Section 232 Tariffs "More Hole Than Donut?"

The owner of a mid-sized service center in the Midwest told us, “I think this party’s over.”

Another service center executive asked, “How can we run businesses with ad hoc decisions made seemingly at a whim with no notice?” He added, “I have to say it makes me a little nervous. If prices already have these tariffs baked in…at $120 per ton since Trump announced…and two-thirds of imports are now possibly exempt, could prices drop that same amount over a month?” He questioned if imports will actually be limited at all and that what the industry just went through was nothing more than “voodoo price increases.”

Not everyone believes the exclusions will result in the demise of the steel industry. We heard from the general manager of a large service center, “While the named country exemptions has a huge impact, it still seems to me that there’s enough remaining traditional tons subject to tariffs to make a difference.” He pointed to 6.7 million tons of imports from countries not yet excluded as still being meaningful.

It may be a little early to predict the collapse of the duties or of higher steel prices, but we did learn from one of our steel mill consulting friends who works with Europe that we can expect offers on European cold rolled and coated products (they are tight on hot rolled).

The exclusion of Brazil along with Mexico and Australia means California Steel and SteelScape substrate supply should be OK, as should AMNS Calvert in Alabama, which gets slabs from Brazil and a sister company in Mexico. NLMK USA does use some Brazilian slabs, and we will have to wait to see if they are able to increase tonnage or if Russia gets added to the exclusion list. Brazil being added is also good news for CSN in Terre Haute, Ind.

A trading company executive sent SMU a note asking, “The USTR just exempted two-thirds of the steel that was imported to the U.S. in 2017. So, are we going to protect our national security by restricting steel imports from countries such as Costa Rica, Malaysia, South Africa, Egypt, the U.A.E., etc.?” This trader noted that the more imports increase supply, the more downward pressure there will be on pricing. He called the seemingly random process of granting countries exclusions unfair.

One of the steel mill executives who told me weeks ago that his company was not concerned about Section 232 reminded me today, “I say what I have said all along: 232 is a moving target and I am not too preoccupied about it. Never believe the hype or the doom-and-gloom predictions from the talking heads.”

World Trade Online reported earlier today that Commerce Secretary Wilbur Ross was asked about the exclusion process, and he outlined additional criteria the U.S. would use to determine whether to grant exclusions for some products. “In order to not grant an exclusion, we will be looking for demonstrated manufacturing capability meeting the technical parameters for the specific article in question,” Ross said. “This could include idled capacity that is being brought back online as a committed thing — not as a prospect, not as a possibility — but as a commitment by the U.S. company, as well as [one that] will include new, expanded capabilities.”

SMU reminds readers that this is a fluid situation made especially so since it is also a political hot potato for the Trump administration, Congress, the Commerce Department and all local communities affected one way or the other by the tariffs and the uncertainty.

“The 232 has been a tool in a complex global trade repositioning. Section 301 vs. China [announced today] is a major escalation from the 232,” one mill exec told SMU today. “NAFTA’s making progress, as well. Lots of moving parts – and many of these parts are intertwined.”