In Mar’18, U.S. imposed tariffs of 25% on steel imports from the majority of countries barring six of its trade allies South Korea, Brazil, Argentina, European Union (EU), Canada, and Mexico. However, in time span of two months (Apr-May), the three countries, South Korea, Brazil, and Argentina are covered under quota (restricting their steel imports to U.S. by a certain limit) and the remaining three, EU, Canada, and Mexico are also imposed with import tariffs of 25% with effect from 1 Jun’18. Now with this tariffs imposition by U.S. let us explore the short-term outlook of global steel market especially for the NAFTA countries and EU.
Rise in U.S.’s finished products prices and delay in deliveries
With the imposition of tariffs, U.S. steel consumers will have to pay 25% more since 1 Jun’18. As the majority of steel imports into U.S. comes from Canada and Mexico, all the exporters from these two countries and also from EU have informed their customers in the U.S. that they will have no choice but to add the 25% to the FOB value. However, despite this no order cancellations have been heard so far.
Steel consumers in the U.S. will have to pay more and will thus become even more uncompetitive with their finished/assembled products. As NAFTA (North America Free Trade Agreement) implies free trade between U.S., Canada, and Mexico, it leads to efficient use of U.S. capacities. However, with trade restrictions in places, the inefficiencies in capacity utilisations of U.S. steel consumers are inevitable. The new situation will cause rises in U.S. steel products prices, as well as result in some raw material shortages and late deliveries.
Nearly everyone ends up losing due to U.S. measures, including U.S. consumers
The only winners out of the Section 232 decision are shareholders of U.S. steel and aluminum assets in the short term and the losers are everyone else including U.S. consumers who will pay for all of it. Canada, México and the EU have all notified the WTO (World Trade Organisation) of their opposition to the trade tariffs. The big economies like China, EU, Mexico, and Canada has already imposed tit-for-tat countermeasures not only on steel but also on variety of products being exported from U.S. Thus, while the steel suppliers across the globe will bear the brunt of tariffs, the American taxpayers and consumers will have to carry the ultimate bill of increased costs.
The expected hike in U.S. domestic prices
Although the steel demand in U.S. has remained the same in past few months, its supply has become limited especially for certain sizes in some areas. The domestic prices offered to most large purchasing customers are lower than import prices as imports from key steel importing countries are now being subject to the 25% tariff. Subsequently, the U.S. domestic mills have an opportunity and are expected to adjust their prices so that they are in line with or are a bit higher than import prices. Until this adjustment takes place, uncertainty still exists and is holding buyers back from making long-term decisions.
Rise in EU and Turkey’s steel price rise likely amid an increase in scrap demand
The U.S. decision is a relief for Turkish mills who were not exempt from the tariffs during May. With Europe, México and Canada all being on the same level playing field, this will strengthen the competitiveness of Turkish mills and bring them back to the U.S. import market, which in turn will also bring the Turkish mills back to the scrap market.
It is highly likely that the domestic reinforcing bar sales prices in U.S. will increase in the next few weeks amid raw material shortage which may put pressure on international scrap prices and subsequently on the production costs of the Turkish and European mills. This situation can also lead to a rebound in apparent demand for steel products, linked to the possibility of further price increases, as happened when the sudden increase in graphite electrode prices pushed up steel production costs and prices last year.
Uncertainty looms the global steel market
There are rumours in the market suggesting that Canada could have a reduction in the tariff. As everything seems to be possible with the Trump Administration, customers are taking their time to decide where to buy.
On the other hand, there is apparent confusion in the EU as regards safeguard measures. The EU needs to import as well, and the EU authorities are well aware that their action may trigger a domino effect as has already been seen in Turkey, which also initiated safeguard investigation on steel imports following EU. Thus, buyers across the globe are unsure about booking their orders in the long run.
Whether the global market overcomes the burden of 25% tariff issue is uncertain. All the steel producing countries except U.S. will end up with either higher prices and lower output, or more output and lower prices. However, the oversupply in the global market has been slowing down, demand across the globe is going strong and it is highly likely that the bottom have been achieved in terms of prices.
Leave a Reply