CRU: S232 Revision, A Win for Manufacturing in the USA

Impact of Changes to Section 232

Trade representatives from the USA and Europe came to an agreement at the end of October in regard to the Section 232 tariffs on steel and aluminum. The Department of Commerce further announced on Oct. 31 that consultations regarding the trade of steel remain ongoing between the USA and the UK as well as the USA and Japan.

This Insight will focus on the 25% tariffs on steel, which have been nullified for a limited amount of volume between Europe and the USA. We also have an Insight from the European point of view (on your Analysis stream, titled The USA and EU are moving on from S232, but will still manage trade) that covers some information on the potential for changes based on CO2-intensity.

It has been reported that the annual volume of steel that can be freely traded is 3.3 Mt, which is subject to quarterly limits. This volume is less than levels received in years prior to 2018 when the S232 tariffs went into effect, but near the level of imports received from non-UK European countries so far in 2021 H2.

This change may be more important for some products than others. In the sheet and now the plate market, U.S. domestic prices have risen to levels that are significantly higher than prices in the overall global as well as European markets. As such, imports (inclusive of the 25% tariff) from a variety of countries, including those in Europe, have started to arrive while bookings for future delivery have increased over the past two months. For these products, this change temporarily widens the price spread between these European markets and recent domestic U.S. prices as the 25% tariff is eliminated. Yet we continue to expect that U.S. prices will come back in line with global prices over the coming months, with or without this change. For other products such as wire rod, this change may now allow buyers to procure supply in volumes that better serve demand versus the recent levels that domestic producers were able to supply.

We do not expect to see a surge of imports due to this change. Yes, import arrivals have already started to rise from most countries that are able to export to the U.S., simply due to the exorbitant price levels in the USA versus other markets. This strong price level is due to the post-lockdown supply deficit, yet in multiple areas, steel inventories are now in balance with demand. Some products, such as sheet and plate, now have inventories that are at higher than desired levels while the amount of material still on order at mills remains high.

For sheet products in 2022-2023, we do expect that end demand will continue to rise. Gains here will be supported not only by the continued growth of industrial production but also by the inevitable rebound of automotive production. However, in a balanced market, we expect that the U.S. will be near neutral in terms of trade for sheet products, and as such we may no longer need any sheet imports that are susceptible to the S232 tariffs.

This change is primarily due to the 10.9 Mt of new sheet capacity installed in the USA and Mexico. The start and ramp up of this capacity will continue to bring new supply onto the North American market through 2022, while other new mills will come online in 2023 and 2024. In addition, current quotas for sheet products from Brazil, South Korea and now Europe – in combination of quota-free imports from Australia, Argentina, Canada and Mexico – are likely enough to nearly eliminate non-Section 232 tariffs. 

Overall, this agreement will allow steel-intensive consumers, such as manufacturers, an improved opportunity to procure the steel products required at a more competitive price than what has been seen in the past few years. As such, it may limit further offshoring of manufacturing. In fact, this pro-business negotiation may help to bring manufacturing back to the USA.

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