US tariffs on steel imports will distort the steel market globally
The 25% tariff on steel imports announced by the US President on March 8th and is due to be implemented from March 23rd has already provoked reactions in the US and elsewhere. There has been opposition from both the opposition and GOP against this move due to concerns that it could end up harming US economy as other countries are likely to retaliate against US exports. Some US producers, such as California Steel and ArcelorMittal import slabs for re-rolling into finished steel are going to be severely affected.
The European Union has already announced its intention to respond and introduce similar tariffs on imports on some American goods, which could reach about $3.5 billion annually. The retaliation from other countries would not be just related to steel. “We will impose tariffs on motorbikes, on blue jeans and bourbon. We can also do stupid,” said European President Jean-Claude Juncker. China and some Asian countries also announced that they would take similar responses.
Vietnam, South Korea and Japan will be heavily affected as the US is an important market for their steel exports. India, however, is not going to be significantly affected in term of exports, as the country’s steelmakers already face many trade barriers and anti-dumping duties in the US and as a result, Indian steel exports account for ~3% of US steel imports. Brazilian producers are worried, as Brazil is the second largest exporter of steel to the US. Currently, Brazilian origin steel (the vast majority comprised of semi-finished steel) is paying around 0.9% duty which is low, though under the new measures, Brazil will be affected. In 2017, Brazilian exports to the US were worth $2.6 billion, which was equivalent to almost one-third of all Brazil’s steel exports. For companies such as CSP, ArcelorMittal and Ternium (formerly CSA), the US is an important market which will be very difficult to replace. The Brazilian government announced that it was trying to convince Mr Trump to exempt Brazilian semi-finished steel. In the CIS, some Russian companies are also going to be affected, especially on the semi-finished market. In fact, NLMK exports on average 1.5 Mt of slab to the US, while Evraz exports 500Kt of slab and Severstal 300Kt of finished steel. So far, Canada and Mexico have become the only countries exempted from the tariff, as the US intends to renegotiate the NAFTA agreement. However, the indirect effect could be felt across the world, as the price gain which was seen in China and the CIS have already stopped. Countries around the world are worried about the long-term impact on international trading, as exporting countries will try to divert their exports to other countries.
In the short term, uncertainty and ongoing negotiations will mean that US buyers will wait to find out which other countries might be exempted. Commodity Inside expects that the US tariffs to reverse the last few weeks of price gains in the CIS and China, especially in the semi-finished steel market. Price volatility and uncertainty will undoubtedly increase. However, the full scenario will only be known once any further exemptions are announced by the end of March.
This insight is an excerpt from our Flat Steel Insider. To learn more about our flat steel expertise and reports please contact us at info@commodityinside.com