Steel Execs Anticipate Fallout from Trump Tariff on Turkey

The Turkish steel industry is a major buyer of ferrous scrap from North America and was the eighth largest exporter of steel products to the United States in the past year. Products most affected include rebar, cold rolled coil, galvanized coil, OCTG, standard pipe and hot rolled coil. “With a 50 percent Section 232 tariff, in addition to AD/CVD duties on HR coil, rebar, wire rod, and pipe and tube products, Turkey will not be competitive in the U.S.,” said CRU analyst Estelle Tran during a webinar earlier today. With Turkey’s economy struggling and the United States, its major market, effectively off limits, Turkish steel production is bound to decline. So, what are the implications?

Steel executives canvassed by Steel Market Update today expect some fallout from the president’s decision on Turkey. How much, and when, are unknown. Indeed, some say, the capricious nature of the president’s trade decisions makes purchasing foreign steel from any country a riskier proposition. Following are some of their (anonymous) comments;

• “As Turkey was perceived to be one of the bigger importers of flat rolled, who and how this void will be filled will have an immediate impact on what happens domestically over the next few months. Prior to this development, we would have argued that the volume of imported steel coming in through October would help weaken domestic market pricing, but now the affect may be lessened. I think this will make everyone relook at their imported volumes to ensure they are discounted enough to manage the potential risks. Most importers are trying to absorb the potential ramifications of the Turkish tariff change and develop a plan moving forward.”

• “We are currently seeing a surge in bookings by customers who have Turkish hot roll on the water. The largest risk, in my opinion, is the additional uncertainty this brings to an already unstable market. Additionally, it demonstrates the power vested in one man to impact global markets with the stroke of a pen or perhaps a tweet.”

• “This definitely affects us in a negative way. We buy from a couple of Turkish sources and have found them to be reliable and responsible suppliers. Trump’s moves seem overtly political and not economic (nor national-security related). I think the Turkish situation will definitely cause some headaches for many and introduces new uncertainty into the market. Anyone looking to import has to ask: Which country might be next?”

• “Many are wondering if this most recent tariff against Turkey will stand or if it’s Mr. Trump’s bluff on a political issue. Others see this as a positive move, believing manufacturing will be fine absorbing the increases. I am not sure the manufacturing sector can absorb the rate of increases in the short term. I believe this will equate to a shortage in the fourth quarter. We have not seen many foreign offers, even prior to the newest tariff announcement. After many discussions, it appears foreign traders are going to sit and see where this goes.” 

• “This demonstrates that any country or product could be subject to additional tariffs with the stroke of a pen. This will act to put a freeze on a lot of import activity, especially countries like Vietnam.”

• “[The president’s decision] hurt us badly on Turkish cargo on the water. What a shock! The risk is picking another mill/country that runs afoul of Mr. Trump. The change in tariff certainly makes us think twice about our import risk.”

• “We are cancelling orders from Turkey that are on the water and ones being produced now— HR/CR/GALV. This has nothing to do with national security. Turkey will continue to retaliate, including not buying scrap from us, which will drive scrap prices down….”

• “I think the risk [from Turkish tariffs] is the overall effect it has on the scrap market. It will give emotional fodder to buyers that are struggling to keep business as prices to end users soften.”

What’s the Potential Impact on Scrap?

Scrap analyst Mike Marley of World Steel Exchange Marketing noted that U.S. scrap exporters have not seen much new business lately from Turkey and probably won’t in the coming weeks for both political and economic reasons. The sharp increase in the value of the U.S. dollar versus the Turkish lira will make U.S. scrap more expensive. “Turkish mills can and are buying imported scrap at lower prices from exporters in the Baltic Sea region and western Europe. The unanswered question is whether that activity will be disrupted, as well, because much of the international ferrous scrap trade is done in U.S. dollars,” Marley said.

Scrap prices are likely to decline in the U.S. as a result of the trade situation with Turkey, predicted a leading scrap dealer in the Northeast. “It’s hard to quantify at this stage, but it’s safe to say the USA scrap market, with the lack of export activity into the Turkish market, has already set up a weaker September by at least $20/GT on obsolescent grades, those commonly bought by Turkey. Prime will fall by a lesser amount in sympathy. Shredded will not dry up with these decreases in price, at least not right away. For the balance of the year, it will be near-term weaker in the months of October and perhaps November, as scrap resumes its seasonal behavior approaching winter. So, December is the first chance of a supply-driven increase in pricing.”

Commenting on the pig iron markets, the dealer noted that the pig price has decreased by about $10/MT over the last month and will likely continue to adjust downward in the face of cheaper scrap prices in the U.S. “On the steel side, since Turkey will be sending less steel to the USA, the domestic mills should fill this gap. They will enjoy a larger spread provided by the lower scrap prices,” he added.