The United States' resumption of Section 232 tariffs on steel imports from Brazil and Argentina could squeeze domestic supplies of slab, among other products, and push US flat-rolled steel prices higher, analysts and market participants said.
The move could also create headaches for US slab re-rollers, many of which have come to rely on tariff-free slab from Brazil, they said.
The US imported nearly 5.1 million tonnes of semi-finished goods - a product category that includes slab - in the first nine months of 2019. Some 2.99 million tonnes, or 58.7% of that total, came from Brazil, according to US Census Bureau data.
“We expect the tariffs to be inflationary to US [hot-rolled coil] prices in the near term, given the US dependence on imported Brazilian carbon steel slabs as sheet substrate,” KeyBanc Capital Markets analyst Philip Gibbs wrote in a research report dated Monday December 2.
Market participants contacted by Fastmarkets agreed with that assessment.
Christmas comes early to steel
“It appears that [President Donald Trump's] administration has just handed the domestic steel mills an early Christmas gift,” one steel consumer said.
A Midwest service center source agreed. “What I’m hearing from... mills is, ‘Hey, this is going to go up,'” he said. “We’re hearing [the HRC price] could go up to $600 [per short ton] pretty quickly.”
Fastmarkets’ steel hot-rolled coil index, fob mill US was calculated at $27.70 per hundredweight ($554 per ton) on November 27, ahead of the Thanksgiving holiday weekend.
And the CME Group’s HRC futures contract was trending up in afternoon trading on Monday. The December contract was trading at $555 per ton, up by $5 from Friday's settlement at $550 per ton; and the January contract was trading at $599 per ton, up $9 from $590 per ton in the same comparison.
The US oil country tubular goods (OCTG) sector could also be impacted, given that Latin American steelmaker Tenaris supplies a significant portion of the domestic market from its mills in Argentina, Gibbs wrote.
The US imported 1.78 million tonnes of OCTG from January through September, of which 110,071 tonnes (6.2%) came from Argentina, Census data show.
“We are waiting for more information from the US administration on the president’s announcement,” a Tenaris spokesperson told Fastmarkets on Monday.
Trump tweeted about the re-introduction of steel tariffs against Brazil and Argentina at 2:59 am Eastern Standard Time on Monday.
Brazil bears the brunt
Brazil's exports to the US accounted for 12% of the its steel supply over the past year, with slab exports comprising 88%, UBS analyst Andreas Bokkenheuser wrote in a research note on Monday.
That means Brazilian steelmakers that export slab to the US have the most to lose due to the re-introduction of Section 232 tariffs while US mills stand to gain the most.
“If the slab export trade to the US slows or stops, we expect increased Brazilian supply to weigh on domestic prices and thus steel producers' stocks,” Bokkenheuser wrote.
U.S. mills, in contrast, have a greater chance of collecting a third round of sheet price increases due to the shift in US trade policy, he wrote.
One drawback, however, is that it is unclear how long the tariffs will remain in effect.
Market participants contacted by Fastmarkets generally assumed that they would revert back to 25%, the amount that was in place in 2018 before Brazil and Argentina agreed to quotas.
But Fastmarkets could not confirm that on Monday afternoon.
A Commerce spokesperson declined to answer questions about when the tariffs would take effect or whether they would be 25%, instead referring to a rough transcript of comments that Trump made to reporters earlier on Monday.
“Well, Brazil was really discounted - if you take a look at what's happened with their currency, [they've] devalued their currency by 10%. Argentina also,” Trump said. “And I gave them a big break on tariffs. But now I'm taking the break off because it's very unfair to our manufacturers and very unfair to our farmers. Our steel companies will be very happy and our farmers will be very happy with what I do.”
Analysts also said the timeline and long-term impact of the tariffs remains unclear.
“The duration of reinstated tariffs on both countries and implications to other ongoing trade arbitration/renegotiation are two key unknowns which could alter the broader landscape for finished steel demand and trade,” Cowen analyst Tyler Kenyon wrote in a research note on Monday.
The US, for example, is also engaged in high-stakes and wide-ranging trade talks with China. And some sources contacted by Fastmarkets said the tariffs - despite Trump’s citing of currency valuations - were aimed more at pressuring Brazil and Argentina to limit agricultural exports to China than at limiting steel shipments to the US.
And the tariffs, if they remain in place for an extended period, might have the unintended consequence of making US steel significantly more expensive than steel made elsewhere.
“This could invite more finished sheet and plate imports back into the US, assuming there is no corresponding adjustment to tariff rates for other global sources,” Kenyon wrote.
Re-rollers play it safe
Those US steel suppliers potentially most impacted by re-introduction of the tariffs - namely slab re-rollers - were non-committal about what the change might mean for them.
“Evraz North America has imported slabs from Brazil. We are aware of the president’s social media statement [on Monday] morning and will be following the situation closely to evaluate any changes in trade policy with Brazil,” a company spokesperson said on Monday.
Evraz NA, a subsidiary London-based Evraz Plc, makes steel plate, long products and tubular products at mills in the US and Canada.
JSW Steel (USA) expects to continue with its US strategy, a company spokesperson told Fastmarkets on Monday. That means its investment in an electric-arc furnace (EAF) at its plate and pipe mill in Baytown, Texas, remains “on hold.”
The spokesperson did not confirm or deny the possibility of the company adding a second EAF to its mill in Mingo Junction, Ohio.
“There have been no changes in the company’s plans,” the spokesperson said. “It’s premature to address any formalized process for installing a new electric-arc furnace. But the company has every intention to continue to grow their Mingo Junction facility.”
JSW Steel (USA), a subsidiary of India’s JSW Group, had previously applied for an exemption to Section 232 but that request was denied. The company has since fed its plate and pipe mill in Baytown, Texas, with slab made at its sheet mill in Ohio.
Domestic slab converter NLMK USA, a subsidiary or Russia’s NLMK Group, declined to discuss the matter while AM/NS Calvert, a joint venture between ArcelorMittal and Japan’s Nippon Steel Corp; and California Steel Industries Inc (CSI), a joint venture between Brazilian miner Vale and Japanese steelmaker JFE Steel Corp, did not respond to requests for comment on Monday.
Latin American steelmaker Ternium, which operates a coating facility in Louisiana, declined to comment. The company instead referred to a statement from the Brazil Steel Institute.
The institute said it was “perplexed” by Trump’s announcement.
“Brazilian foreign exchange is [under] a free-float system, with no government action to artificially devaluate the Real, and this decision to impose tariffs on Brazilian steel as ‘compensation’ for US farmers is a retaliation against Brazil,” the group said. “This decision harms the US industry themselves, who need Brazil’s semi-finished goods.”
Brazilian president Jair Messias Bolsonaro - a Trump ally - told a radio network that he didn’t see the move as a retaliation.
“The world is all connected, and the US-China trade conflict, as well as events in Chile, Argentina and Uruguay, impact the dollar [value in comparison with the Brazilian Real],” Bolsonaro was quoted as saying by state news agency Agência Brasil. “I’ll talk to [Minister of Economy,] Paulo Guedes, and, if needed, I’ll call Trump.”
Renato Rostás in São Paulo contributed to this report.