Trump OKs Section 232 product-specific exemptions, after import quotas filled [UPDATE]

United States President Donald Trump signed a proclamation this week that will allow companies to request product-specific exclusions for steel imports from South Korea, Brazil and Argentina, along with aluminium imports from Argentina, even after import quotas from those countries are filled.

The proclamation, signed on Wednesday August 29, also allows US steel consumers that ordered foreign steel before March 8 to import such steel via written contract - under certain conditions - even if it exceeds these country-specific quotas. Such consumers must still pay the standard 25% Section 232 tariffs.

This steel, which could be key for projects that employ thousands of US workers, must be imported before March 2019, according to the proclamation. These projects might have been “significantly disrupted or delayed” if imports hit the barrier of a hard quota and could not enter the US. That situation is not ideal for companies who ordered steel before Trump’s initial Section 232 announcement.

Under past policy, steel imports that exceeded quotas for each country were not allowed to enter the country. Under this new process, companies must apply to Commerce’s Bureau of Industry and Security (BIS) for product exemptions and must still prove that there is insufficient domestic production before they can exceed the country-specific quota.

This development might produce “very modest changes to existing trade flows” but could also have broader impacts on Brazilian and South Korean slab, grain-oriented electrical steels (GOES) and pipe and tube products, KeyBanc Capital Markets analyst Philip Gibbs said.

In particular, Brazilian and South Korean slab producers could export more of the product to the US, while existing GOES trade - whereby South Korea sells “sizable contracts” of such products in the US - could be called into question, he said.

The changes also “potentially open the door for less scrutiny on specific grades of South Korean pipe, like oil country tubular goods (OCTG) and line pipe,” Gibbs wrote in an August 30 research note.

OCTG is one category where filled import quotas, and therefore these changes, could have an impact, Jefferies LLC analyst Seth Rosenfeld agreed in a separate research note issued on August 30. Still, he believes that the net impact on imports and prices will be “limited.”

Domestic OCTG prices could continue to be the “biggest winner” from the Section 232 tariffs, partly because deals with South Korea, Brazil and Argentina – which together have historically represented 45% of the import market – cap imports at 52% less than 2017 volumes, Rosenfeld wrote. Argentina now represents the only source of tariff-free OCTG in the world, aside from Australia, for the next four months. 

The trade measures have boosted US prices for OCTG product, with J55 casing at $1,250-1,350 per short ton fob mill on August 28, according to American Metal Market's latest assessment, up 7.2% from $1,175-1,250 per ton on March 27. Prices for the product peaked this year on May 29, when they were assessed at $1,330-$1,450 per ton.

“To date 93% of the annual quota has been consumed, driving expectation for a meaningful fall in [second-half] imports,” Rosenfeld added. “While US consumers will request exemptions on the back of [this latest] news, we expect the majority of requests to be refused.”

Gibbs dubbed the change an added “twist” to Commerce’s exclusion process, which has been in place since March, while Rosenfeld said the amendment highlighted the “flexible nature” of US trade policy.

US energy and pipeline companies recently criticized the exemption process.

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