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NLMK denied 232 slab exclusions (update 2)

Apr 24, 2019 | 04:37 PM | New York | Dom Yanchunas

Tags  NLMK, NLMK USA, JSW Steel USA, Section 232, exemption, tariff, slab, Stelco Dom Yanchunas

The US Department of Commerce has denied almost all of steelmaker NLMK USA’s requests for exclusions from the provisions of Section 232 that would have allowed the importation of semi-finished steel slab without tariffs, according to federal documents.

The US Department of Commerce has denied almost all of steelmaker NLMK USA’s requests for exclusions from the provisions of Section 232 that would have allowed the importation of semi-finished steel slab without tariffs, according to federal documents.

Commerce also has rejected three of JSW Steel USA’s exclusion requests for imported slab. Most other JSW requests remain pending, in the surrebuttal stage, according to an April docket update on official website

The denials will have ripple effects through the steel supply chain, potentially cementing tight slab supply and encouraging some mill investments, discouraging others, and even influencing decisions related to the pending United States-Mexico-Canada trade agreement (USMCA).

Commerce's rejection of NLMK USA's exclusion requests jeopardizes the company's business model and future expansion plans, president and chief executive officer Robert Miller told Fastmarkets AMM on Wednesday April 24. It also unjustly treats Miller's 1,200 US workers as inferior to other more politically connected competitors' workers, he said. 

The denials are based on the premise that the supply of domestically produced slab is sufficient in the marketplace, and that is simply untrue, Miller said. 

"The decision is clearly the wrong decision," Miller said. "It certainly brings a lot more risk into the long-term viability of our business... I've got to believe it's a political decision, and it certainly picks and favors the not-so-efficient players in the industry."

KeyBanc Capital Markets analyst Philip Gibbs, in a research note published on Tuesday April 23 on domestic electric-arc furnace (EAF) steelmaker Nucor, wrote that Commerce rejected the NLMK and JSW exclusion requests “despite absence of US spot availability, opening the door for a Stelco restart after USMCA is concluded.”

Canadian steelmaker Stelco has been out of the market since 2011, but its coke ovens and cold-rolling works remain in operation. A participant in the Canadian steel industry disagreed that the Hamilton, Ontario-based mill is poised to swoop in and take advantage of a Section 232-related slab shortfall.

"Yes, Stelco wanted a US presence when they reopened," that source said Wednesday, "but they'd almost have to be guaranteed that [US President Donald] Trump would never put tariffs on Canadian steel again before they would ever restart that blast furnace. That's not in the (USMCA) agreement, and the 232 would have to go away. Stelco is not going to start that blast furnace on speculation."

Both NLMK USA, whose parent company is based in Russia, and JSW Steel USA, with an Indian owner, had argued that the slab exemptions would enable them to expand their operations in the US and create jobs for American steelworkers. NLMK said it had paid more than $160 million in Section 232 tariffs by March this year.

Gibbs concluded that the overseas-based companies “will continue to be disadvantaged versus US EAF mills.” In February, Commerce similarly denied slab-import exemption requests submitted by Evraz North America and California Steel Industries.

The department “hinted that favoritism toward US crude steel producers would prevail, following initial denials several weeks ago,” Gibbs wrote on Tuesday. “Some were hopeful that facts would eventually prevail. Facts have not.”

Gibbs said that slab re-rollers represent “10-15% of apparent sheet [steel] demand.”

Fastmarkets’ US Midwest hot-rolled coil index dipped to $32.71 per hundredweight ($654.20 per ton) on Wednesday, the lowest point since December 2017.

By Wednesday afternoon, Commerce’s docket showed that 74 exclusion requests from NLMK USA Pennsylvania for carbon and alloy semi-finished slab had been denied, while one remained in the surrebuttal period, meaning that objections were still being debated. Eleven exclusion requests from NLMK USA Indiana had been denied and one remained in the surrebuttal stage.

In filings to support its exclusion requests in 2018, NLMK referred to the “structural deficit of slab-making capacity” among domestic US producers.

“This deficit will persist even after the tariff, because integrated mills have no incentive to sell slabs to their competitors, and their rolling capacity would still be higher than their slab-making capacity,” the company wrote.

Three exclusion requests from JSW Steel USA were denied and six were in the surrebuttal period, according to the federal database on Wednesday.


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