SMA on Demand, Tariffs, Infrastructure and Coronavirus

Written by Sandy Williams

Demand is looking good for the steel industry this year, especially in the construction sector, said panel members on the Steel Manufacturers Association media call today.

Dave Sumoski, Nucor Executive Vice President – Merchant and Rebar Products, noted that construction is a major area for Nucor. The market for steel bar is very strong with backorders in fabrication out to the end of the year. Although a federal infrastructure bill is still under development, states have stepped up to the plate to find funding for infrastructure work. Automotive, down slightly from its record years, continues to be robust, he said.

Chuck Schmitt, president of SSAB Americas, added that along with nonresidential construction, infrastructure work is also driven by the energy sector. “Oil and gas as well as renewables, wind, and the transmission infrastructure continue to be solid performers for the steel industry right now.”

Phil Bell, president of SMA, noted that the manufacturing PMI has declined for six consecutive months, but it is near the 50 mark that indicates growth. The economy is generally robust and benefiting from low interest rates, tax reform and regulatory certainty, he said.

Sumoski pointed to some inventory adjustments in manufacturing, but said indications from backlogs and utilization rates show industry running at a high level. He also noted that, historically, manufacturing tends to take a small pause during election years until political issues are sorted.

An infrastructure bill rolled out by the House this week was met with cautious encouragement by the panelists, who agreed that it will take “statesmanship from both sides of the aisle to get it done.”  Sumoski noted that bipartisan support is less a problem than finding funding for the bill. Bell said the current Democrat plan has a more reasonable price tag than the trillion dollar figure floated last year.

The panel was asked what impact the coronavirus in China may have on the U.S. steel industry. Bell said “whenever less steel is coming in from China that is a good thing.” Domestic capacity is sufficient to meet all domestic requirements across all product lines. “I think the industry is poised to take up the slack if Chinese imports go down because of this,” he said.

SMA is pleased with the passage of the USMCA with its new provisions for origin, currency and labor. A key provision in the agreement is a stronger definition of what North American steel actually is, said Bell. “The melted and poured standard in this agreement is really important,” he said. SMA will continue to work with the administration to complete the implementation of USMCA, and to develop ways to monitor import surges and verify melt and pour requirements.

Imports and the impact of Section 232 garnered several questions during the press conference.

“What is going underreported is, although imports overall are down, the amount of imports actually covered by the 232 tariffs is actually way up,” said Bell. “I think this is something that is getting lost in the shuffle. When you look at the amount of imports from Canada, Mexico, Brazil, South Korea and Argentina that come into the U.S. tariff free, either because of a trade agreement or because they are subject to quotas, then you add on top of that rise the amount of steel imports that have been granted exclusions, there have been some estimates that over half of the steel imported in the United States isn’t even subject to the 232 tariffs. In fact, there was a snapshot done last June by a D.C.-based trade law firm where it was about 20-30 percent.“

Sumoski noted that it is important to be vigilant against import surges and felt confident that new response mechanisms will allow the U.S. to react more quickly. Schmitt said Section 232 is working but a focus on enforcement is necessary, especially to prevent circumvention.

The administration announced additional tariffs on steel and aluminum derivatives on Friday. These tariffs were promoted by the Wire Producers Association and others in response to significant surges in wire rod and automotive stamping products. Bell said SMA was pleased that the administration quickly provided specifics on what products were targeted. “Section 232 is in place for national security reasons and for economic growth reasons,” said Bell. “I think what the administration saw in these very limited cases were really big surges in wire rod products and automotive stamping products. So there is an objective basis for doing this. This isn’t just something that came out of thin air.”

He added, “Also by expanding it deeper into the supply chain, where it makes sense, other companies besides primary steel mills are able to benefit from the 232 tariffs.”

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