US steel plate prices up; Section 232 tariffs may choke supply

Steel plate prices in the United States are up for the second week in a row on a potential supply squeeze stemming from Section 232 tariffs on the European Union, Canada and Mexico.

American Metal Market’s price assessment for cut-to-length plate stands at $47 per hundredweight ($940 per ton), up 1.1% from $46.50 per cwt previously and up 1.6% from $46.25 per cwt in mid-May.

Lead times are into August in part because a domestic mill won a big line pipe contract - the kind of business that before Section 232 might have gone to a foreign producer, some market participants said.

Section 232 bounce
Plate prices dipped after the Trump administration extended Section 232 exemptions for Canada, Mexico and the EU. They rebounded after President Donald Trump ended the exemption on June 1 and slapped 25% tariffs on the US’ traditional allies and trading partners.

They are now where they were in late April, before a May 1 extension that some market participants interpreted as a sign that Section 232 would be watered down to the point of having little additional effect on prices. And prices are poised to move higher still, sources said.

“Canada is the largest exporter of steel into the US... Naturally we are seeing a slight pick-up in pricing,” said one mill source, who also noted that there would probably be less competition from Mexican mills.

South Korea, the top supplier of imported cut-to-length plate to the US market last year, has agreed to a quota. The Asian nation accounted for 29.7% (204,099 tonnes) of the plate imported to the US last year, according to US Commerce Department figures.

Canada was the second-largest supplier of cut-to-length plate to the US last year. The US' northern neighbor shipped 164,515 tonnes of plate to domestic customers in 2017, accounting for nearly 24% of total US plate imports. Mexico was fifth with 93,781 tonnes, accounting for 13.7% of 2017 plate imports.

The tariff tango
One North American plate mill is asking customers to pay all or part of the tariffs imposed on its products. While some US customers have agreed to that, the majority have not, industry sources said.

Canada and Mexico had been pricing plate to US customers on par with or at a modest discount to US prices. That means Canadian plate went from being a good deal for US buyers to the most expensive material on the market.

Plate at $47 per cwt would cost $58.75 per cwt once 25% Section 232 tariffs are tacked on. Plate prices have not been at such lofty levels in the US since they were at $60 per cwt in late 2008, according to American Metal Market pricing archives.

“[Foreign plate mills] are asking whether you are willing to pay 25%. Who can say yes to that?” one Midwest service center source said. He predicted that most US customers would opt to cancel orders.

Tariffs could remain in place for a lengthy period of time given the escalating war of words among Trump, Canadian Prime Minister Justin Trudeau and their subordinates. “Things are changing for the worse... There was a reasonable expectation that this could be settled. But there was no immediate back-off [by Trump], so these [tariffs] will be around,” the Midwest source predicted.

Rather than backing off, Peter Navarro, the director of the White House Trade Council, said there was "a special place in hell” for Trudeau - an unprecedented attack on the leader of one of the US’ closest allies.

Customer service with a bang
Such rhetoric means North American Free Trade Agreement talks, which were already moving slowly, are unlikely to go anywhere until 2019 - assuming the trade pact remains intact, one industry source said.

And it’s not clear what will happen to cross-border trade in steel after July 1, when Canada imposes retaliatory tariffs. Certain companies might face not only Canada’s 25% retaliatory tariff on plate sourced from the US, but also a 25% Section 232 tariff on finished goods - such as line pipe - re-exported to the States, he said.

“[Companies] have to pay [duties] both ways as of today,” the industry source said.

While prices are up, customers might not buy in anticipation of higher prices to the extent that they ordinarily do, a second mill source said. Despite a strong first half, smaller customers in particular might not have the means to finance steel given a rapid run-up in prices since the beginning of the year. Or they might not want to take the risk of buying steel at high prices and jeopardizing results in the second half should prices lose ground.

“Is it better to not sell steel and absorb your fixed costs or to sell steel at a loss?” he said. “Some customers are saying it’s better to not have steel.” Others are taking the approach that mills have put a “gun to their head," so they will be similarly aggressive in passing along higher prices to their customers, he added.

The potential result: “It is guns to the head all the way down the supply chain,” he said.

Plate prices are 38.2% higher than the $34 per cwt at which they began the year.

Dom Yanchunas, New York, contributed to this report.

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