LONDON — The United States’ decision to impose Section 232 tariffs on steel imports is the “best worst-case scenario," European long steel exporters told Metal Bulletin this week.
The US imposed Section 232 tariffs of 25% on steel imports and 10% on aluminium imports from Canada, Mexico and the European Union with effect from 12:01 am on Friday June 1.
“We are happier with a 25% tariff than a quota - the uncertainty was much worse. At least, now there is safe grounding to sign contracts to export to the US market,” one southern European producer source said.
“US consumers will still need steel imports even if there is a 25% tariff - what this decision is doing is making already rich US steelmakers even richer,” he added.
Rebar exports from the EU into the US totaled 248,000 tonnes in 2017, according to official EU trade statistics.
A second EU long steel exporter praised the European Commission (EC) for not agreeing to a quota system.
“A quota system would have been a disaster - we would’ve preferred a lower tariff or a soft quota but this seems to be the best option available,” a source at a second European steelmaker said.
“We need to remember that the Section 232 investigation is on national security grounds and they are imposing tariffs on NATO security partners – it is completely unfounded,” he added.
Other market participants were less optimistic.
“Italian mills will have to look elsewhere as the US was a good market for exports in recent years - cargoes to Mediterranean destinations were about 4,000-5,000 tonnes, whereas they were double that to the US market,” one export trader said.
“European long steel export prices may have to drop if they want to move volumes - they need to follow where the demand will be,” he added.
In recent weeks, Italian and Spanish mills were heard offering material to the US at prices in the range of €515-555 ($601-648) per tonne fob, market participants told Metal Bulletin.
Metal Bulletin’s southern European export rebar pricing assessment reflects European rebar specifications. It therefore excludes material intended to go to the US, which has different specifications.
Metal Bulletin’s weekly assessment of the export price for southern European rebar was €475-490 per tonne fob main ports on May 30.
European long steel exporters have also suffered from the loss of demand from the Algerian market, traditionally a major export market, because the North African country is transitioning to long steel self-sufficiency.
“In the long term, there will be a redistribution of the EU market by European suppliers where the whole of the continent is considered a domestic market. This is half of the solution as European mills will need to find new export markets, too,” the second producer source said.
|EU exporters will have to drop prices: MBR analysis
At current market rates, import tariffs of 25% would price southern European rebar out of the US market. Let’s consider the lowest recent mill prices for rebar heard offered from southern Europe to the US before the tariff announcement at €515-520 per tonne fob.
When converting into dollars and adding the tariff rate of 25%, the southern European fob price comes to $753 per tonne, meaning that it would cost US customers a whopping $790 per tonne cfr North Eastern US ports after freight costs.
Compared with current US domestic rebar spot prices of $772-794 per tonne fob Midwest mill, European import offers would now be uncompetitive when you consider the time delay in receiving import material and costs associated with getting material out of the US port.
From the beginning of 2017 until the end of the first quarter of 2018, US buyers paid an average of 11% more for domestic rebar than for imported material into the port of Houston.
Even in the case of the market weakening by €20 per tonne for southern European rebar prices to the US from the most recent offers heard, this would only be within 2% of US domestic rebar prices, and it would make no sense for US buyers to book import material with this margin.
Now that the 25% tariffs are applied, Metal Bulletin Research believes that southern European producers will have to decrease their prices much more to stand any hope of doing business with the US - and eat well into their production margins.
Indeed, the only way European mills could continue charging anything close to their most recent offer prices is if a shortage of rebar emerges in the US, and/or US domestic prices skyrocket as seen in the US domestic flat steel market.
- Lee Allen, Metal Bulletin Research metals analyst
Possible return of Turkish price competitiveness
The decision to impose tariffs on European-origin steel imports could also lead to the return of Turkish-origin material into the US market.
“The tariffs mean Europeans will have to be competitive again with Turkish exporters in the US market - Turkish mills also have other anti-dumping duties on long products on top of this 25% tariff, which helps European mills a little,” the second producer source said.
“But if Turkey succeeds in exporting large volumes to the US, the US might even look more favorably on European exporters,” he added.
The US Commerce Department set rebar anti-dumping rates of 6.94% on Turkey in May 2017, with Habas, and fellow Turkish rebar exporter Icdas, receiving final rates of 5.39% and 8.17%, respectively.
In March 2018, The US imposed anti-dumping duties of 4.74-7.94% and countervailing duties of 3.81-3.86% on Turkish-origin wire rod imports, depending on the producer.
Metal Bulletin’s weekly price assessment for rebar exports out of Turkey was $535-540 per tonne fob on May 31, down from $540-550 per tonne fob on actual weight basis a week earlier, in line with sluggish demand and due to the ongoing effects of Section 232 tariffs.
Metal Bulletin’s assessment of wire rod exports out of Turkey was $560-570 per tonne fob on May 31, down from $570-580 per tonne on May 24.