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Mills fret as 232 delay clogs line-pipe decision

Jul 10, 2017 | 03:42 PM | Dom Yanchunas

Tags  Line pipe, steel pipe, Section 232, steel imports, Chuck Bradford, Donald Trump, Wilbur Ross, Dom Yanchunas

NEW YORK — While the US Commerce Department blows multiple target dates for announcing the results of its Section 232 review, a separate-but-related deadline looms on a plan to require fully domestic line pipe.

The lack of concrete action on the Section 232 investigation by President Donald Trump and his trade officials places those same protagonists in a tough spot as to how to fulfill the president's line-pipe promise. 

Trump, in a January presidential memorandum, gave Commerce 180 days to develop rules that would require fully melted, poured, rolled and coated steel in all US pipeline construction and rehab projects. The deadline for Commerce Secretary Wilbur Ross to submit that plan is July 23. 

Domestic mill sources familiar with the discussions said some Commerce officials were leaning toward relying on the broader Section 232 remedy to address the president's desire to guarantee demand for fully US-made steel line pipe. Accordingly, there would be no separate rules for line pipe. 

Ross initially wanted to announce the Section 232 results during the week of June 12, and then Commerce officials said the report would be released by June 30. After the Group of 20 meetings in Hamburg, Germany, concluded on July 8 with a pledge to address steel overcapacity, arguments remain unresolved among the White House, Commerce and the Defense Department as to whether to impose onerous quotas and/or tariffs on the United States' trading partners, many of whom are vital allies in non-trade contexts. 

"It's an ungodly mess, especially with anything to do with pipe," Chuck Bradford, steel market analyst and president of New York-based Bradford Research, told AMM.

Bradford said the administration wedged itself into a no-win situation if it still wants a hard-and-fast requirement that all line pipe be made of fully domestic steel. Certain sizes and grades are not readily available from US mills, Bradford said, specifically citing X80. Depending on market conditions at certain times, domestic mills may not want to invest in the higher-grade formulations. 

"The question is, do they want to supply it? Because it's not the easiest thing to make," Bradford said. To nurture the domestic capacity, "it takes time, and if you really want to build capacity now, you might have totally different consumption when it will come online. There are a lot of contingencies here. It's political. I don't know if 'workable' means anything."

Mills are no longer confident that Trump can achieve his promise of keeping foreign line pipe out of the US, according to one domestic mill source. Absent any certainty about the baseline Section 232 action, the mill source said the line-pipe announcement may need to be postponed until well after July 23.  

"It's pretty crazy right now," the mill source said. "You really paint yourself into a corner if you move on one product line but you leave the others still to be determined."

Since it was Trump who established the July 23 deadline, he may simply extend it, the mill source said. Another alternative is to use the line-pipe announcement as a trial balloon, applying the administration's preferred Section 232 strategy to line pipe only, and see what everybody's reaction is. 

A second mill source said the probable Section 232 remedy will be a combination of quotas and a new tariff that would be applied on top of existing duties. 

"It will probably be country-by-country (quotas), with tariffs on top of that, and you're going to see a lot of companies asking for exclusions because they can't get the product or they have long-term contracts," that mill source said. 

That mill source expects no further restrictions on imports of line pipe.

"I think it will be all rolled into one," that mills source said. "They think if you make the tariffs high enough, it will dissuade some importers and some customers. They will stick to the quotas and it would mean less line pipe flooding the market."

The second mill source said Trump's team apparently has abandoned an earlier idea of using a tax-credit approach to encourage pipeline companies to buy domestic steel. The tax credit either won't happen or won't be the centerpiece of the policy, the source said. 

A southern line-pipe distributor who handles domestic and imported goods said Trump is learning that after making campaign promises, "you eventually have to face reality." The distributor expects further compromises on the trade curbs but "whatever is decided, it has to create domestic jobs," per Trump's pledge. 

The first mill source and the southern distributor said the line-pipe rules must have the effect of thwarting imports from South Korea. 

"It does look like we're headed for quotas, which is not bad," the distributor said. "It will help domestic manufacturing, and it will also help other countries' imports who are not doing as well due to the onslaught of Korean material." 

The domestic pipe mills have stated their case, but Commerce and Congress also have been bombarded by complaints from the US-based import supply chain and from domestic manufacturers who either buy imported steel or compete against foreign finished goods that include the cheaper inputs, the first mill source noted. Another Trump constituency—the oil and gas industry—generally opposes the domestic line-pipe requirement

"Every day that goes by, more things get mentioned about, 'Well, if you do this, then what about that?' We're really in precarious times," the first mill source said. "There's all these people saying this is no way to facilitate your economy, but a lot of the mills need help. ... I think we're looking at year end before anything happens."

Dom Yanchunas

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