After exempting it trade allies, EU, Canada, and Mexico from import tariffs on steel and aluminium for two months from Mar-May’18, the Trump government has decided to end this exemption and impose trade levies of 25% and 10% on steel aluminium imports from all the above mentioned three countries with effect from 1 Jun’18.
While this decision by U.S. administration has created a major rift between the major economies and has triggered a trade war like situation, its adverse impact on all the countries including India cannot be ignored.
This is because although India’s trade of steel and aluminum with U.S. is quite low as compared to U.S.’s trade with countries such as Canada, Mexico, and Germany, these tariffs are going to have an indirect impact on India’s steel exports and domestic prices of these metals.
Excess steel from Mexico and Canada will create a supply glut
Canada and Mexico are the U.S.’s top sources of steel imports that has contributed to about 26% of country’s total steel imports in 2017 which is about 9 MnT in volumes. Now with trade restrictions in place, there could be an oversupply of 9 MnT from Canada and Mexico which has to be sold to other countries.
If this oversupply is dumped into any of the countries to which India exports, there could be an adverse impact on India’s exports.
India has been a net exporter of steel in FY18 with exports at 9.62 MnT, a surge of 16.7% from the previous year. Italy which is a part of 28 nations bloc- EU, has been India’s lead export market, accounting for 1.24 MnT, or 13% of the total export of finished steel, during FY-18. Now with U.S. tariffs in place, India may face tough competition in its key exporting countries from Canada and Mexico as both the nations will find alternative options to U.S. to dump their excess supplies.
Although tariffs on U.S. allies has been announced only recently, the trade restrictions on steel import into U.S. from other countries have already come into effect in the month of Mar’18. The effect of which can be seen in the form of fall in Indian steel exports in Apr’18. According to JPC data, India’s finished steel exports have slumped by 25% y-o-y basis to 0.56 MnT in Apr’18.
Oversupply may impact prices
Dumping of excess supply into India at cheaper prices can also adversely impact the domestic players. The excess supply of steel globally might exert pressure on the prices of steel and aluminum which are now on an upward trend. With increasing, raw material prices such as coking coal and alumina (the key raw materials of steel and aluminum), any reduction in realisations will hurt the profitability of domestic metal companies.
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