Steel Markets

Trading Companies Concerned About Possible Section 232 Impact

Written by John Packard

May 11, 2017

Steel Market Update (SMU) spoke with many trading companies over the past few days about concerns their companies might have with the status of the industry and efforts to stop foreign steel from entering the country. “The trading companies are not the bad guy here,” is what one trading executive said to us late this afternoon. The U.S. economy has needed foreign steel in the past as the domestic steel mills cannot produce all of the steel that is needed when we have a full economy. There are items that the domestic mills do not want to produce (such as ultra-light gauge galvanized) or cannot yet produce in significant quantities to handle the needs of the U.S. manufacturers. Of course, one of the reasons foreign steel exists in the U.S. is due to price and, in some cases, it is used as leverage to keep domestic steel prices from spiking, thus making U.S. manufacturers non-competitive in what is a world economy.

A trader told us, “I think there is wave of change coming again for our industry and the ones who can move quickly will gain and the ones who have gotten too big and slow will have problems.  There is not enough qualified import material to feed the market in my view and a small movement by Trump or ?? will have much bigger impact down-stream.  All of my manufacturers don’t have enough inventory or material on order to handle another cut in import availability.”

Steel Market Update wrote an article about the risks associated with buying steel in Tuesday evening’s issue (May 9, 2017). For trading companies the risks have grown beyond comprehension with antidumping (AD) and countervailing duty (CVD) cases, Section 337 complaint against China, circumvention complaint against Vietnam/China and now the Section 232 review which was initiated by the President of the United States to determine if the steel industry is critical to national security. Trade lawyers are happy but the trading companies who are asking for guidance are not.

“The investigation under Section 232 will show that the recent AD/CVD cases have not had the expected impact on imports with the exception of HRC to some extent,” said one trader. “In April, imports of CRC and HDG will be the highest they have been since Q4 2014. For a number of countries, AD/CV duties in the range of 5% to 15% (and even higher in some cases) was not enough of a deterrent.” He continued with, “What the Administration will come up with is anyone’s guess…quotas, higher import duties, minimum prices (remember the old ” trigger mechanism “) etc…. But I think that the new members of the DOC have enough experience not to repeat the same mistake George W Bush made when he invoked Sect 201 against CRC imports back in 2000.  They know that the USA is, and will remain, a net steel importing country.  The target will probably be the countries which have increased their shipments of commodity type of products significantly over the past year and at low import prices.”

Other traders are not so sure. They continue to take and ship orders, in some cases in tonnages above 2015 levels when the dumping suits were filed. At the same time, we have heard from others in the trading community that some trading companies have stopped quoting. We spoke with one trader who handles steel from Turkey who explained to us earlier today, “We are not pushing our suppliers for pricing as we need to better understand the risks a little better.” We were told it was not just flat rolled products but wire rod, rebar and other steel products were being affected by the uncertainty associated with the Section 232 investigation.

Steel Market Update spoke with trade attorney Lewis Leibowitz about the questions we have been collecting from the traders and we will have some answers (or at least guidance) to those questions in Sunday evening’s issue of SMU. SMU will try to answer some of the lingering questions regarding the Section 232 review, what the report to the President has to convey, what the President can do with the report, and, if there were to be some form of restriction to foreign steel imports, when it can take effect. There is a lot here to digest and, as Lewis told me earlier today, there are many levels to this subject.

“I think that everyone knows that if US manufacturers have to pay a huge premium for their steel, versus world prices, then product substitution and finished goods imports will surge and damage our manufacturing base. It’s only logical,” reported one trader to SMU this week.

SMU will have a couple of panels dealing with the AD/CVD, Section 337, Section 232, circumvention complaints and the idea of “free and fair trade” at our 7th SMU Steel Summit Conference in Atlanta at the end of August (28-30). Details can be found on our website.

John Packard

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