Market participants in the United States expressed mixed views on the recent reduction in the Section 232 quota on imports of semi-finished steel product from Brazil for the fourth quarter.
Domestic steel associations cheered the steel import trade adjustments with Brazil.
“It is good to see Brazil and the United States have successful talks surrounding a complicated trade issue. This move makes sense and is reasonable in light of weaker steel demand and lower capacity utilization caused by the Covid-19 pandemic,” Steel Manufacturers Association president Philip K Bell told Fastmarkets.
“The fact that the quota will be reviewed again in December shows a commitment to establishing a meaningful steel trade relationship between the two countries. Negotiators from both sides should be commended for engaging in such a constructive dialogue,” he added.
Interim American Iron and Steel Institute president and chief executive officer Kevin Dempsey similarly praised the efforts of the administration to "address steel import issues affecting American producers during this difficult time," when the market for steel has fallen significantly due to the Covid-19 pandemic.
“While we are seeing some modest recent improvement in market conditions, the industry continues to face significant challenges due to the sharp drop in demand this year as a result of the pandemic," he said in a statement issued on Monday August 31.
US steel mill product imports soared month on month in July due to a massive influx of bloom, billet and slab material from Brazil - some 1,039,295 tonnes of the semi-finished steel goods arrived from that country in July, up from just 354.2 tonnes in June and 136.3 tonnes in May.
“So far in 2020, raw steel production is down 20% compared to the same period last year and steelmaking capacity utilization has only averaged approximately 66% this year so far compared to nearly 81% during the same period last year,” Dempsey added. “These difficult conditions make the industry even more vulnerable to surges in imports.”
The US reduced the quota for Brazilian semi-finished steel to 60,000 tonnes for the fourth quarter from 350,000 tonnes previously.
Other market participants, meanwhile, expressed concern about domestic steel companies that rely on Brazilian slab for their business.
“That is horrible news for California Steel Industries (CSI) since Brazil is their main supplier of slabs,” one steel distributor source said. “They will probably have to allocate material in the fourth quarter because of the slab shortage.”
CSI did not respond to Fastmarkets' request for comment as of September 1. Steel producers and re-rollers ArcelorMittal and JSW Steel also could not be reached, and NLMK declined to comment.
“Reducing the quota for Brazil slabs is a job-killing move for the re-rollers, but indicates to me the integrated mills are playing the usual politics in [Washington],” a steel trader source said.
“In an election year, Donald Trump will need to build as much support as he can with his voter base, particularly in the Midwest,” Samir Kapadia, principal and chief operating officer of Washington-based lobbying and government relations firm Vogel Group, told Fastmarkets.
“This tit-for-tat was meant to do two things: To look out for those that got [Trump] elected in 2016; and to show the world he can still unilaterally impose any trade terms he wants with countries that don't have equitable policies with the United States," he added.
The steel distributor indicated that the office of the US Trade Representative will protect the domestic industry as long as Trump is in office.
"They are strong advocates of the domestic industry, as they should be... I don’t think that by itself those slabs can affect domestic pricing, but they certainly can take CSI out of a rising market with no slabs to produce a higher-priced product,” the distributor source said.
Fastmarkets’ weekly price assessment for steel slab, export, fob main port Brazil was at $430-440 per tonne on August 28, up by $10 from $420-430 per tonne a week earlier.
“With demand in the US and globally still well below pre-Covid-19 levels, we continue to believe supply will be sufficient to fill any gaps from Brazil's limitations,” Cowen analyst Tyler Kenyon wrote in a research note on Sunday.
Some market participants indicated that the revised quota wouldn’t change the market much.
“There isn’t a lot of import coming in, so I think [the revised quota] will just have a small psychological impact on pricing - if it has any effect at all,“ a second steel distributor source said. “The imports, even if their impact on the market is minimal, their presence helps keep prices low and stable.”
For now, the US' annual import quota for Brazilian semi-finished steel is unchanged at 3.5 million tonnes for 2021. Quarterly volumes are not allowed to surpass 30% of the annual limit, and the quarterly limit is usually exhausted on the first day of each quarter.
Grace Asenov in New York contributed to this report.