There came a news on Friday I.e. on 16 Feb’18 about U.S. Commerce Department recommending imposition of heavy tariffs or quotas on foreign producers exporting steel and aluminium to U.S., in the interest of national security, following a trade investigation on imports under section 232.
What is Section 232?
In Apr’17, The Trump administration ordered an investigation under Section 232 of Trade Expansion Act of 1962 aimed at determining whether the steel imports to U.S. from various countries pose a threat to the national security.
While the release of report on section 232 probe was supposed to be submitted by Jun’17, the same got delayed till mid Jan 2018. This delay in Section 232 probe triggered spike in country’s steel imports in recent months.
Recent Update on Section 232 probe
On 16 Feb’18, U.S. Commerce Secretary, Wilbur Ross released details of the department’s recommendation to the President Trump after the nine months probe carried under Section 232.
The 262 page document of probe includes recommendation with three options covering finished (flat, long, pipes, tubes, and stainless steel product) as well as semi-finished (billets and slab) products which are listed as below:
• A global tariff of at least 24% on all steel imports from all the countries.
• An alternative option would target 12 countries (including India, China, and Vietnam, to name a few) who export the majority of cheap steal to the U.S. Those countries would be charged new tariffs of 53% or higher. In this scenario, countries not listed in the list would see US imports capped at the amount they imported in 2017.
• A third option would institute a quota on steel imports from all countries, up to 63 percent of what those countries imported in 2017.
The President is required to give his response on the recommendation by 11 Apr’18. The possibilities are either he could adopt one of the option, make changes and/or adopt another plan or take no action.
According to Commerce Secretary, each of the measures should enable U.S. steel producers to operate at 80% average capacity utilization rates from current levels of 73% based on available capacity in 2017. These tariffs and quotas will be addition to any duty already in place.
Imports a pressing problem for U.S.
According to AISI (American Iron and Steel Institute), total U.S. steel imports for 2017 went up by around 18% y-o-y basis to roughly around 38.8 MnT. The country’s finished steel imports for 2017 is estimated around 30.1 MnT, up by around 14%.
U.S.’s major finished steel products that have showed a significant increase in imports on a year-over-year basis in first 11 months starting from Jan-Nov. This include line pipe (up 69%), standard pipe (up 41%), mechanical tubing (up 31%), hot rolled bars (up 25%), sheets and strip all other metallic coatings (up 21%), cold rolled sheets (up 18%) and sheets & strip hot dipped galvanized (up 15%).
The likely impact of these recommendations on global steel market
The largest steel exporters of U.S. for the eleven-month period were South Korea with 3.56 MnT (up 0.4% y-o-y), Turkey with 2.13 MnT (down 6% y-o-y), Japan with 1.42 (down 16% y-o-y), Germany with 1.30 MnT (up 18% y-o-y) and Taiwan with .20 MnT (up 29% y-o-y). The percentage share of India in U.S. steel exports is quite minimal.
With this recommendation by U.S.’s Commerce department, the highest impact is likely to be seen on South Korea which is country’s largest steel exporter followed by Turkey and Japan.As U.S. is a big market where countries export their cheap steel output, restriction by U.S. would result in excess availability of material in the global market which may make the global steel prices to fall if there is no corresponding increase in global demand for steel from rest of the countries.
The positive demand of these recommendations will only be seen on domestic steel producers in U.S. as this would provide a significant thrust to country’s steel prices and would give domestic steel makers more pricing power. Also with the trade restrictions in place, U.S.’s domestic steel production will surge, in order to meet its domestic demand thus, leading to spike in country’s scrap consumption (scrap is one of the key raw materials for steel production). Now as U.S. is one of the major scrap exporters, increased usage of scrap in domestic market for steel production may result in U.S.’s scrap export fall subsequently.
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