The imposition of a 25 percent US tariffs on steel imports has raised fears of a global trade war but steel producers outside North America believe they can weather the storm without too much disruption to their business or steel prices.
While the United States imported 36 million tons of steel in 2017, with Canada, Brazil and South Korea the leading suppliers, that was less than 8 percent of global steel market traded volumes of 473 million tons during the year, Reuters reports.
Also, while tariffs would price some imports out of the US market, analysts at consultants Wood Mackenzie estimate that at most 18 million tons would be diverted to other markets – or less than 4 percent of annual traded volumes.
“The volume is relatively small and won’t have a big impact on prices,” said Roberto Cola, vice president of the ASEAN Iron and Steel Council (AISC), which represents steelmakers in Southeast Asia.
“It’s not the commodity, it’s the act of unilaterally imposing tariffs. Nobody does that. Usually there’s a process, there are trade remedies. This is out of the ordinary. It so happened there’s a strong steel lobby in the US,” Cola said.
Chinese steel prices, which drive global prices, are still nearly 40 percent higher than when Trump first launched his “Section 232” investigation in April into whether steel and aluminum imports threatened US national security.
Capital Economics chief commodities economist Caroline Bain said global markets and US trading partners were on edge because they feared the new tariffs were the first of many to come, rather than over concerns about the metals sector.
The research house expects US steel to end 2018 at US$700 per ton, up from US$476 a ton before Trump was elected in October 2016, but believes Chinese prices won’t be hit because its steel exports to the US have collapsed.
Tariffs aimed at China
Despite the decline in Chinese steel exports in recent years, analysts say Trump’s tariffs are first and foremost aimed at China.
Its industrial expansion created massive overcapacity in the steel sector and surging exports, which forced some producers to export to markets such as the US, weighed on global steel prices, and hurt US steelmakers.
The US president has blamed subsidized or unfairly traded industrial goods from China for decimating US industries such as steel and coal and he ran for election on a ticket of restoring blue collar jobs.
Still, the US already has 29 duties in place against Chinese steel products. Last year, China’s steel exports to the US fell to just 1 percent of its total steel exports, according to Reuters calculations.
The China Iron and Steel Association, the powerful industry body in a country that produces half the world’s steel, said the tariffs would have little impact. China only exports 0.1 percent of its overall output to the US.
By contrast, steel markets in Europe, a key US ally, have more to lose.
According to European steel association EUROFER, 15 percent of Europe’s steel exports went to the US in 2017. The bloc also fears steel exported to the US from other countries could be redirected to Europe after tariffs come in.
Still, analysts say the risks are contained even for Europe as it could be protected from redirected steel thanks to so-called safeguarding measures Brussels is considering.
“The EU has talked publicly of enacting safeguard duties. Safeguards would replicate the protections in the US and lead to a protected EU market above and beyond what we’re looking at today,” said Jefferies analyst Seth Rosenfeld.
He said when former US President George W. Bush instituted tariffs on steel imports in 2002, EU safeguards fully mitigated the risk of redirected imports and supported gradual but robust growth in the EU steel industry.
A source at a Europe-based steel producer said while steelmakers might be able to withstand the tariffs, the industry was trying to deter Trump from taking any action that would harm it, hence the strong rhetoric.
Tata Steel Europe told Reuters: “We welcome the announcement of the European Commission that appropriate and swift measures will be taken to safeguard our industry.
“The EU must not allow the moderate recovery in our industry to be destroyed by the EU’s most important political ally.”
The Steel Exporters Association in Turkey, the sixth-biggest exporter to the US, said it did not expect a significant impact from the US tariffs.
Russia, the fifth-biggest, said it expected some damage from US duties, but said it would be hit less than the EU and China.
For Asian steelmakers, the tariffs “would be manageable because exports to the US account for relatively small portions of their total steel production”, ratings agency Moody’s said.
It said Korean steelmakers were most exposed, but big firms such as POSCO and Hyundai Steel would weather the storm because their exports were diversified, or because they relied strongly on their domestic market.
ArcelorMittal, the world’s biggest steelmaker, said while governments were right to take a tough approach to unfair trade, the only way to create a sustainable industry was for “steel-producing nations to work together to address global overcapacity”.
Faced with heavy domestic pollution and rising trade tensions, China has already cut 115 million tons of legal steel production capacity over the last two years, and another 140 million tons of illegal capacity.
The cuts have driven global steel prices 60 percent higher since late 2015, according to consultants MEPS.
The global steel sector is still straddled with excess capacity in China and beyond, however, and the US fears China could again export its cut-price excess steel if faced with a downturn at home.
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