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Section 232

Why section 232 will provide only a temporary boost to US steel prices

<< North American Ferroalloys Conference

Amy Bennett, editor of North American Steel Market Tracker, argues against the notion that steel prices will post sustainable gains following the Section 232 investigation.

The most significant uncertainty overhanging the North American steel market at present is the Section 232 investigation and the potential outcome. We believe domestic steelmakers have confidence that the Section 232 investigation will result in some sort of additional trade protection, perhaps in the form of import quotas, for the US steel industry. The confidence is perhaps warranted given the expedited nature of the Commerce Department’s aim to complete its report on the Section 232 investigation by the end of June, enabling President Trump to take action as early as July if the report indicates that steel imports pose a threat to national security. However, we understand some domestic mills are offering reduced prices in anticipation of rulings that a high proportion of foreign steel tonnage will be found not to pose a security risk and hence be allowed free entry. It is critical to remember that the USA is a net steel importer, and requires about 20M tpy of steel imports, so we do not foresee a complete blockage of steel trade.

For now, due to the highly uncertain nature of the Section 232 investigation and possible outcomes, we have not altered our price forecasts to account for highly prohibitive and disruptive trade action. If the presidential administration in July opts to impose severely restrictive measures on steel imports, we would expect to see a temporary US steel pricing spike on the order of $50-100/ton during Q3 2017. We believe, however, that any pricing spike would prove temporary for a number of reasons. Additional trade measures would not address the underlying fundamental slowdown in steel demand, primarily from the automotive sector.

Domestic steelmakers would likely boost operating rates, helping to offset any potential downturn in imports. Most critically, foreign nations targeted by the trade action would respond in various ways, with trade barriers enacted against US exports of key goods as well as foreign steelmakers opting to send more steel-manufactured items to the USA in lieu of the targeted finished steel products.

Retaliatory actions by the USA’s trading partners would inevitably lead to reduced economic growth within the USA and reduced domestic steel demand as both export-oriented manufacturers, including yellow goods and green goods OEMs, and domestic manufacturers see demand for their finished goods decline. Increased domestic steel production together with declining steel demand would result in a downward pricing correction of a more severe nature than that presented in our base case pricing forecasts.

 

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*Forecast prices for Q1 2017 achieved an overall accuracy rate of 96% when compared against actual prices in that period.

This content is provided by AMM Events for informational purposes only, and it reflects the market and industry conditions and presenter’s opinions and affiliations available at the time of the presentation.