The Trump administration’s surprise doubling of Section 232 duties on Turkish steel imports has gone into effect and could hammer US ferrous scrap prices as well as the steel trade landscape.
Steel imported from Turkey has been walloped with a 50% duty as of 12:01am Eastern time on Monday August 13, according to a presidential proclamation dated Friday August 10.
Turkey had previously been subject to Section 232 tariffs of 25%.
Turkey's steel market faces "unprecedented volatility" because of the collapsing lira and because its imports are effectively blocked from two of the world's biggest markets: the US as a result of Section 232 and Europe as a result of European Union safeguard measures, Jefferies analyst Seth Rosenfeld wrote in a research note dated Friday August 10.
Some traders had hoped President Donald Trump might delay the tariffs until at least September 1 to give vessels at port or on the water time to unload their cargoes.
Without any grace period, shipments might be diverted to Canada or Mexico or brought into US foreign-trade zones for re-export to other countries, one East Coast trader said.
Such diversions won't be necessary for importers who have a clause in their sales contracts stipulating that buyers pay all or part of the increased duties.Otherwise, diversion is a better option than paying unexpected US duties that could tally into the tens of millions of dollars, he said.
Ross: Turkish steel 'threat to national security'
Commerce Department Secretary Wilbur Ross said the increased duties were necessary to protect US national security.
“Since the imposition of the Section 232 tariff in March, exports to the United States have declined and domestic capacity utilization has increased, but not to levels sufficient to remove the threat to national security,” Ross said in statement dated August 10.
“Doubling the tariff on imports of steel from Turkey will further reduce these imports that the department found threaten to impair national security as defined in Section 232,” he said.
US crude steel production in the US totaled an estimated 1,855,000 net tons for the week ended August 11, up 1.5% from 1,828,000 tons the previous week.
US mills operated at an average capacity utilization rate of 79.1% during that period, according to figures from the American Iron and Steel Institute (AISI).
The Trump administration has said that one of the goals of the Section 232 order is to increase capacity utilization rates to 80%. But the AISI's overall figure does not reflect big differences among mills. Steel Dynamics Inc (SDI), for example, has boasted record profits and mill capacity utilization rates of 99%.
The price impact
The impact on the US steel and ferrous scrap market could be significant because Turkey is both the top foreign reinforcing bar supplier to the US and the top consumer of US ferrous scrap exports.
The US imported 34.5 million tonnes of steel in 2017, and nearly 2 million tonnes (5.6%) - or 166,666 tonnes per month - came from Turkey, according to Commerce Department figures. That made Turkey the US’ sixth-largest source of offshore steel last year.
That trend is more pronounced on the rebar side. The US imported 1,347,303 tonnes of rebar in 2017, and 791,586 tonnes - or 58.8% of that total - came from Turkey, per Commerce data.
That figure represents 8% of US rebar demand. And new Section 232 tariffs of 50% on Turkish rebar - on top of existing anti-dumping and countervailing duties - “will effectively cut off Turkish rebar supply to the US,” Rosenfeld wrote.
The immediate winners will be US rebar producers such as Commercial Metals Co (CMC), Nucor and SDI. But there is a catch: “Trump’s bull-in-china-shop approach to trade policy is [rightly] not viewed as sustainable by most investors, and we doubt the longevity of these tariffs,” Rosenfeld wrote.
On the scrap front, the US exports 20-25% of the scrap it generates. Turkey is the top destination for that material and in some years accounts for 30% of overall US scrap exports. But the plunging Turkish Lira - down about 70% this year - is making US-dollar denominated commodities, such as ferrous scrap, more expensive for Turkish mills, Rosenfeld wrote.
That trend has hurt demand and prices for exported US scrap. “Should US scrap prices weaken on the back of lower export demand, this may weigh on local [US] steel prices but not necessarily impair metal spreads for mini-mills,” he wrote.
Mini-mills use ferrous scrap as their primary feedstock. And electric-arc furnace producers such as Nucor, SDI, CMC and TimkenSteel might see input costs decrease in tandem with selling prices for finished steel products, Rosenfeld wrote.
Integrated mills make steel from iron ore. And integrated mills such as U.S. Steel and ArcelorMittal, by contrast, could see steel prices fall without a matching decline in raw material costs, he suggested.
The spread between finished steel selling prices and scrap was already wide when the increased duties on Turkey were announced.
From a global perspective, Turkey is unlikely to be the last target of increased duties. Other countries such as Vietnam and Egypt are probably “on the radar,” the East Coast trader said.
The bottom line: “It is more risky than ever to import steel products into this country,” he said.
Trump announced blanket Section 232 tariffs of 25% on March 1. Ross in February had recommended tariffs of at least 53% on 12 countries: Brazil, China, Costa Rica, Egypt, India, Malaysia, South Korea, Russia, South Africa, Thailand, Turkey and Vietnam.
Some traders have said they fear Trump will keep the 25% blanket tariffs on most nations and increase duties to 50% or more on the "dirty dozen" called out by Ross.