Requests for exclusions to the President Donald Trump administration's Section 232 tariffs against imported steel are beginning to roll into the flat-rolled arena.
Many of the requests focus on specialty items, such as specialty cold-rolled or tinplate products, that consumers in the United States contend either are not available at all or in sufficient quantity and quality from domestic mills.
If the exemptions aren’t granted, they could hurt downstream industries as diverse as can producers and office furniture manufacturers, according to documents filed with the US government.
Canned veggies, meet national security
Case in point: Seneca Foods Corp, the largest vegetable canner in the US, is seeking an exemption for electrolytic-coated tinplate from China.
Seneca, which is headquartered in Janesville, Wisconsin, is also the last US-based food company still making its own cans. It employs more than 400 people at can production facilities in Baraboo, Wisconsin; Marion, New York; and Payette, Idaho.
The Trump administration has sought to block steel imports from China and other nations on national security grounds. Seneca turned that argument upside down.
“In a national security emergency, it could be critically important that Seneca is able to manufacture US canned-food products from cans made in the USA,” the company said in paperwork requesting an exemption posted online by the US government on Friday April 6.
Seneca wants an exemption because it agreed in 2017 to buy 11,000 tonnes of tinplate from Chinese steelmaker Shougang for delivery in 2018 and early 2019. Some of that material, including product already on the water, will be subject to Section 232 duties - 25% in the case of steel.
The company has reached out to its US suppliers for potential replacement tons but to little avail. “Our largest supplier has indicated that there is no more material available for 2018,” Seneca said. And availability in 2019 would require the mill, which Seneca did not name, to make new investments.
“It is unclear, at best, if US tinplate suppliers have the ability or the willingness to expand domestic tinplate production in the longer term, but clearly they cannot meet demand in the short term. Thus, US can makers must rely on foreign imports to support our needs,” the company said.
US demand for tinplate totaled about 2.1 million tons in 2016. Domestic production that year was only about 1.2 million tons - representing roughly 58% of demand, Seneca said, noting that it buys 100,000 tons of tinplate per year. In other words, the company alone accounts for 4.8% of domestic tinplate demand.
Seneca acknowledged that it either already does or could source tinplate in the US from ArcelorMittal, U.S. Steel Corp, USS-Posco Industries or Ohio Coating Co. The problem is that “US product quality is inferior and will not run as efficiently on our lines,” the company said.
US mills are also prone to late delivery, and one - which sources substrate from abroad - itself has limited availability because of the Section 232 tariffs, Seneca said.
Seneca noted that it sourced all of its tinplate from US producers until one of them expressed concern in 2013 about “the sustainability” of a major portion of domestic tinplate production. Seneca said it then realized that it had “no choice” but to diversify its supply base.
The company began importing from South Korea in 2014 and still does. “It became extremely clear that our ‘US only’ purchasing strategy likely had not been in our best interest,” Seneca said. From 2014-17, the company rejected 5.5% of material supplied by US mills because of quality issues. The rejection rate for imported material, in contrast, was 0.17%.
Back to the drawing board
Also requesting an exemption to the Section 232 is Steelcase, a US company and the world’s largest manufacturer of office furniture. It wants an exemption for specialized light-gauge cold-rolled flat-rolled steel with porcelain enameling. It currently sources cold-rolled from Japan’s JFE Steel to make classroom whiteboards.
“Despite several attempts over many years to qualify a domestic producer, we cannot procure this specialized steel domestically in any quantity,” Steelcase chief administrative officer and general counsel Lizbeth O’Shaughnessy wrote in a March 23 letter to Commerce Secretary Wilbur Ross that was posted online on April 9. Domestic steel from several US mills was rejected because of “poor flatness,” according to documents supporting the exemption request.
This isn’t Steelcase’s first time seeking exemptions. The company saw its supply chain thrown into doubt in 2016 when the US imposed 71.35% duties on Japanese cold-rolled product. The country received a waiver from those duties in March 2017, when the five companies that had filed the trade case - AK Steel, ArcelorMittal USA, Nucor, Steel Dynamics Inc and U.S. Steel - said they had “no interest” in making product to Steelcase’s specifications.
Steelcase exports whiteboard to Asia from its manufacturing plant in Okmulgee, Oklahoma. It won’t be able to do so without an exemption. Whiteboards might not be a national security issue, but if an exemption is not granted it will jeopardize the “economic viability” of Okmulgee and Steelcase's whiteboard plant there, O’Shaughnessy wrote.
What about my intellectual property?
Other companies want exemptions but fear the process for requesting one could jeopardize their intellectual property.
Material Sciences Corp, which makes high-end painted and coated products, for example, is seeking an exemption for light-gauge tin mill black plate and cold-rolled coil made by Taiwan’s Ton Yi Industrial Corp. It contends that US mills are unable to make product to its gauge and surface finish requirements for construction and automotive applications.
Material Sciences indicated that it had tried to source steel, without success, from ArcelorMittal’s US operations, according to an exemption request posted by the US government on April 6. The company said it has confidential communications that support its claims but cited intellectual property concerns for not providing more detail in public filings.
“If necessary, this information can be shared in a confidential manner that protects our [intellectual property],” the company said.
A mill source whose company supplies niche items to US consumers, said such concerns might be justified because of the detailed data - information on chemistry, strength and ductility, for example - that Commerce requires be disclosed as part of the exemption-request process.
That data is then posted online where anyone, including competing mills, might see it see. “Who is to say that [a US mill] won’t then get the recipe and make it themselves?” the mill source asked. “If we [via a customer] apply for [an exemption, then US mills] are going to know how we make [the product for which an exemption is being sought]."
The mill source's company might, therefore, cooperate with exemption requests for certain commodity items but could opt to charge US buyers 25% more for specialty products because intellectual property is worth more than gaining a waiver from duties that might prove temporary, this source said.
Rules for Section 232 exemption requests were released by the Commerce Department last month. The requests must be made by steel and aluminum users rather than by foreign mills.
Commerce started accepting exemption requests on March 29, and the exemption review process is expected to take approximately 90 days.