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Tariffs won't let S Korea bypass 232 quota ceiling

May 03, 2018 | 03:39 PM | Chicago | Michael Cowden

Tags  South Korea, Section 232, quotas, OCTG, standard pipe, steel, imports, EU Canada

The United States will block South Korean steel exceeding the country's Section 232 quota ceiling from entering the domestic supply chain, a US Customs and Border Protection document indicates.

Market participants had questioned whether steel that arrived in excess of quota limits might instead be subject to Section 232 tariffs - 25% in the case of steel - but that is not the case.

“Absolute quota merchandise may not be imported into the U.S for consumption after [the] quota limit is reached... Options after the quota limit is reach[ed], include warehouse, foreign trade zone, exportation or destruction,” the Customs document states.

President Donald Trump issued a presidential proclamation on Monday April 30 imposing an absolute quota on South Korean steel. The country had previously agreed to a quota mechanism to remain exempt from the Section 232 tariffs.

It was not immediately clear on May 3 whether other countries would also be subject to an absolute quota.

South Korea is already close to its quota threshold on certain pipe and tube products. Its quota limit for oil country tubular goods (OCTG), for example, is 460,868 tonnes. The country had shipped 333,496 tonnes of OCTG to the US through April, representing 72.4% of its quota limit for that product, according to figures updated on May 1 by the Commerce Department's Enforcement and Compliance division.

And South Korea was similarly close to its quota limit of 69,470 tonnes for standard pipe, with 46,863 tonnes (67.5%) of that arriving through the first four months of this year.

Who’s next?

Market participants are watching the South Korean situation closely in case it serves as a precedent for quota agreements with other countries or regions.
European mill sources, for example, have expressed concerns to American Metal Market that they could be over their quota limits by the time they learn what those limits might be.

“It almost makes no sense to sell if you are going to have to cancel orders in a month,” one mill source said. “If I get a specific order I will quote it, but I am not out there beating the bushes to get people to buy.”

The Commerce Department did not respond to American Metal Market's requests for comment on May 3 regarding whether other countries or regions would be subject to hard quotas, such as those agreed to by South Korea, or whether additional tons over their quotas might instead be subject to tariffs.

The Trump administration has extended exemptions for traditional US trading partners such as Canada, Mexico and the European Union until June 1. Peter Navarro, director of the White House Trade Council, has said that those countries exempted from tariffs will get hit with quotas instead.

Absolute quotas would be easier for mills in Canada and Mexico to contend with because steel from those countries - especially product arriving by truck - can be more easily diverted than material arriving overseas by ship. But no matter the origin, it will be harder to find alternative homes for niche items made for specific US customers than for commodity grade material, sources said.

Whether Canada and Mexico are subject to strict tariffs or quotas likely hinges on the outcome of North American Free Trade Agreement (Nafta) negotiations. But industry sources in the US and Canada have noted that some US mills - regardless of what happens with Nafta - want the Trump administration to take a hard line on Canada, perhaps by imposing absolute quotas on exports from that country's steelmakers. The logic is that Canada is the largest supplier of foreign steel to the domestic market and, if Section 232 is to have an impact, Canada - and not just smaller steel suppliers such as Argentina - must agree to quotas.

One North American mill source questioned the wisdom of that approach, given how integrated supply chains - especially those in the automotive sector - are in the region. But he said that views among certain US mills toward Canada are, nonetheless, hardening.

“The US mills think this is the opportunity of a lifetime. It is true, Trump has given them that opportunity - rightly or wrongly,” this mill source said.

A US mill source confirmed that his company wants the Trump administration to take a hard line against Canada, But he added that he was losing faith in Section 232, which he said had become too fraught with political considerations unrelated to steel, and was instead banking on traditional anti-dumping and countervailing duty cases - such as one filed against large-diameter line pipe from six nations, including Canada.

Canada shipped nearly 5.68 million tonnes of steel to the US in 2017. It was followed by Brazil, at 4.67 million tonnes; South Korea, at 3.4 million tonnes; and Mexico, at 3.16 million tonnes, according to Commerce data. In terms of shipments from the EU, Germany was the single-largest source from the region with deliveries of 1.38 million tonnes to the US last year.

Sources have reported prices for imported hot-rolled coil in a wide range of $820-935 per ton. The variation doesn't reflect market movements, but rather offers from some countries - such as Turkey, including 232 duties - while those from other regions - like the EU, which is exempt from the Section 232 tariffs until June 1 - do not include the duties.


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