Traders Say Vietnam is "Not Worth the Risk"

1) The country of original is based on the final shipped Harmonized Tariff Code (HTS) not the original substrate. When a product undergoes “substantial transformation” such as taking hot rolled and producing cold rolled or coated steels or cold rolled and converting it to coated steels it is then considered to be from the country doing the transformation.  More than 200 countries recognize the concept of substantial transformation including the United States.

2) The domestic steel mills have asked for an expedited review and decision by the U.S. Department of Commerce (45 days). This will be a very complex case and will require the DOC to investigate the allegations. The maximum time allowed for such a review is 300 days and in the meantime Vietnamese should be able to enter the United States without fear of duties.

However, the experienced trading companies are not taking the risks associated with this particular complaint. The risks of having to pay Chinese duties (500%+) on Vietnamese steels is too onerous for the trading companies to bear.

An east coast based trader was asked on Friday what their company’s position was on open orders with Vietnam and his response was, “Cancel, cancel, cancel.”

They then went on to explain, “Vietnam may or may not get off. We can’t take the risk.” We discussed the political situation with this being an election year. “This is a big deal. It’s not two guys sitting in an office and saying ‘let’s screw with Vietnam.’ The quantities that the Vietnamese were sending here…they were begging for an action [trade case against Vietnam].”

We have been hearing similar comments from other trading companies across the country about Vietnam for months. The belief in the trading community has been that, in both pricing and quantities, the Vietnamese lack of market sophistication was going to get them and, ultimately, those doing business with them in trouble.

Other traders with whom SMU communicated on Friday told us that their companies were also canceling as many open orders as possible. One trader told us, “I have cancelled whatever I could. My supplier was understanding despite LC being opened [letter of credit]. Of course I could not cancel whatever was already on the water.”

This trader was well aware of the rules regarding significant transformation but the Department of Commerce has the flexibility (as Lewis Leibowitz also pointed out to our readers last week) to make any decision they want.

When asked if the DOC would change the country of origin rules the trader responded, “I think it is 50-50. Vietnam can argue rightfully about “substantial transformation”  but the DOC can take the position that the quantity of CRC + HDG exported to the USA by Vietnam  is equivalent in volume to the Chinese CRC +HDG  exports to the USA prior to the filing of the trade cases, therefore evidencing  a clear case of circumvention since the Vietnamese products are mostly converted from Chinese HRC and since Vietnam had never exported to the USA prior to the AD ruling against China.”

When asked what countries could step in and replace the cold rolled and coated tonnage coming out of Vietnam we heard Russia, Turkey (although prices are rising in Europe), Brazil, UAE (United Arab Emirates), Taiwan, Korea and some re-rollers out of Egypt.

At the moment there are a couple of mills in Vietnam who continue to offer steel for export to the United States according to one of the traders we spoke with on Friday. He told us, “I can’t believe that traders will take a chance [on placing more orders with Vietnam].”

One end user with whom we spoke on Friday called the situation “ludicrous” and that the complaint against Vietnam was “such a big thorn in my side right now.” We were told not all of the trading companies have advised what will happen with open orders on the books with Vietnam. Most traders are saying if the steel is produced (or already shipped) their hands are tied and they will bring in the steel. The question is where there are open orders, LC’s in place but the risk is perceived to be too great to bring the material here.