AK Steel wants 232 to cover downstream electrical steels

AK Steel wants US President Donald Trump's administration to implement Section 232 protections on downstream products such as transformers that use electrical steels, company executives said.

“We remain steadfast in our belief that the Section 232 relief must be extended to the downstream products in the electrical transformer supply chain in order to prevent circumvention and to protect our nation’s critical electrical infrastructure and national security,” chief executive officer Roger Newport said during a conference call with analysts on Tuesday July 31.

The Trump administration has already implemented Section 232 tariffs and quotas on imported steel and aluminium and has threatened to impose them on metal-intensive products such as automobiles and automobile parts.

Newport contended that protections are necessary because the United States has for years lost its manufacturing base and is “down to a single producer of electrical steel,” namely AK.

Other governments need to work with the US if the measures are to be effective and prevent duty circumvention.

“We see material coming through Canada and Mexico, for example. So it’s really critical that we have a comprehensive resolution… otherwise it will just be another avenue to circumvent our trade laws,” he said.

AK is working with the Commerce Department “and others” to make sure that downstream products are protected. The move is necessary in part because some electrical steel consumers threatened to go abroad if downstream goods aren’t covered, AK president and chief operating officer Kirk Reich said.

In terms of electrical steel – as opposed to downstream equipment or fabricated parts – AK has seen a positive impact from the Section 232 tariffs, company executives said.

For example, South Korea rushed to export electrical steels to the US in the first quarter but those volumes have since tailed off because the county has filled its quota.

“So we expect to see a bit more volume [in North America] as the year goes on as a result of that Section 232 trade action,” Reich said.

South Korea agreed to a quota to avoid Section 232 tariffs, 25% in the case of steel. It has filled its annual quota for electrical steels – 7,505 tonnes -according to data from US Customs and Border Protection.

In Canada, meanwhile, counter-tariffs in response to Section 232 do not target material not made by Canadian mills. That means US exports of stainless and electrical steels are not subject to Canadian counter-tariffs because Canadian mills only make carbon steel products, Reich said.

And AK remains bullish on demand for electrical steels within the North American Free Trade Agreement (Nafta) region in part because increased construction activity has led to more demand for electrical steels, he said.

“[But] as far as international, the business is fairly difficult. We are in an oversupplied market,” he added.

AK exports around 10% of its sales to Canada, Mexico and the European Union, company executives indicated.

All told on the electrical steel front, AK shipped 221,500 short tons in the second quarter of 2018, up 5.2% from 210,500 tons in the same quarter last year, according to data released with the company’s second-quarter earnings results.