chinese growth culminated in widespread investor panic this week despite the increasingly radical measures taken by Beijing to avert a hard landing.

China accounts for half of global stainless consumption and its downturn has hit its stainless usage hard, pushing nickel prices to six-and-a-half-year lows.

The fall has in turn sent global stainless prices to year lows, hurting nickel.

"EU mills have not even been targeting stainless price rises. You need higher demand for prices to rise," says Alistair Ramsay, consultant at Metal Bulletin Research.

Instead, EU demand has fallen by about 2% this year, according to CRU. The drop has forced mills to reduce output despite the plunge in supply from China and Taiwan.

Consultancy MEPS says it expects this year’s total crude output to fall by nearly 1% to 7.18-million tonnes.

EU stainless dynamics are improving as increased capacity utilisation has made mills more efficient, increasing their margins even if they are selling fewer units at flat prices.

Outokumpu and Acerinox both posted poorer than forecast second-quarter results, but their strong exposure to the US more than offset what was a solid performance in Europe.

Aperam, by contrast, posted a sharper than expected rise in second-quarter profit.

"As capacity utilisation continues to increase, the EU stainless makers should regain pricing power," Jefferies analyst Seth Rosenfeld says.

"Base prices right now are at €1,080 a tonne and we expect a year-end base price of €1,125," Mr Rosenfeld says.