Will U.S. Import Tariffs on Japan have Indirect Impact on Indian Steel Sector?

On 9 Mar’18 after the U.S. government announced import tariffs on steel and further exempted seven of its trade allies from the trade restrictions. However, the list didn’t include Japan which is among U.S. top ten sources for steel imports, despite Japanese government efforts to convince the Trump government to exclude Japan from the trade barriers.

The limited impact of U.S. tariffs on Japan

Nonetheless, many experts in the industry are of the opinion that the direct impact of U.S. tariffs on Japanese companies is expected to be quite limited. This is because although Japan has its place in U.S. top ten import sources, the quantity of steel imported from Japan stands to be quite moderate. According to U.S. customs, in 2017 Japan’s share in country’s total steel import stood at 1.34 MnT (5%) which was 1.70 MnT (7%) in 2016, a plunge of 21% y-o-y basis.

As per the Japan Iron and Steel Federation (JISF), most of Japan’s steel exports consist of high value-added products that U.S. manufacturers cannot make. Many products, such as steel stock for railway rails or automobile bodies, and pipes for oil field development, are required to be of high quality in terms of durability, technological capacity, and strength. Thus, even if additional tariffs are imposed, it will be difficult for U.S. companies to immediately source their supplies from other countries. Subsequently, the impact of U.S. tariffs on Japanese steel industry seems to be limited.

However, the impact of these tariffs is likely to be seen on Japanese automakers that have their manufacturing units in U.S. With the imposed additional tariffs, sourcing of raw materials will become quite expensive resulting in increased production costs. Also, those manufacturers that obtain a majority of raw materials locally will have to bear the brunt as with trade restrictions in place the domestic input cost is expected to increase in the absence of free trade.

The probable price hike of flat products in Indian steel sector

If the low-cost steel products from Japan are kept out of U.S., either the Japanese steelmakers will cut down their production and compromise on their margins or will end up flooding the Asian markets (Japan’s main destination for steel exports) including India with its excess production, driving down steel prices dramatically.

Japan is amongst top three steel exporters for India. In 2017, India’s imported about 1.78 MnT of steel from Japan with the highest share of flat products at 66% (1.18 MnT). While Japan exported about 0.53 MnT of flat steel to U.S. during the year. This excess quantity of around half a million tonne poses as a threat to the Asian countries including India’s domestic steel industry.

The fall in steel prices due to the availability of excess material from Japan is also dependent upon the world largest steel producer, China’s industrial policies. Around 2014, excess Chinese products were exported to the world and prices of steel products dived. This adversely affected the performance of Japanese major steelmakers including Nippon Steel & Sumitomo Metal Corp.

The market condition of steel products has recently been improving since China has reduced the volume of steel exports in response to criticism of its overproduction. Under these circumstances, China might strengthen exports of steel products again to Asia or other regions, if export to the U.S. is restricted resulting in a significant drop in steel prices across the globe.

Japan’s Steel Exports to Key Countries in 2017

Source: SteelMint and U.S. Customs