The tariff-free quota for Japan under Section 232 of the US Trade Expansion Act, which imposes an additional 25% tariff on steel imports beyond the quota, has come into effect from April. However, the duty-free quota, which totals 1.25 million tonnes (mnt) per year, has actually been subdivided, and logistical difficulties have emerged in terms of its utilisation and vessel allocation. Therefore, the road to a full-scale revival is still unclear.
The quota announced by the US side at the end of last month had long been set based on the actual imports in 2018 and 2019, and, therefore, the quota for steel imports was generally set at 1.25 mnt per year. The volume was what trade officials had expected. The main items included 60,000 tonnes of semi-finished products such as slabs and billets, 199,000 t of wide hot-rolled coils (including cut plates), and 103,000 t of rails.
Of the duty-free quotas for each of the 54 commodities, 20 commodities were established with annual quotas of 10,000 t or more. Many of the other items have such small quotas that they cannot be transported without the use of container vessels. In addition, line pipe quotas are divided into three categories based on size and other factors, so the use of duty-free quotas requires detailed management.
In addition, the quota is operated on a quarterly basis, and unused portions cannot be carried over to the next quarter. In the case of semi-finished products, the annual quota is 60,000 t, but in reality, 15,000 t per quarter is the “upper limit” of the tax-free quota.
JFE Steel Corporation used to export slabs to California Steel (CSI), a US-based company, for use as base metal. There was a time when the company exported nearly 500,000 t. The current quarterly duty-free quota will make such large-lot shipments difficult. Slab exports to the US, which have not been shipped since May, are not expected to increase that much in the future.
Export of Japanese materials is complicated even for US customers who had applied for and were individually exempted from the application of Article 232. The US counts exempted items as “outside” the duty-free quota for the EU, but Japan counts them as “inside” the quota. If the exempted items are shipped after the quota has been fully consumed, no additional duty will be imposed, but in reality, this will ideally not work out given the need to meet delivery deadlines to customers.
It is not likley that Japanese steel exports to the US will return to the levels of last year.
Rail material exports used to exceed 200,000 t per year because Nippon Steel had a strong business relationship with US railroad companies, but due to the impact of Section 232, such exports are now expected to fall below 200,000 t per year. In 2021, it was reduced to 30,000 t. The duty-free quota of 100,000 t is only half of what it was in the past.
Eiji Hashimoto, President of the Japan Iron and Steel Federation (JISF), expressed gratitude for the negotiations by the Japanese government in February and reasoned that “Japanese steel products are not a security threat and the measures should be completely eliminated.” The current duty-free quota is the first step and the request for continued review was made, but the political situation in the US with the mid-term elections coming up makes it difficult to expect another review anytime soon. It is also disturbing that former President Trump, who invoked Section 232, has been actively working to reappear on the board.
Outlook
Just as 270,000 t of hot-rolled coils were exported to the US due to the sharp rise in demand last year, most likely there will be a need to import Japanese steel even if additional tariffs are paid, even if the duty-free quota is used up. However, as Nippon Steel and JFE continue to review their domestic production, the export capacity will be constrained. Structurally, steel exports to the US are unlikely to see a resurgence as they have in the past.
Note: This insight has been published in accordance with an article exchange agreement between SteelMint and Japan Metal Daily.
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