Section 232 Delay Stuns Steel Market

Leo Gerard, president of the United Steelworkers, called President Trump’s decision to delay trade action “devastating.” Noting that steel imports are up 18 percent on the year, he added: “Trading partners have targeted the U.S. market for fear the United States will finally stand up for its producers and workers and protect our national security. Postponing relief is equivalent to unilateral disarmament.”

Steel Market Update polled its readers on the subject and many of them also expressed disappointment. Following are some of their more insightful comments:

· “We’ve heard that [Commerce Secretary] Ross is very frustrated with the process in politics and the degree of opposition they are facing now from many sectors. If nothing ends up coming out of Section 232, I think pricing will retreat by $50 per ton rather quickly” Service center.

· “Most would speculate, myself included, that little to no action on 232 would result in downward pressure on domestic pricing. We have 2.5 months of inventory on the floor with a total of 4 months in the pipeline. This level is above average due to the recent mill increases and expectation of a favorable 232 ruling.” Service center

· “I think prices will drop if Trump does nothing. I think hot roll will settle around $550, which is a fair market price. Capacity utilization is still less than 75 percent and demand is flat. Doing nothing will invite more imports at an increased rate. Because the mills all bet on Trump doing what they wanted, if this is delayed further, things will get much worse than when we started.” Manufacturer/distributor

· “If Trump does nothing, the pricing will drop to the floor sometime in the fall, as imports would pick up steam once again. Mills will enjoy an increase or two until imports start to land after a few months’ lull.” Service center

· “Quite honestly, we are in the murkiest of moments right now. Mills just had their second highest production week, and imports are coming in this summer at the highest rates in two years, with demand basically flat. Despite what looks like a coming build-up of supply, mills are raising prices. So, with respect to Section 232, I’m 100 percent confident we would not be seeing price increases at this moment except for the looming 232 decision.” Service center

· “I think people are beginning to believe that 232 could be a bunch of hype with nothing to follow. Lead times are OK at the mills. August through October are good demand months. If Section 232 is a nothing, I don’t think much changes short-term, but I do think we would be in for a precipitous slide beginning in Q4 when people could start receiving imports again. That could last for quite some time.” Service center

· “Regarding Section 232, if the president does nothing, we believe the market will fall slightly until it reaches equilibrium with the global steel prices plus freight to the U.S. ports. Iron ore, coking coal and scrap are relatively healthy. Until China reduces total tons produced (not just capacity), demand for raw materials will keep prices buoyant due to hedging. We are beginning to see import offers we had not seen since the Section 232 investigation was announced.” Pipe mill

· “Our feeling is prices will react relatively quickly if Section 232 falls through and no appreciable tariffs go onto imports. The unfortunate part of it all is the timing going into the fourth quarter.” Manufacturer

· “In my opinion, Section 232 was the prop that allowed the first and second round of increase announcements to develop. Without the prop, the market will respond somewhat lightly at first and then with much more effect within the next 4 to 6 weeks. We experienced a ‘buyer’s strike’ at the end of the first quarter. The increase announcements, without the real threat of Section 232, didn’t stand a chance and could have done more damage to the market. I was with a large service center customer recently who felt the sky would fall if the Section 232 announcement came in significantly watered down. Very few customers attributed the increase announcements to anything other than Section 232. Looks like a bad case of All Hat and No Cattle.” Steel mill

· “If Trump does nothing on 232, my sense is that we return to the gradual decline in pricing we saw through most of Q2, maybe worse. Many customers made decisions to pull buys forward based on concern about 232, so that demand is off the market. With nothing else to prop the market up and no more fear of import restrictions, I don’t see anything fundamentally different now than in Q2. The big concern now is that the 232 bogeyman doesn’t materialize before the contract quoting season begins for next year.” Service center

· “If the Trump administration ends up doing nothing with respect to Section 232, we’d go through a pretty volatile period where buyers would buy very little in the near term because prices would fall (due to higher supply and exposure to import pricing). Import supply chains would be re-energized until domestic prices fell into a range that made imports unattractive. This process would likely take 90-120 days to shake out. Once we weathered that storm, the market would then return to the fundamentals (supply/demand) and we’d see a return to “normal.” In this scenario, steel cost inputs like iron ore, coking coal, scrap, etc., would once again be primary determinants in global steel pricing. That, of course, returns us ultimately back to China, which is the primary buyer and user of the same. On a bright note, if this were to occur, it would allow for a much more united global effort to control the Chinese steel glut. One of the biggest problems with 232 is that it prevents the very coordination needed to confront China, since many countries would fight the U.S. measures.” Service center

· “Section 232 is hampering our ability to forecast and bid future projects effectively. We cannot manage our business with it hinging on the uncertainty of Section 232. We need to move on. This administration talks too much and does very little to make America great again.”

Trump Has Time to Ponder 232

What are the legal implications of the Trump administration’s decision to postpone action on Section 232? The president faces no hard deadline, explains Washington trade attorney Lewis Leibowitz.

The statute requires a report and recommendation from the secretary of commerce no later than 270 days after the April 20 initiation of the Section 232 investigation, or by Jan. 16, 2018. The president then has 90 days to decide what action to take, or by April 11, 2018. Implementation of any import relief would then take place no later than April 26, 2018.

Even then, the president’s decision might not have an immediate effect on the market. The nature of the relief could be prospective, Leibowitz says, such as negotiation of trade agreements with trading partners, or tariff rate quotas, under which no duties would apply until imports reached a certain level. 

If the president deems the Jan. 16 deadline too soon to act, the investigation can always be terminated before a decision on national security is made. The president can instruct the commerce secretary to start a new investigation at any time, beginning the process all over again.

“Clearly, President Trump is looking carefully into all options and is cooling on the idea of unilateral import restrictions, at least in the near term,” Leibowitz says.