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The week that was: Markets caught in 232 fog

Jul 17, 2017 | 08:05 AM | New York | Fastmarkets AMM staff

Tags  Section 232, Donald Trump, Wilbur Ross, HRC, hot-rolled coil, wire rod, steel

Metal markets were generally in an uncomfortable holding period last week as many participants preferred the safety of the sidelines ahead of the findings from the US Commerce Department's Section 232 probe.

A key report in Commerce's Section 232 investigation into steel imports is in the final stages of review, a department spokesman said.

Commerce has said it is considering quotas, tariffs or a combination of the two to stem imports, should the administration decide they pose a threat to national security.

Commerce Secretary Wilbur Ross said in May that the department would complete its report by the end of June. That deadline was subsequently pushed back until after the Group of 20 summit earlier this month in Germany.

Nevertheless, President Donald Trump did say he would attempt to end steel dumping in the United States, possibly via both quotas and tariffs on imports, according to a transcript released by the White House on July 13.

Steel is a big problem. Steel is—I mean, they’re dumping steel. Not only China, but others. We’re like a dumping ground, OK? They’re dumping steel and destroying our steel industry, they’ve been doing it for decades, and I’m stopping it. It’ll stop,” he told reporters aboard Air Force One, according to the transcript.

When asked about tariffs, the president said: “There are two ways: quotas and tariffs. Maybe I'll do both.”

Meanwhile, a number of influential US economists warned against imposing steel tariffs via a Section 232 finding, according to a July 12 letter sent to Trump.

The letter was penned by all the living former chairs of the President’s Council of Economic Advisers, including prominent economists and former senior officials such as Alan Greenspan and Ben Bernanke, plus economic professors Martin Feldstein and Joseph Stiglitz.

“The diplomatic costs might be worth it if the tariffs generated economic benefits. But they would not. Additional steel tariffs would actually damage the US economy. Tariffs would raise costs for manufacturers, reduce employment in manufacturing and increase prices for consumers,” the letter said.

In a similar vein, international rebar exporters association Irepas said the threat of new trade measures in the US and a counter-reaction by the European Union are weighing on all market participants. 

"If the USA is to implement new trade measures (as a result of the 232 investigations), the shockwave in the market will be massive and unpredictable," the association said in its short-range outlook on July 7.

"The big philosophical question at the moment is whether the USA (will) become ‘an island unto itself’ or (if) the reality of globalization pressures will reset the markets," Irepas said.

Markets nervous; uncertainty breeds defensive behavior

US flat steel prices increased for the second week in a row, as lead times stretched closer to the busier fall months and speculation continued that a Section 232 remedy could limit supplies.

AMM’s price for hot-rolled coil is $31 per hundredweight ($620 per ton), up 1.6% from $30.50 per cwt ($610 per ton). Lead times average four to seven weeks, with mini-mills at the lower end of that range and integrated mills at the higher end.

The gains came as market participants said mills had become increasingly firm in insisting on base prices of $31 to $32 per cwt ($620 to $640 per ton) for hot band orders. Some producers were also making offers subject to change at the end of the day, buyer sources said.

“They are trying to cover themselves, because no one really knows what’s going to happen with the 232,” one Midwest service center source said.

Several sources were fed up with the fog of controversy hanging over the White House and the administration’s seeming inability to move forward with a policy that—unlike health care or tax reform—doesn’t entail wrangling Congress into an agreement.

“This should have been a slam dunk for them,” one West Coast steel buyer said. “And the mills are as frustrated as we are, because we’re all expecting something to happen, and it hasn’t.”

In other markets, structural tubing prices declined, as the normal summer buying slowdown kicked in and distributors sensed no pressing need to stock up to protect themselves from Section 232-related price increases.

AMM's assessment of domestic A500 structural tubing fell to a range of $860 to $885 per ton ($43 to $44.25 per cwt), from a range of $870 to $910 per ton ($43.50 to $45.50 per cwt) on July 7.

"We've been thinking the 232 is coming 'next week' for the past three or four weeks, and now it's not," an East Coast distributor said. "You thought prices were going up, but now people are holding off at this point. As a buyer, with it being delayed, you don't know what they're going to do, and now you're only going to buy what you need.

The fog around the timeline of the Section 232 probe has already had the impact of reducing orders from US buyers for foreign steel, one trader source told AMM. “That’s one thing the market doesn’t need is this uncertainty. That’s worse than anything else,” he said.

Few orders are coming in for material expected to arrive at US ports in September and October, the trader source said. He predicted that imports would begin to tail off in earnest in August after hitting a 29-month high last month.

“We have stopped altogether due to 232. Irrespective of what happens in the (anti-dumping/countervailing-duty) case, 232 is a bigger issue," a wire rod trader said, referring to an ongoing US trade case against 10 nations. "We don’t want to take useless chances.”
The trader said his company could return to the wire rod markets once the Section 232 probe is resolved. Alternative suppliers such as Qatar and Egypt are fringe providers, unable to offer big volumes at cheap prices, he said.

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