Final Thoughts

Final Thoughts

Written by Tim Triplett

Mill executives have been front and center over the past couple weeks during their earnings calls and the annual gathering of AISI and SMA members in Washington. Below is a sampling of some of their more notable remarks:

gears• Just because the U.S. and EU managed to negotiate a quota to replace the controversial Section 232 tariff on European imports doesn’t mean S232 will disappear from the world stage any time soon. “It’s important to make sure this deal is properly implemented and enforced. We need to see how this deal plays out…before we just remove the 232 from other countries,” said Steel Manufacturers Association President Phil Bell.

• If those other countries have anything to say about it, the change will happen sooner rather than later. Japan reportedly has already requested a waiver from the current Section 232 regime in response to the tariff-rate quota (TRQ) negotiated with the EU (click here for related article in this issue).

• Industry leaders are not all completely sold on the new TRQ. Companies that were granted exclusions to S232 are grandfathered into the new agreement, which is a sticking point. Under the TRQ, steel imports from Europe will be duty-free up to an aggregate of 3.3 million tons per year, after which a 25% tariff will apply. “The additional 1.1 million tons that are grandfathered in for the next two years are troublesome,” said Bell, who noted that it’s unclear how exclusions will be handled going forward.

• “The devil is in the details” of how it will be enforced, cautioned Nucor President and CEO Leon Topalian. The new agreement’s “melted and poured” requirement is key to making sure nations like Russia and China can’t ship high-polluting steel into the EU and then on to the United States as a way to circumvent U.S. trade rules.

• Fears that the new trade deal could open the gates to a flood of low-priced imports are unfounded, said Steel Dynamics Chairman, President and CEO Mark Millett. The EU is a modest exporter, accounting for only about 15% of U.S. steel imports each year. “Relaxing it with Europe is not going to cause a surge of imports,” he said.

• Ongoing talks between the U.S. and EU will focus on ways to address climate change by reducing global production of “dirty steel.” The likely tool will be some form of carbon tax or carbon border adjustment mechanism. As the most environmentally advanced steel industry in the world, the United States stands to come out on top. “Governments have said they want to establish a measure that takes into account carbon intensity. The U.S. industry has the lowest carbon intensity of any major steel-producing country, so any mechanism that takes that into account will be positive for the U.S. industry,” said AISI President and CEO Kevin Dempsey.

• U.S. steelmakers are strong advocates for a carbon border tax that would kick in when steel moves from one country to another. “This is a complicated policy to put together; Europe has struggled with it,” said Millett at SDI. “We hope our government is smart and they do not invoke a carbon tax on the domestic industry. We are the cleanest in the world; why be punitive toward us?”

• Putting a cost on carbon emissions could finally get a response from China, which produces more than half the world’s steel, most of it with blast furnace technology that emits high levels of CO2. China’s carbon emissions per ton of steel produced are almost two and a half times higher than those of the U.S. “Anything that can be done to force the Chinese to pay to account for their higher level of carbon emissions will put pressure on them to take action. Will that alone be enough? I don’t know,” said Dempsey. The Chinese industry benefits not only from much weaker environmental standards but also from government ownership, subsidies and other unfair advantages. “We need to work on all fronts, but addressing carbon intensity is part of the solution.”

• Government subsidies are not just an issue with China. “Increasingly there is recognition that the steel industry must become more sustainable. The difference being that companies in the U.S. use their own money to produce green, low-carbon steel. Around the world, including the EU and Canada, you see that effort being subsidized,” noted Bell at SMA.

• In whatever form shakes out, it seems inevitable that a carbon tax system will raise the price of steel and steel-consuming goods. Topalian, for one, believes the market may finally be ready to pay for sustainability. “The landscape is changing. There is added value in new [lower-carbon steel products], and it is being recognized by industry. Certain industries [i.e., automotive] are now asking for the steel they will need to reach their net-zero goals,” he said.

View from the Top at U.S. Steel

U.S. Steel President David Burritt is as much salesman as CEO, so one should consider his comments with that qualifier in mind. But he made a good case during the mill’s earnings call last week that some forecasts for steel demand and prices in 2022 are overly pessimistic. He offered his own macro perspective on the factors driving the market as it heads into next year (following are his lightly edited comments):

• Fiscal policies in the U.S. and other countries are geared toward economic expansion.

• Supply chain disruptions are not uncommon during periods of growth. “What that means is the market will be stronger for longer,” as ports, trucking and rail work through the bottlenecks.

• There’s lot of cash sitting on the sidelines looking for a place to invest. “There’s a lot of pent-up emotion for getting on with things once the pandemic is clearly behind us.”

• Decarbonization of the steel industry is finally off the back burner. “A year ago hardly anybody was talking about climate change. Now it’s the lead discussion.”

• Automotive will see a big uplift when the semiconductor issue is resolved, though perhaps not until 2023. Meanwhile, the domestic steel industry is rapidly transitioning to the sustainable steels that automakers want.

• U.S. trade representatives understand how important steel is to the U.S. economy, he said, pointing to the recent trade talks with the EU. “They are doing an incredible job holding the line against the bad actors.”

In short, Burritt expects the economy – and the steel sector – to bounce back big from COVID in the next few years. “I’m not just bullish, I am over-the-top super-cycle on this,” he said.

SMU Events

As you look ahead to your calendar for the first half of 2022, be sure to pencil in these popular SMU events for yourself or your colleagues:

The next Steel 101: Introduction to Steel Making & Market Fundamentals Workshop will be held virtually on Jan. 11 & 12, 2022.

The next Introduction to Steel Hedging Workshop (formerly called Steel Hedging 101) will be held virtually on Feb. 1 & 2, 2022.

The Tampa Steel Conference will be held in person on Feb. 14-16. More info is available at

The next Advanced Steel Hedging Workshop (Strategies and Execution) will be held virtually on April 26-27, 2022.

As always, we appreciate your business.

Tim Triplett, SMU Executive Editor,

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