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Tardy 232 muddies decision, customer relations

Jul 20, 2017 | 03:51 PM | New York | Dom Yanchunas

Tags  Section 232, steel imports, Coalition for a Prosperous America, Majestic Steel, Commerce Department, Donald Trump, Michael Stumo, Dom Yanchunas

The multiple postponements in announcing a steel Section 232 action are allowing additional factors to complicate the decision, and the prolonged uncertainty threatens to strain customer relationships.

Each day that goes by with no confirmation of the Section 232 report and remedies, further geopolitical developments occur that can either place potential strategies in doubt or bring them into focus. 

The US Commerce Department originally had prepared to announce the results of its Section 232 investigation during the week of June 12. The unveiling was postponed by a delayed congressional briefing, then the Group of 20 (G20) economic talks, a G20 agreement to address steel overcapacity, a possible separate review by the Defense Department and now potentially a meeting involving officials from the United States and China during the week of July 24.

Since supposed target dates passed with no announcement, Chinese steel output was confirmed to have reached record highs, and a second round of US-China economic talks failed to achieve concessions. Those new facts potentially dishearten constituencies that argued against national-security-based trade curbs and embolden proponents of aggressive Section 232 quotas and/or tariffs. 

Michael Stumo, chief executive officer of the Coalition for a Prosperous America, said the recent Chinese recalcitrance should convince President Donald Trump's team that a wide-reaching remedy is necessary. 

"The refusal of the Chinese to make concessions ... may confirm to the administration that bilateral talks could be as unproductive as the multilateral trade negotiations they eschew," Stumo said in a statement on July 20. "The result increases the likelihood that President Trump chooses more effective 232 remedies in steel and aluminum among the array that will be presented to him by agency officials."

Steel prices in the United States have increased, as a tough Section 232 remedy seemed likely and imminent. Market participants said prices will spike further if a heavy-handed Section 232 outcome is confirmed or decline if nothing materializes

The postponements also raise the possibility that Trump's is using Section 232 threats as a bargaining chip not only on the question of how severe the remedy may be but also to influence other deals not directly related to the national security study. Therefore, even an eventual announcement may not bring clarity to what ultimately will happen to steel imports. 

"Trump is going to say a 25% tariff across the board for a negotiating position," one southern distributor said. "He's a businessman, and he's going to start somewhere, and he's not going to start low."

All the uncertainty has influenced at least one service center to initiate a dialogue with buyers, even if no one knows exactly what to say. In a letter to customers on July 20, sales staff at Majestic Steel USA attempted to address how they "plan on handling potential outcomes." They encouraged customers to get in touch with a sales representative to discuss the Section 232 investigation and recent mill price increases. The letter signaled that volatility is likely. 

"Given the severity of the matter, we want to communicate proactively with your company on the impact this can have on our respective businesses," Majestic's sales team wrote.

"As a reminder to spot-buying customers, spot prices are subject to change at any moment due to market conditions," the Cleveland-based company's letter said. 

At the National Association of Steel PIpe Distributors' summer conference in Philadelphia in June, Houston attorney Alexis Foster urged the distributors to add language—including a possible escape clause—to forward-looking contracts to protect themselves in the event that the Section 232 action causes severely higher prices. 


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