Trade Cases

Traders Stymied by Possible Section 232 Remedies

February 20, 2018

International trading companies are reacting to the report released by Department of Commerce Secretary Wilbur Ross recommending three options to protect the U.S. steel industry based on national security concerns.

As we speak with trading companies here at the Port of Tampa Steel Conference, as well as traders located around the country, we are finding many have ceased quoting and are no longer taking any new orders for shipments in March or beyond. One trader confided in SMU that their people were going to work on their tans over the next two months and not concentrate on developing any new business until the risks associated with 232 are better understood.

Some traders have begun to cancel orders. This does not appear to be a universal action, but there are enough cancellations on import orders that they are beginning to show up in domestic order books. One service center reported SDI order books as being on an “inquire only” basis. We were told, “The mills are expecting an onslaught of new business.”

One trader advised that there is a logistical issue associated with cancellations whether by the mill, trading company or the customer. The net result is a disruption of the cargo booked on the ships carrying steel and other materials to the United States. Some mills are scrambling to fill vessels that were not an issue just a few days ago.

Steel traders are telling SMU that the only option posed by the Commerce Department that might be “acceptable” to the trading community is the first – a 24 percent duty to be charged globally. The net result being prices rise across the board by 24 percent, which would be passed on to the consumer. Traders would pay the duties and continue as before.

The other two options are much more problematic for the traders (and their customers). In both cases, the intention is to lower the number of tons coming into the United States. In one scenario, 12 countries are named (China, Russia, Brazil, Turkey, South Korea, Costa Rica, Vietnam, India, Malaysia, Indonesia, South Africa and Thailand) with the recommendation they all pay a 53 percent tariff above and beyond any antidumping and countervailing duties already in force. The rest of the international community can ship 100 percent of the tonnage exported to the United States during calendar year 2017.

The last option is to have all countries subject to an allocation restricting imports to 63 percent of the tonnage deliveed into the United States during calendar year 2017.

The common thread is to reduce the amount of foreign tonnage coming into the U.S. by approximately 13 million tons.

One trader told SMU yesterday that there are many different kinds of steels coming into the United States that are headed to automotive and other critical applications. These sources of supply have been in place for years, and any interruption could cause significant damage to the end users.

A major trading company owned by a European steel mill put out a letter to their customers today imploring them to contact their representatives in Congress. The letter stated the following:

“As a decision could be announced any time between now and April 11, we encourage you to take action and contact your congressman, pointing out that the DOC recommendations:

Are excessive.
Promote the continued use of inefficient and outdated technology in domestic steel production.
Further shield an already highly protected industry sector.
Are detrimental to technical innovation.
Are not needed – modern steel producers in the U.S. (example Nucor and Big River) show to be competitive in the global market.
Are detrimental for free trade and not in line with WTO rules.
Will have a negative impact on the U.S. economic growth.
Will substantially increase cost for steel products in the U.S. and thus reduce competitiveness of the U.S. steel processing and manufacturing sector, which employs 12 times more people than domestic steel producers.
Likely to cause shortages of steel and disrupt supply chains as import volumes will have to be canceled.
Result in higher imports of steel-intense manufactured goods.
Export steel processing jobs to other countries.
Backfire on the U.S. economy, which traditionally depends on competitive cost for raw materials.
Trigger counter measures by other countries, targeting sensitive U.S. export products.

Please contact your elected officials. We consider it crucial you make your voice heard as soon as possible. Discussions in Washington are ongoing. The steel processing and steel manufacturing industries and their employees need to make their case.”

“It’s a bit of a mess right now,” one trader told SMU this morning. “Are we going to have an issue? That is a difficult question to answer.”

Steel Market Update will continue to follow this story over the coming weeks as the industry prepares for President Trump’s final decision.