Brazil’s quarterly import quota for carbon semi-finished steel was 73% full as of Monday August 27, according to US Customs and Border Protection (CBP) quota status reports.
Brazil had exported 768,382 tonnes of carbon bloom, billet and slab into the US since July 1, according to weekly CBP quota data. Brazil’s quarterly carbon semi-finished quota is 1.05 million tonnes.
If the quota is filled before the fourth-quarter quota opens on October 1, it could cause problems for US rolling mills such as California Steel Industries (CSI) and AM/NS Calvert. Both import Brazilian slab as feedstock to make flat-rolled steel, although they also import slab from other countries.
"We are evaluating the implications of these developments but remain confident in our ability to meet customer demand," a spokesman from ArcelorMittal USA said in an email on August 30. CSI did not respond to a request for comment.
AM/NS Calvert, which has finished steel capacity of 4.9 million tonnes per year, requires about 4 million tpy to operate at full capacity, since the company sources up to 900,000 tpy of slab from affiliated mills operated by ArcelorMittal USA, AM/NS Calvert wrote in a letter to the US Commerce Department on June 18.
Brazil is subject to a US import quota of 3.51 million tonnes per year for all semi-finished steel, so Brazil alone cannot serve Calvert’s needs. Brazilian mills also sell slab to more than one US mill.
“AM/NS Calvert is concerned that the slab quota that applies to Brazil will be filled well before the end of 2018,” the company wrote in its letter to Commerce. The letter included a request for a Section 232 tariff exclusion for Mexican slab.
There is a “rush” among Brazilian slab exporters to sell into the United States because Brazil is the only slab supplier not subject to 25% Section 232 duties on steel imports, AM/NS Calvert noted in the letter.
Still, Brazilian export slab prices have dipped lately, reaching $535-580 per tonne in Metal Bulletin’s latest assessment. US buyers have been stocking up and might not buy much more in the coming months, market participants said.
Nonetheless, “… the absence of any Brazilian government quota administration is creating significant uncertainty as to whether AM/NS Calvert will be able to receive an adequate supply of Brazilian slabs to meet its production needs,” the company said in its letter, adding that Brazilian mills that hadn’t sold slab into the US are now doing so.
AM/NS Calvert requested a Section 232 exemption for 755,000 tonnes of Mexican carbon and alloy slab in June. Commerce’s Bureau of Industry and Security (BIS) has 90 days to review such requests.
US producers including U.S. Steel, Nucor and AK Steel have objected to AM/NS Calvert’s request, which could be a key factor in Commerce’s determination.
CSI requested an exemption for slab from Japan, among other countries, in May. CSI has rolling capacity of 3 million net tpy and uses only slab for its feedstock. U.S. Steel and Nucor have opposed that exemption request.
No decision has been made on CSI’s exemption request. The BIS is facing thousands of Section 232 exclusion requests, and delays are widely expected.
“Brazil is by far the largest source of semi-finished steel to the US, with 50% import share,” Jefferies LLC analyst Seth Rosenfeld wrote in a research note on August 30. If Brazil can’t ship slab to the US, this could “pose some difficulties,” as other exporters of semi-finished steel, such as Russia and Mexico, could “hardly fill in the void left by Brazil’s absence,” he noted.
Light at the end of the tunnel?
If CSI or AM/NS Calvert's contracts for slab supply were entered into prior to March 9, there’s a chance the mills could benefit from a recent change to Section 232 policy made by President Donald Trump.
According to a proclamation signed by Trump on August 29, steel bought before his initial announcement of Section 232 tariffs on March 8 can exceed country quotas in specific cases.
Mills still must file an exemption request to the BIS, and be awarded the exemption, over the objections of any domestic producers.
“Since the AM/NS Calvert facility began operating, they have been purchasing slab requirements from Brazil under long-term contracts, which we believe, based on trade press reports, continue for several years,” attorneys for U.S. Steel said in their objection to Calvert’s request, inadvertently indicating a way out for US re-rollers.
CSI and AM/NS Calvert did not comment on how the altered quota system could impact their operations.