CBAM and EU safeguard measures combine to slash import penetration

General demand momentum slowed significantly for European stainless steel producers during June. The strong market dynamics observed throughout April and into the beginning of June have faded, and most market participants are now anticipating a more subdued demand environment for the coming months.

During the early part of the second quarter, both the Carbon Border Adjustment Mechanism (CBAM) and the EU safeguard measures, which are designed to protect the European market from the adverse effects of global overcapacity and unfair competition, provided strong support to order intake at European stainless steel mills. As a result, import penetration was effectively cut in half during this period. It now appears that part of this demand was driven by restocking rather than genuine end-user consumption. The coming months will reveal to what extent underlying demand is able to absorb these inventories.

In addition, tensions surrounding the Strait of Hormuz have eased somewhat. Nevertheless, many large-scale projects, particularly in the oil and gas sector, remain delayed or on hold. Consequently, overall demand for stainless steel products has not improved materially.

Another notable development is that substantial volumes of stainless steel slabs have recently arrived in Europe and are being processed primarily by two leading flat stainless steel producers. It should be remembered that imported stainless steel slabs, including those originating from Indonesia, are subject to CBAM.

Against this backdrop, stainless steel scrap demand is expected to reach its seasonal low during the summer months. Holiday shutdowns, planned maintenance outages, increased slab imports and weaker order intake are all contributing to what is likely to be the lowest level of stainless scrap demand this year. At the same time, carbon steel scrap prices have softened, while the LME nickel price has fallen by more than US$ 2500 per tonne. Prices for standard grades of stainless steel scrap have also declined as a consequence.