30 May 2022 – Many rumours, one weighty question: Will the EU Safeguard measure on certain steel products be lifted? A few answers. Is the chip shortage that had hampered the automotive industry about to dissipate? There are signs of a turnaround. Nickel prices in Asia and Europe continue to rise sharply.
Chip shortage gone?
The car manufacturers are sitting on a huge volume of orders. Not only in Europe, but also in other parts of the world, e.g. Japan. In Germany alone, there are probably a million open vehicle orders that have accumulated due to the semiconductor shortage.
Semiconductor industry with billions in investments
But already last year the semiconductor industry announced massive investments and production increases. And this year, too, there will be further investments. Among others, the South Korean conglomerate Samsung has announced 380 billion USD in new investments over the next 5 years.
Is the worst behind us?
Richard Gordon, Gartner practice vice president for semiconductors and electronics, said we may have the worst behind us.
“We’ve just seen a classic peak in the semiconductor market – chip shortages, price increases, inventory builds, all leading to a very high growth year and record sales in 2021. But this is a cyclical market. The shortage situation is easing; I think we’ve passed the peak of the cycle,” Gordon said last month.
Key indicator: days in stock for semiconductor chips up significantly
Perhaps most significantly, the number of days in stock for semiconductor chips at contract manufacturers such as Jabil, Foxconn, Sanmina, Flextronics, Pegatron, Quanta, Compal and inventec has risen for six consecutive quarters, from 62.7 in December to 66.8 in March, and is expected to rise to 80 days by the fourth quarter, a 30 per cent increase from the 2019 peak. This should be a warning sign for the chip sector, Jefferies added.
Automotive industry in the starting blocks
This all together suggests that the semiconductor shortage, aside from possible logistical challenges, should be solved soon. Then, when the automotive industry takes off, which is already expected by European steelmakers, vehicle production will be busy working off the huge backlog of millions of vehicles for the time being – which should drive demand for steel, aluminium, stainless steel and other inputs on a massive scale.
Will the EU Safeguard measure be lifted?
By 30 June 2022, the current review of the EU Safeguard measure on certain steel products must be completed. So far so good, nothing unusual for the most important and largest market protection measure for EU steel producers.
But, as with previous reviews, rumours are circulating that Safeguard could be lifted because conditions have changed. But can the EU simply suspend Safeguard? Have the conditions that led to the introduction of the measure really changed compared to 2019? Or is this just an attempt to cash in on wishful thinking?
A few short answers to complex questions:
- What is the current Safeguard review about?
The current Safeguard review is about a functioning review on possible quota adjustments after one year (2022) – as clearly mentioned in the Notice of Initiation concerning a review of the safeguard measure applicable to imports of certain steel products of 17 December 2021. And also the corresponding and clear indications of the EC that it is a review as in 2019 and 2020. Which were also only about the proper functioning of the market protection measure. - When is the next review of the need for Safeguard?
The review of whether Safeguard should be maintained will only take place after two years (2023). See Recital (85) of Safeguard extension from 2021. - Can Safeguard not simply be suspended or paused?
No. Safeguard is a market protection measure that cannot simply be suspended or paused. It can be in place or not. There is nothing in between. For this, it is advisable to read Regulation (EU) 2015/478 on common rules of imports. Only anti-dumping (EU) 2016/1036 and anti-subsidy (EU) 2016/1037 measures have the possibility of temporary suspension for up to 9 months under certain conditions. - What about the US section 232 tariffs?
Has anything really changed there? No. It hasn’t. Even though the EU (and Japan, UK) now have a Tariff Rate Quota, the section 232 tariffs are still in place. There is no end in sight. So the main reason for imposing Safeguard remains – the unduly diversion of trade flows. - Conclusion: Will Safeguard be repealed?
The likelihood of the EU Safeguard measure being lifted on 30 June 2022 is close to zero. We have seen pigs puke (If we are allowed this German phrase) and we cannot read the EC’s mind, but this primarily politically motivated market protection measure will not be lifted before the hard launch of the European carbon border tax CBAM in 2026, according to our current assessment.
You can read our full analysis with all the background on the EU Safeguard Measure and the review in 2022 here.
Nickel and stainless steel futures rally
Nickel on the SHFE had already led the way today and continued its upward trend from Friday. Nickel futures gained more than 6.2% in Shanghai. Stainless steel futures also went up by more than 2%.
LME nickel has responded accordingly to the market situation and after closing at more than $28,000 per tonne on Friday, it is already on its way to the $30,000 mark today (Monday).
Nickel is still in short supply, the Chinese economy is receiving new support from the government and the Corona measures are coming closer to an end. This is currently fuelling demand for commodities.
Latest news
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Disclaimer: Many things here represent our opinion. Others are information from the Internet. We can therefore never claim to be correct or complete. And never base a business decision solely on the news you receive from us.
