The United States' Section 232 tariffs have benefited certain steel producers but mostly negatively impacted others due to disruption to the global supply chain ecosystem, an NLMK USA executive said.
The Commerce Department’s denial of the company's requests to exclude its imports of semi-finished steel slab from the provisions of the Section 232 tariffs has increased its raw material costs, NLMK USA president and chief executive officer Bob Miller told Fastmarkets in an interview. This, in turn, has led to decreased order books at NLMK USA's mills since they have to be “really selective” about which orders they take from customers.
“We have no choice but to start laying off employees because we are not working as much as we were before,” he added. “And I believe that’s a direct result of the [Section 232] tariffs.”
The flat-rolled steel producer, a subsidiary of Russia’s Novolipetsk Steel that relies heavily on imported slab from Russia, filed its exclusion requests in March 2018.
NLMK USA’s Pennsylvania plant operates a conversion mill, turning slabs into hot-rolled coil and cold-rolled coil, according to the company’s website.
Slab converters account for about a 15% market share of US steel output but slab suppliers are very limited in the domestic market, Miller told Fastmarkets.
Between 80 and 100 employees were laid off at the facility, located in Farrell, local news outlet the Herald quoted United Steelworkers union Local 1016-03 president as saying.
Additionally, the Section 232 tariffs - which were announced in March of last year - have had very little benefit to the domestic steel industry other than a “short-term run-up” in steel prices in 2018, Miller said.
“The fact that today’s price is lower than it was before the tariffs took [effect] tells you that the tariffs are having only a negative impact on the domestic market,” he said.
Fastmarkets' daily steel hot-rolled coil index, fob mill US, was calculated at $27.19 per hundredweight ($543.80 per short ton) on Monday July 8, up by 2.3% from $26.58 per cwt previously - partly due to a recent price increase push by domestic mills on flat-rolled steel products. But the HRC price is still down by 40.7% from the $45.84-per-cwt peak reached in early July, after the Section 232 tariffs took effect.
“So why are prices going down today?” Miller asked, citing “really good” gross domestic product (GDP) figures and steel demand. To answer that, he attributed it to abundant supply in the domestic market that is sourced from only certain steel companies - excluding NLMK USA.
While some domestic steel mills - including Nucor, U.S. Steel Corp and Big River Steel - have announced or undertaken sheet production expansions since last year, NLMK USA's $600-million investment in its US operations is said to have been hampered by the slab import denials.
NLMK USA is currently buying some slab from Brazil, Miller said, because US slab suppliers can't provide enough material to support the company’s businesses.
Brazil currently is subject to US quotas rather than tariffs, which means it can export up to 3.5 million tonnes of semi-finished steel products to the US each year without incurring the 25% Section 232 tariff on steel product imports. But US buyers have previously expressed fears that the country will soon reach its slab quota limit.
Imports of blooms, billets and slabs were licensed at 787,937 tonnes in June, according to data collected through July 3 by Commerce's Enforcement and Compliance Division, up by 41.5% from the same month last year. Brazil, Mexico and Russia were the top suppliers of these products.
Going forward, Miller said that part of NLMK USA’s strategy is to actively look for more foreign suppliers for raw materials. Both Mexico and Canada, which are exempt from Section 232 tariffs on all imported steel and aluminium products, are potential partners, he added.
It will still take some time for both NLMK USA and the global steel supply chain to adjust to the new environment created by the implementation of the Section 232 tariffs, Miller said.
But with some potential rebound in steel prices looming after domestic mills announced flat-rolled steel price increases of a minimum of $40 per ton in late June, he hopes the company will benefit from this in the second half of the year.
“We could allow that correction to take place and we could go out and be a little bit more aggressive in the marketplace to get more orders,” Miller said. “That’s our hope in the second half of the year.”
On Tuesday, Nucor kicked off a second round of base price increases, raising carbon flat-rolled steel by the same amount.