The first product to bear the brunt of U.S. steel tariffs announced in the month of Mar’18 is South Korea’s steel line pipes which is one of the key products of South Korean steel exports.
After the Trump government announced tariffs of 25% on steel imports, a majority of countries tried to have negotiations with the White House in an effort to earn exemptions from such strict trade restrictions and the first country to succeed in the same was South Korea.
Both steel giants U.S. and South Korea agreed to revise their trade deal and although U.S. agreed to give indefinite exemptions from trade tariffs to South Korea, it imposed import quota at 2.68 MnT or 70% of South Korea’s average annual steel exports to U.S. in last three years.
Why South Korea’s steel line pipes export will suffer?
According to the market reports U.S. was the largest importer of steel pipes and tubes from South Korea in 2017 accounting for 1.6 MnT or 66% of all South Korean pipe and tube exports.
However, most Korean pipe makers focus on line pipe and OCTG (Oil country tubular goods) exports because the markets for other pipe products, such as those used for construction, are dominated by Chinese and Southeast Asian mills who have lower production costs.
South Korean steel pipe suppliers exported approximately 200,000 tons of line pipes to the U.S. for the first four months (Jan-Apr) of 2018. This quantitiy is about 70% of the quota imposed by U.S. The ratio is estimated to reach 90% this month, given that South Korean steel pipe suppliers’ average monthly exports to the U.S. market are about 50,000 tons.
Subsequently, there is a high likelihood that South Korea’s line pipe exports to the U.S. will be virtually halted from the month of June as the export quota set by the U.S. Commerce Department will be retroactively applied from January 1 this year, not from May 1.
In value terms, South Korean line pipe exports to the U.S. amounted to USD 418 million in 2017 alone. For South Korean line pipe exporters, the U.S. market is important as it accounts for no less than 85% of their total exports.
South Korean line pipe manufacturers have increased their exports to the U.S. since the start of the year 2018 based on a prediction that the Department of Commerce would calculate the export volume from May 1 in accordance with Section 232 of the Trade Expansion Act of 1962.
However, because of this retrospective application of import quota, the US export quota is about to be depleted even before the end of the first half of this year eventually restricting their exports to U.S.
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