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Quotas better to control import volumes: SDI

Oct 18, 2018 | 03:38 PM | New York | Yvonne Li

Tags  SDI, Steel Dynamics, Section 232, quotas, tariffs, steel, flat rolled, long products HRC

The use of quotas is a better way to control the volume of steel imports into the US amid global overcapacity, and would allow steel mills to support the manufacturing base, according to SDI executives.

“[In the] long term, quota is probably the preference from our perspective because it allows us to support the manufacturing base,” SDI president and chief executive officer Mark Millett said during the mill’s third-quarter earnings call with analysts on Thursday October 18.

He was responding to questions about a potential replacement for the country’s Section 232 tariffs, through quotas on Canadian and Mexican steel imports into the US.

“The Section 232 tariff is a good stopgap,” he added. “One has to recognize that we are going to continue to have global overcapacity for some time to come… Quotas tend to be the better way to control [imports].”

The US might agree to relax Section 232 tariffs on steel from Canada and Mexico by the end of November, the president and chief executive officer of the American Iron & Steel Institute (AISI), Thomas Gibson, told Fastmarkets AMM in an exclusive interview on October 16.

Section 232 tariffs - 25% in the case of steel - against Canada and Mexico could be replaced by another mechanism to limit imports, such as quotas, after the US-Mexico-Canada Agreement (USMCA) was agreed on September 30.

Millett expected steel imports into the US to diminish in the coming months now that the import arbitrage window - the spread between steel prices in the US versus steel prices abroad - has started to close after domestic US prices of steel products showed declines in the past few months.

Fastmarkets AMM’s hot-rolled coil index was assessed at $40.76 per hundredweight ($815.20 per ton) on October 11. This was down by 1.3% from $41.28 per cwt the previous week but up by 24.9% from $32.63 per cwt at the start of this year.

The price hit a 10-year high at $45.84 per cwt in July, but has largely trended downward over the past three months.

Higher steel prices in the US had made steel imports from other markets more attractive, even though most of those imports were subject to a 25% Section 232 tariff. This, coupled with a lot of steel capacity expansion at US mills, has made market participants and analysts wonder whether a supply glut in the steel sector in the US will put pressure on the country’s domestic prices in the medium term.

“The market remains incredibly strong in every sector and, going into 2019, demand will increase incrementally. If imports return to a regular and normal rate, there is plenty of demand to absorb [expansions in] supply,” Millett said during the earnings call.

Greenfield capacity expansion that has been announced will probably take several years to come to the market, and this will help to keep the current market equation intact, SDI chief financial officer Theresa Wagler added.

SDI reported record third-quarter earnings late on October 17, with the increase in net income driven mostly by steady demand from major steel-consuming sectors, including construction, automotive and energy. This was despite “some temporary hesitancy in flat-roll [steel] order activity based on customer sentiment and increased hot-rolled coil import levels.”

“The hiatus has reversed itself in the past couple of weeks,” Millett said during the earnings call, referring to the "hesitancy in the company's flat-rolled steel order activity in the third quarter. “We are seeing on the flat-rolled side… very strong order intake. On the long product side, the order rate [is] at a strong pace.”


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